MEXICO CITY (Reuters) – Tensions over sharp differences in pay between Mexican workers and their Canadian and U.S. counterparts surfaced on Sunday as negotiators discussed labor market rules in talks to overhaul the North American Free Trade Agreement.

By Pamela Wolf, J.D.

The Texas district court that put the first nail in the coffin of the Labor Department’s controversial final rule, which would double the salary threshold for the executive, administrative, and professional (EAP) exemption (the so-called “white collar” exemption) at which FLSA overtime requirements would cease to apply, has done its best to finish the job.

Controversial overtime rule. The embattled final rule originally would have gone into effect December 1, 2016. Among other things, it would set the salary floor below which overtime must be paid to executive, administrative, and professional (EAP) employees at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, which is currently the south. That resulted in a salary floor increase from $455 a week, or $23,660 annually, to $913 a week, or $47,476 annually. Under the rule, the salary level would be automatically updated every three years at the same 40th percentile.

First nail in the coffin. But in November 2016, in State of Nevada v. U.S. Department of Labor, a Texas federal court granted an emergency motion for a preliminary injunction in a consolidated case challenging the rule brought by 21 states (and a business coalition), ruling that “Congress intended the EAP exemption to depend on an employee’s duties rather than an employee’s salary” (see “Federal judge blocks DOL overtime rule,” November 23, 2016).

Trump DOL backs off a little. On appeal in the Fifth Circuit, the DOL backed off considerably from the earlier administration’s defense of the overtime rule. Under the Trump Administration, in a June 30, 2017, brief, the agency said it “has decided not to advocate for the specific salary level ($913 per week) set in the final rule at this time and intends to undertake further rulemaking to determine what the salary level should be. Accordingly, the Department requests that this Court address only the threshold legal question of the Department’s statutory authority to set a salary level, without addressing the specific salary level set by the 2016 final rule.”

Chevron analysis seals it. Giving another push from below, the district court on August 31, 2017, granted the business plaintiffs’ motion for summary judgment. While it remains to be seen what will happen on appeal to the Fifth Circuit and beyond, assuming the DOL pursues those channels, the district court appears to have done its best to put an end to the embattled final rule.

Applying Chevron, the court found that the updated salary-level test contained in the final rule does not give effect to Congress’ unambiguous intent. “Specifically, the Department’s authority is limited to determining the essential qualities of, precise signification of, or marking the limits of those ‘bona fide executive, administrative, or professional capacity” employees who perform exempt duties and should be exempt from overtime pay,” wrote the court. But the final rule “makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.”

Notably, even the DOL admits that the FLSA does not give the Secretary of Labor authority to “adopt a ‘salary only’ test for exemption.” Because the final rule would exclude so many employees who perform exempt duties, the rule does not carry out Congress’ unambiguous intent, concluded the court.

Moreover, even if the intent of Congress was ambiguous, the DOL’s construction of the FLSA is impermissible. By more than doubling the previous minimum salary level, the DOL “effectively eliminates a consideration of whether an employee performs “bona fide executive, administrative, or professional capacity,” the court said.

Intervention denied. In a separate opinion, the district court also denied the Texas AFL-CIO’s motion to intervene. As to mandatory intervention, the AFL–CIO failed to show its motion was timely. Even if the motion was timely, the court found that the defendants are adequately representing the union’s interests. The court also declined to grant permissive intervention.

Important victory. Steven Pockrass, co-chair of Ogletree Deakins’ Wage and Hour Practice Group, called the ruling “an important victory for employers.” He said that compliance with the revised overtime regulations would have been extremely costly and burdensome for many employers.

Less uncertainty. While many employers breathed a sigh of relief when the same court earlier issued a temporary nationwide injunction blocking the regulations, a temporary injunction is a preliminary decision, not a final one, and so there was still a lot of uncertainty about the future of the final rule, Pockrass noted. “A summary judgment ruling is a final decision on the merits, so it creates less uncertainty about the future than a preliminary injunction,” he said. Moreover, the summary judgment decision clarified the court’s position on certain key issues that had created confusion and added to the uncertainty.

One concern with the preliminary injunction decision was that it could have been interpreted as holding that the DOL could not set any minimum salary level as one of the tests for determining whether an individual is exempt from overtime under the executive, administrative, or professional exemptions, Pockrass explained. “In his latest ruling, Judge Mazzant clarified in footnotes that he was not passing judgment as to whether the DOL could or could not include a salary test, stating, ‘This opinion is not making any assessments regarding the general lawfulness of the salary-level test or the Department’s authority to implement such a test.’”

Another concern with the preliminary injunction decision is that one portion of the decision referenced most, but not all, of the regulatory provisions that were altered in the 2016 final rule, the Ogletree attorney added. “In his summary judgment ruling, Judge Mazzant concluded that the entire final rule was invalid.”

Looking ahead. What’s on the horizon? Pockrass predicted that, “although the salary level threshold for the EAP exemptions is not likely to increase to $913 per week under the Trump administration, an increase in the minimum salary level still is likely sometime in the future.” He pointed to statements by Secretary of Labor Alex Acosta indicating he believes the minimum salary level should be higher than the current $455 per week, and annualized, it likely should be in the $30,000 to $35,000 range.

Pockrass suggested that employers now need to focus their attention on what he called “a highly detailed Request for Information (RFI) concerning the overtime regulations that the DOL published in the Federal Register.”  The RFI includes several questions related to appropriate salary levels. Pockrass said that it’s important that employers make their voices heard on this issue. He noted that comments in response to the RFI are due no later than September 25, which is less than a month away.

By Joy P. Waltemath, J.D.

Reversing a partial summary judgment order requiring that if certain security shift supervisors were found to be wrongly classified as exempt from overtime, their regular rate of pay would be calculated via the fluctuating workweek method, the Fifth Circuit ruled that their alternating, biweekly schedule of 36 hours and then 48 hours every other week was not clearly agreed by the employees to compensate them for an unlimited number of hours worked. Because of this factual dispute and the disputed inferences from it, the appeals court reversed the fluctuating workweek summary judgment ruling, which together with another partial summary judgment ruling had the effect of making two individuals’ potential recoveries offset entirely by discretionary bonuses that were paid and resulted in their dismissal from the suit. The appeals court’s reversal resulting in their reinstatement in the litigation (Hills v. Entergy Operations, Inc., August 4, 2017, Higginbotham, P.).

Misclassification litigation. Nineteen employees of Entergy Operations, Inc., which operates a nuclear power plant, had formerly worked for Wackenhut as security contractors and were hired on for full-time jobs at Entergy as security shift supervisors, which the company classified as exempt from the FLSA’s overtime guarantee. They later brought a misclassification action, seeking backpay for allegedly underpaid overtime hours. The parties cross-moved for summary judgment on the classification issue, which has yet to be decided, and it was not before the appeals court.

Partial summary judgment rulings. Instead, the appeals court was considering a partial summary judgment ruling that, should the employees be found misclassified, the fluctuating workweek (FWW) method would apply to calculate their regular rate of pay for determining their proper overtime rate. (The district court also entered summary judgment that any backpay awarded would be offset by the amount of discretionary bonuses each employee had been paid. Neither of these interlocutory rulings would typically be appealable with the case still pending in the district court, but their combined effect was to eliminate any recovery for two of the employees. Applying the FWW method to their claims resulted in recoveries that would be offset entirely by bonuses paid, and so the lower court had dismissed their claims and entered a final judgment against them. They appealed that final judgment here.)

FWW application premature. That judgment was premature, said the Fifth Circuit, reversing and remanding. It assumed for appeal purposes that the employees were misclassified and were owed overtime backpay. The question was whether the fluctuating workweek method applied to the calculation of their regular rate of pay, and there was conflicting evidence on this point that should have precluded summary judgment.

Agreement? After discussing how to determine a salaried employee’s regular rate of pay for overtime computation purposes, the appeals court talked about the conceptual complexity posed by salaried employees who do not have a fixed number of hours that they are expected to work each week. “When an employee has agreed to this arrangement, her workweek is said to ‘fluctuate,’ so her regular rate of pay is determined by the ‘fluctuating workweek method’” under which both the regular hourly rate and the proper overtime compensation can vary from week to week. In order to use the FWW method, however, the parties must have agreed to a fixed weekly wage for fluctuating hours, which is a question of fact.

Here, the undisputed evidence established that, at a minimum, the employees agreed to work and have their salary compensate for an alternating, biweekly schedule of 36 hours and 48 hours every other week (three 12-hour shifts one week; four 12-hour shifts the next). Beyond that, the employees contended and had evidence that they believed their schedules would be limited to the alternating 36- and 48-hour weeks. The company argued and had evidence that the employees knew they would be required to work more than that baseline—for example, if one of their security officers did not show up to work. Consequently, the appeals court cited that conflicting evidence and interpretations drawn from it as sufficient to raise a genuine issue of fact as to the parties’ agreement.

Is fixed alternating schedule “fluctuating?” However, the district court thought that the employees’ admission that their weekly schedule was to alternate between 36 hours and 48 hours meant that it was “fluctuating” within the meaning of the fluctuating workweek method. That was too literal for the Fifth Circuit, which said the FWW method may be applied only where the employee “clearly understands” that her salary is intended to compensate any unlimited amount of hours she might be expected to work in any given week. An alternating schedule is not necessarily “fluctuating” as that term of art is used in the FWW method, reasoned the appeals court, disagreeing with a 1998 Fourth Circuit case, Griffin v. Wake County.

Importantly, the Fifth Circuit did not foreclose the application of the fluctuating workweek method—the trier of fact was to determine whether it applied here. But the district court’s pretrial ruling as a matter of law was premature on this disputed record. Reversal on this issue alone revived the two employees’ dismissed claims because their base recoveries might be high enough to withstand the bonus offsets. As such, the court did not need to address whether summary judgment as to the offsetting bonuses was appropriate. Instead, it reversed summary judgment that the fluctuating workweek method applied here as a matter of law and remanded for the lower court to reinstate the employees into the pending lawsuit.

In a landmark Fair Work Commission ruling, casual workers in Australia have won the right to request permanent employment after 12 months.

The commission backed a model conversion clause for 85 modern awards, including retail, banking, aged-care, agriculture and restaurant industries, which would allow casuals to convert if, over 12 months, they “worked a pattern of hours on an ongoing basis which, without significant adjustment” could continue to be performed as full-time or part-time employment.

Employers will still have the right to refuse the request on reasonable grounds, for example, if the change would substantially alter the worker’s hours to accommodate them as a permanent staff member.

Meanwhile, the ruling was welcomed by unions leaders who launched the Fair Work Commission claim for the mandatory conversion of all casual staff to permanent positions after six months’ regular work with one employer.

Australian Council of Trade Unions secretary Sally McManus said the ruling was a small step towards addressing an “epidemic of insecure work” and the casualisation of the country’s workforce.

“Australian unions fought for this improvement but it only plugs one small hole in a nationwide crisis,” McManus said. “Too many employers have been abusing the term casual and use it as a business model to drive down wages.”

The commission rejected the unions’ push to impose a minimum four-hour shift for casual and part-time staff and to ban employers from taking on extra part-time or casual workers unless existing employees had been offered more hours.

Meanwhile, employers condemned the unions’ campaign, warning the change would risk tens of thousands of jobs and punish some workers.

Australian Industry Group chief executive Innes Willox said the ruling would reduce flexibility for some employers, but welcomed the rejection of the unions’ most “damaging” claims.

Australian Retailers Association executive director Russell Zimmerman said: “we fear this verdict will significantly impact retailers as casual’s flexible hours are essential to the industry”.

Australia’s Fair Work Ombudsman is investigating ride-sharing service Uber over claims that it was classifying its drivers as independent contractors rather than employees.

Ride Share Drivers United, a union representing ride sharing drivers, made complaints to the Fair Work Ombudsman and according to the Australian Financial Review, was preparing to forward the details of more than 60 drivers for investigation over whether they should be classified as casual employees. The union also invited drivers who’ve worked with Uber more than a year and drive an average of 35 hours a week to come forward and participate in the investigation.

The union stated that Uber is operating “in sharp contradiction to Australian workplace laws” by classifying drivers as contractors without allowing them to negotiate or have a say over pricing. The union is pushing for employment rights for full-time Uber drivers who work 35 hours or more a week.

“More than 60,000 Australian driver-partners choose to drive using the Uber app because they like to set their own schedule and be their own boss. We will be happy to assist the Fair Work Ombudsman with any questions they may have,” Uber said in a statement.

Last year, a UK tribunal ruled Uber drivers in the UK should be classified as workers and not self-employed.

By Pamela Wolf, J.D.

At a June 14 hearing hosted by the House Subcommittee on Health, Employment, Labor, and Pensions, invited witnesses mulled over a triad of legislative proposals that proponents contend would restore balance to federal labor policies. While most of the invited witnesses supported the legislation, one witness saw the bills as not a reflection of sound policy, or an attempt at consistent application of rules, but rather as “a naked political assault on labor unions.”

Legislation under consideration. The bills that comprise the package of legislative reforms under scrutiny at the hearing are the following:

The Workforce Democracy and Fairness Act (H.R. 2776), which would purportedly ensure that workers have the opportunity to make an informed decision in union elections by addressing the NLRB’s “ambush election” rule and micro-union scheme.
The Employee Privacy Protection Act (H.R. 2775), which would, according to sponsors, “roll back extreme and partisan NLRB policies put in place under the Obama administration that jeopardize the privacy of workers and their families.”
The Employee Rights Act (H.R. 2723), which sponsors say would “modernize the union election process, require periodic union re-certification elections, and give workers more control over how their union dues are spent.”

Obama-era NLRB. “Over the last eight years, the board launched an activist agenda aimed at tilting the balance of power toward powerful special interests,” Chairman Tim Walberg (R-Mich.) said. “Unfortunately, it came at the expense of the hardworking men and women who keep our economy moving. Decision after decision by the NLRB restricted the rights of workers and employers … It’s long past time to put an end to these misguided policies.”

Card check representation. In her written testimony, Karen Cox, a worker from Illinois, recounted how she was forced into a union without a choice: “I thought at least we had time to educate ourselves and have a fair vote. But then I came into work one day and was told that the union was in and we were not going to have an election. The company had recognized them through a process called ‘card check.’ This bypasses a secret ballot election, eliminating employees’ rights to make a real choice for or against a union. I had never heard of this before, and it angered me. To me, it was un-American, and many of my coworkers agreed.”

“That’s why I support the Employee Rights Act, which guarantees a secret ballot vote,” Cox said. “I want to ensure that other employees don’t find themselves in the situation my coworkers and I were in—stuck with a union we didn’t have a chance to vote for and that is difficult if not impossible to remove from the workplace.”

“Ambush election” rule. Speaking on behalf of the Society for Human Resource Management, Nancy McKeague, vice president of the Michigan Health & Hospital Association, raised concerns over the NLRB’s “ambush election” rule, which opponents see as giving workers less time to consider the pros and cons of joining a union and forces employers to hand over their employees’ private information to union organizers.

“Unless employers have adequate time to prepare their educational materials and to share this information with their employees, employees will not have adequate time to learn the employer’s perspective on the impact of collective bargaining on the workplace,” McKeague said. She added that the “requirement to provide so much confidential information about an employer’s employees constitutes an invasion of privacy for employees” and “goes against everything that HR professionals have been trained to do.”

McKeague urged passage of the Workforce Democracy and Fairness Act to “restore the balance between the rights of employees, employers, and labor organizations” and the Employee Privacy Protection Act to “[provide] employees the privacy they desire in the 21st century workplace.”

Slowing down the process. McGuireWoods labor attorney Seth Borden spoke in support of the Workforce Democracy and Fairness Act, including its requirement that there be a period of at least 35 days between the filing of a union election petition and the holding of the election. “[The] rights of employees to seek union representation and the equal rights of employees to refrain from such representation must be properly balanced … [The bill] goes a long way to restoring the appropriate balance between all interests involved.”

Borden observed that the Employee Privacy Protection Act would restore the seven-day time frame for “the careful compilation and transmittal of [voter contact] information directly to the National Labor Relations Board,” a procedure he said had “worked sufficiently for nearly fifty years.”

Anti-union reform. Guerino J. Calemine, III, General Counsel for the Communications Workers of America, had a different take on the package of reform bills. “Deceptively short, these bills are chock-full of malicious intent to render elections absurdly undemocratic, strip workers of rights, take control of unions away from union members, drain union treasuries, and otherwise destroy labor unions.”

Calemine laid out what the three bills would do in what he called “nine insidious steps,” among which were these:

Block voter access to union information: The Employee Protection Privacy Act and the Employee Rights Act would make it as difficult as possible for a worker to speak to a union organizer before a union certification election.
Stuff the ballot boxes with “no” votes: Contrary to current law, under the Employee Rights Act, all non-votes would be considered “no” votes, instead of not counting one way or the other.
Eliminate ways for workers to form a union and create new ways for employers to bust a union: The Employee Rights Act would bar employers from voluntarily recognizing unions based on majority support. The bill would also permit employers to manipulate the workforce through turnover, expansion, or other alteration, so that the change exceeds 50 percent of the initial bargaining unit size, triggering a decertification election. The decertification election could occur even if not a single employee wants it—it could be triggered entirely on the employer’s initiative.
Delay a union certification election when workers want one: While the Employee Rights Act’s employer-triggered election method requires an election within a maximum of 30 days of whenever the employer has changed the bargaining unit composition, whenever there is no CBA, under the Workforce Democracy Fairness Act, when workers trigger an election to win union representation, there is a minimum 35-day waiting period before an election can take place.
Play a gotcha game so employers have carte blanche to undermine elections: The Employee Rights Act would impose new penalties on unions found to have interfered with, restrained, or coerced employees in the exercise of their Section 7 rights, or rights to join or refrain from joining a union—liability for lost wages, union dues or fees collected unlawfully, and an unspecified additional amount in liquidated damages. NLRB statistical data for last year showed that 10 times more unfair labor practice charges were filed against employers than against unions, yet the Employee Rights Act would not provide for liquidated damages against employers.
Take control of unions from dues-paying members (so maybe they’ll stop paying dues): the Employee Rights Act would give non-members the same rights as members in voting on contract ratifications and strike authorizations—an entirely new level of free riding.

At the close of the hearing, Chairman Walberg reaffirmed the committee’s commitment to advancing positive reforms, saying, “These are all commonsense proposals that will protect the rights of workers and restore balance and fairness to the rules governing union elections.”

By Lisa Milam-Perez, J.D.

An acute-care hospital unlawfully stopped awarding longevity-based pay hikes to its unionized nurses after their collective bargaining agreement expired, the D.C. Circuit held. Denying the hospital’s petition for review and granting the NLRB’s cross-petition for enforcement of its order finding the employer violated the NLRA by unilaterally ceasing the payments, the appeals court rejected the hospital’s assertions that it was not obligated to continue paying those increases under the contract language or based on the parties’ past practice. The court also rejected the hospital’s Noel Canning-based defense that the regional director lacked authority to issue the underlying complaint in this case (Wilkes-Barre Hospital Co., LLC dba Wilkes-Barre General Hospital v. NLRB, May 19, 2017, Sentelle, D.).

Two kinds of pay hikes. The parties’ 2009 CBA established two distinct types of wage increases: annual across-the-board raises and longevity-based increases. The across-the-board raises granted a percentage pay increase to every nurse’s base minimum hourly rate, and were awarded three specific times over the life of the agreement. The longevity-based increases were paid to individual nurses who rose from one of seven contractually established experience levels to the next. Unlike the across-the-board raises, the longevity increases were tied to an individual nurse’s anniversary date—paid on “January 27th of the year following the employee’s anniversary date”—not to the term of the contract. After the 2009 contract expired, the hospital stopped paying either wage increase. The union filed an unfair labor practice charge over the hospital’s failure to pay the across-the-board increases (the Board dismissed the charge) but it was silent about the discontinued longevity increases.

In 2011, the parties reached a deal on a successor contract. The longevity increases were included in the 2011 contract, and when that contract expired in 2014, the hospital again ceased paying the longevity increases without giving the union notice of its intent to do so, or an opportunity to bargain. It drew a charge from the union, which contended the hospital violated the Act when it unilaterally stopped awarding the longevity-based pay increases in 2014. (The union did not challenge the hospital’s failure to pay the across-the-board raises.)

Status quo. The hospital had a statutory obligation under the NLRA to maintain the status quo of its nurses’ terms and conditions after expiration of the contract. But what was the status quo? The hospital insisted the longevity-based increases were intrinsically and exclusively tied to the across-the-board raises, which were expressly limited to the term of the CBA, and thus could not define the post-expiration status quo. Nurses were granted a single pay increase—a combined across-the-board raise and longevity increase—during the life of the agreement, on each of three specific dates, it argued. As such, the status quo was the cessation of all wage increases.

But the law judge rejected the notion that the longevity-based increases operated in tandem with the across-the-board raises; adopting the law judge’s findings, the Board also found the longevity increases were “distinct rights” that did not “go hand-in-hand” with the across-the-board hikes. The longevity increases could easily be awarded after the contract expiration without reference to the across-the-board terms, the Board held.

Looking to the substantive terms of the 2011 CBA, the D.C. Circuit agreed. It rejected the hospital’s attempt to define the status quo by essentially “taking a snapshot of each individual nurse’s pay rate at the moment the 2011 CBA expired.” The post-expiration status quo is defined by the terms of the expired contract, the appeals court explained, not by each individual employee’s circumstances at the time of expiration.

Bargaining duty. The longevity-based wage increase provision was a mandatory subject of bargaining and an established contract term that survived expiration of the contract. Because the longevity increases represented the status quo post-expiration of the CBA, the hospital was obligated to continue paying them until it reached a new contract or it bargained to impasse over the provision. Because it failed to do so, and never notified the union of its intent to stop paying the increases, the hospital violated its bargaining duty under Section 8(a)(5) by unilaterally ending the longevity increases.

Durational clause didn’t apply. The hospital also cited a durational clause in the contract which, it asserted, left no room for doubt that the longevity-based increases did not survive expiration of the 2011 contract. However, the durational clause spoke only to the nurses’ contractual rights, the appeals court concluded, not to their statutory rights under the Act. Therefore, the provision establishing longevity-based increases remained in effect after expiration of the CBA.

No “past practice.” The hospital also argued that past practice allowed it to cease the longevity-based increases after the operative CBA expired. Specifically, it pointed to the union’s failure to challenge its nonpayment of the longevity increases in 2011 after the 2009 CBA expired. “But a union’s one-time failure to challenge an employer’s unilateral change does not qualify as an established practice.”

No “contract coverage.” The hospital sought to invoke the “contract coverage doctrine” as well, to no avail. It contended that in their 2011 CBA, the parties agreed the payment of all wage increases would cease upon expiration. Considering whether the longevity increase subject was “within the compass” of the terms of the contract, the court observed that the 2011 CBA did not “specifically” limit the applicability of the longevity-based increases to the agreement’s term. However, the appeals court has expressly rejected the Board’s “specifically mention” requirement, as parties to CBA negotiations couldn’t possibly “anticipate every hypothetical grievance and purport to address it in their contract.” Still, after reviewing the terms of the contract at issue here, the court found the decision to cease longevity increases post-expiration was not covered by the 2011 CBA.

No waiver. Nor did the 2011 CBA clearly and unmistakably waive the union’s statutory rights to bargain over the longevity increases. The hospital couldn’t point to any specific language in the contract to support this defense. Its assertion that the contract didn’t affirmatively specify that an ongoing statutory obligation existed failed to account for the fact that, under the unilateral change doctrine, wage rates established in a CBA remain in effect “even after an employer is released from any contractual obligations.” And silence is not enough to establish waiver.

Noel Canning defense fails. The hospital’s final, failed argument was that the regional director was not authorized to issue the underlying complaint against it because he was appointed by an unconstitutionally constituted Board (as the Supreme Court held in its 2014 decision in NLRB v. Noel Canning). As the law judge rightly noted, though, the regional director’s appointment was later ratified by a validly constituted Board, remedying any latent defect from the improper quorum, and the appeals court rebuffed the notion that the Board, in doing so, had improperly sought to “insulate” itself from its previous invalid actions.

Although a tougher question, the D.C. Circuit also found it proper for the regional director to affirm and ratify his own previously invalidated actions, despite having acted as both principal and agent in this regard. “Human nature” rendered it impossible to be disinterested in reviewing the propriety of one’s own past actions, the hospital urged. But several other circuits have found ratification to be effective even when undertaken by the same actor. And there was no evidence the regional director failed to render a “detached and considered” judgment in this case, so the appeals court saw no reason not to take his ratification at face value. Moreover, no purpose would be served in forcing the regional director to reissue the complaint anew, except to grant the employer “the benefit of delay.” And it was the Board’s general counsel who had final say over the issuance of complaints anyhow—and the regional director acted at his behest.

By Kathleen Kapusta, J.D.

Citing precedent holding that a pay differential based on an employer’s use of prior salary can be “a differential based on any other factor other than sex,” the Ninth Circuit vacated a district court order denying summary judgment to a county employer on a female employee’s Equal Pay Act claim. On remand, the court was directed to evaluate the business reasons offered by the county for using its salary schedule and determine whether it used prior salary reasonably in light of its stated purposes as well as its other practices (Rizo v. Yovino, April 27, 2017, Adelman, L.).

When the county hired the employee in 2009 as a math consultant, it determined her starting salary through use of its 12-level salary schedule. Each level had progressive steps within it and new math consultants received starting salaries within Level 1, which had 10 steps, with pay ranging from $62,133 at Step 1 to $81,461 at Step 10. In determining the step within Level 1 on which a new employee would begin, the county considered the employee’s most recent prior salary, placing the employee on the step corresponding to that salary, increased by 5 percent.

Starting salary. Because the employee had been receiving a salary of $50,630 per year at her prior job, her starting salary would have been lower than the county’s Level 1, Step 1 salary. Thus under its salary schedule, her salary was set at the minimum Level 1 salary: $62,133. The county, however, also paid her a $600 stipend for her master’s degree, so her total starting pay was $62,733 per year.

Lower court proceedings. When she subsequently learned that other math consultants, all of whom were male, were paid more than she was, she sued, asserting claims under the EPA, Title VII, and FEHA and the county moved for summary judgment, arguing that her salary was based on “any other factor other than sex,” namely prior salary. Denying the county’s motion, the district court determined that, under the EPA, prior salary alone can never qualify as a factor other than sex, reasoning that “a pay structure based exclusively on prior wages is so inherently fraught with the risk . . . that it will perpetuate a discriminatory wage disparity between men and women that it cannot stand, even if motivated by a legitimate non-discriminatory business purpose.” Recognizing that its decision potentially conflicted with the Ninth Circuit’s decision in Kouba v. Allstate Insurance Co., the district court certified its decision for interlocutory appeal.

Kouba. The issue on appeal, said the Ninth Circuit, was purely one of law: whether the district court’s conclusion that prior salary alone can never be a “factor other than sex” was correct. In Kouba, the court observed, it held that “the Equal Pay Act does not impose a strict prohibition against the use of prior salary,” even though an employer could “manipulate its use of prior salary to underpay female employees.” It did not hold however, that prior salary automatically qualifies as a factor other than sex. Rather, it held that an employer could maintain a pay differential based on prior salary (or based on any other facially gender-neutral factor) only if it showed that the factor “effectuate[s] some business policy” and that the employer “use[s] the factor reasonably in light of the employer’s stated purpose as well as its other practices.” It then noted that the employer in that case had offered two business reasons for its use of prior salary and directed the district court to evaluate those reasons on remand.

Business reasons. Here, the county offered four business reasons for using its salary schedule: the policy is objective; it encourages employees to leave their current jobs for county jobs because they will receive a 5 percent pay increase over their current salary; it prevents favoritism and ensures consistency in application; and it’s a judicious use of taxpayer dollars. The district court, however, did not evaluate these reasons, but rather followed cases from other circuits holding that prior salary alone cannot justify a pay disparity.

The court disagreed with the lower court’s conclusion that Kouba left open the question of whether a salary differential based solely on prior earnings violates the EPA. It noted that the employee and the EEOC, as amicus curiae, argued that prior salary alone cannot be a factor other than sex because when an employer sets pay by considering only its employees’ prior salaries, it perpetuates existing pay disparities and thus undermines the purpose of the EPA. But, said the court here, this argument was presented in Kouba, and the result it reached was to allow an employer to base a pay differential on prior salary so long as it showed that its use of prior salary effectuated some business policy and that the employer used the factor reasonably in light of its stated purpose and its other practices. “We did not draw any distinction between using prior salary ‘alone’ and using it in combination with other factors,” the court explained.

Nor did the court see how the employer’s consideration of other factors would prevent the perpetuation of existing pay disparities if, as assumed in Kouba, and as was the allegation here, prior salary was the only factor that causes the current disparity. Here, the court gave as an example a male and female employee who had the same education and number of years’ experience. Although the employer in this example considered those factors, it paid the male employee a higher salary based on his higher prior salary. “In this example,” said the court, “it is prior salary alone that accounts for the pay differential, even though the employer also considered other factors when setting pay. If prior salary alone is responsible for the disparity, requiring an employer to consider factors in addition to prior salary cannot resolve the problem that the EEOC and the plaintiff have identified.”

Thus, because Kouba holds that a pay differential based on the employer’s use of prior salary can be “a differential based on any other factor other than sex,” the court vacated the district court’s order denying the county’s summary judgment motion and remanded for further proceedings.