A Distressing Interpretation of the Equal Pay Act

The old saying in law school is that "bad facts make bad law." On bad facts, the Ninth Circuit has issued a puzzling decision on the Equal Pay Act that will have sweeping consequences throughout California, Oregon Washington and the West.

The case, Rizo v. Yovino, et al.,  involves an admittedly foolish payroll practice in the Fresno County Public schools. Instead of evaluating new hires on the basis of their credentials and past work experience, the County determines a new hire's compensation based on her prior salary in her previous job, adding 5%, and then placing the new employee in the corresponding step of the County salary schedule. This procedure is applied even to employees who were formerly working outside of Fresno County, as was the plaintiff in this case. When she applied for a job in Fresno County, Ms. Rizo received a 5% bump up from her $50,000 salary in Arizona, and then was placed on Step One of the hiring schedule. When she realized that she was being paid significantly less than her male coworkers (who joined the county from positions that paid more) for exactly the same work, she sued under the EPA.

The majority opinion starts out with a remarkably dated assertion that something called the "gender pay gap" is a discriminatory reality that needs to be addressed through the EPA. Of course, modern research has conclusively demonstrated that the gender pay gap is not the result of discrimination, but almost completely the result of life and career choices that result in lower compensation in general for women across all occupations. Nevertheless, and ignoring the fact that the gap represents the result of countless business decisions based on such things as time spent working, time spent in the workforce, occupational choice, and educational degree, the Court determined that this is precisely the type of thing covered by the EPA. The court accordingly ruled that consideration of compensation history is a sex-based decision prohibited by the EPA. Not just prohibited when it is the sole basis for a compensation decision, as it was in Fresno County, but prohibited in any form, and when used in conjunction with any other non-sex-related factors.

The Equal Pay Act straightforwardly says that men and women working in the same jobs should be paid the same unless the differences in compensation are based on factors other than those related to sex. Typically, differential factors have included the types of things that businesses use to measure value of an employee-advanced degrees, educational level, job skills, experience, etc.  In this context, compensation history for an individual competing for a particular job is a fairly straightforward measure of the market value of that individual's qualifications. The idea that an economy-wide "gender gap" which is not based on discrimination, but a host of other factors, should provide the basis for such a wide-ranging decision excluding past economic compensation from a hiring decision is ludicrous. But the Ninth Circuit has, as we say in the business, drunk the Kool-Aid of political correctness and the unassailable victim status of women in this economy.

As the concurring opinions point out, the Court majority ignores the fact that compensation history is a highly individualized aspect of a person's employment qualifications. An employer is not hiring a generic woman with a $.20 per hour shortfall in her wage-earning history measured against her male cohort. An employer is hiring an individual, with job qualifications and a work history unique to her. Among those qualifications is the assessment of the value of her skills by previous employers, as indicated by her wage history. Invalidating any inquiry into that based on such a sloppy analysis is cause for alarm.

So what does this decision mean for employers? Well, in the Ninth Circuit, it makes it illegal to ask any questions related to employment compensation history. To the extent employers are asking such questions, they should stop, now. Of course, liability does not attach as a result of asking such questions, but only if such questions are accompanied by differences in pay scale between men and women performing the same job. But such differentials are not uncommon given varying qualifications and experience levels; for now, any reference or use of compensation history in the original hiring decision will create strict liability for an employer.

The Gender Wage Gap

Most people following the trends in men's and women's average wages know that the roughly 20% difference between men and women is attributable to a variety of factors. Discrimination is almost certainly one factor, but it appears not to be the most important, or even a significant one.

A number of studies have demonstrated this, and a recent article from City Journal does a nice job reviewing the state of the research.

The short answer-it appears that innate gender differences, based on either biology, culture, or something else, are driving the train with respect to average wage issues. Looming large in the discussion, of course, is childbirth/rearing, which cuts across countries and cultures in terms of its impact on women's wage earning.

The article and the studies cited in it are well worth reviewing.

How far can an employee go in removing employer documents to prove a case?

An important part of the decision in Erhart v. BofI Holding, Inc. relates to an issue that we occasionally confront in employment practice cases, namely what happens when an employee steals confidential documents to use in his lawsuit against the company?

The issue is more complicated than it seems.  The American Bar Association standards (Rule 8.4 and Rule 3.4) prohibit the use of evidence that has been wrongfully appropriated by a witness or a party.  That would seem to argue against making use of documents stolen from an employer by a potential plaintiff.  On the other hand, there is a societal interest in promoting whistleblowing to ferret out corporate wrongdoing, and frequently the best evidence of the wrongdoing is contained in a company's computer files or documentation.

That was the issue confronting the federal court in this case.  The judge issued a fairly interesting ruling that splits the baby neatly.  The court ruled that the public policy in favor of whistleblower protection outweighs the interest in the enforcement of a nondisclosure agreement or even corporate nondisclosure policies.  But not completely.  A whistleblower may not appropriate wholesale a company’s files or information.  Instead, the court noted that because Erhart in this case took only files that were related to his claims, he would still operate under the protection of the court’s ruling.  Had Ehrhardt vacuumed up the entire contents of a disk drive randomly, the court likely would have sustained the counterclaims against him for breach of contract, breach of fiduciary duty, and trade secret violations.

Accordingly, if you're going to take your employer's documents with you when you leave, don't pull down everything you can carry; remove only the things related to the alleged wrongdoing."Pigs get fed, hogs get slaughtered."

Encino Men (and Women) Can't Be Overtimed

A recent Supreme Court case provides us with a couple of noteworthy points, one of which is not new but interesting and the other which is both.  In Encino Motorcars LLC v. Navarro et al., confronted the Court with an issue that it had visited once before, namely whether so-called "service advisors" for automobile dealerships were exempt from overtime requirements under a narrow regulation of the Fair Labor Standards Act. 

The statute exempts from overtime pay requirements "any salesman, parts man or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements…"  Service advisors are usually the first people you encounter when you come into an automobile dealership.  They intake the car, record the customer's issues for service/repair, and generally act as an ombudsman in the event that there is some type of problem with the process.  Several of these service advisors claimed they were in fact nonexempt employees and entitled to overtime pay. 

The employer won the initial round at the District Court but the Ninth Circuit Court of Appeals reversed, finding that the advisors were entitled to overtime under a 2011 regulatory interpretation by the Department of Labor.  When the dealership appealed to the Supreme Court, the Court reversed and returned the case to the Ninth Circuit, saying that the DOL interpretation was flawed and invalid.  Undeterred, and not taking the hint, the Ninth Circuit again reversed the District Court, finding that the service advisors were nonexempt because they were not mentioned in the statutory exemption of the Act.

Again the dealership appealed.

The second time around the Court didn't mince any words with the Ninth Circuit, reversing it cleanly and determining that service advisors were encompassed by the plain language of the statute.

So the interesting but not surprising part of this decision is that the Ninth Circuit was again reversed by the Supreme Court.  The Ninth Circuit makes a practice of being reversed, and it's always gratifying to see some consistency in federal court decisions.

The interesting and novel proposition in the decision is in a relatively short section of the Opinion in which the majority rejects the idea that exemptions to the FLSA should be construed "narrowly".  Instead, the Court noted that courts supporting a narrow reading of these exemptions are mistakenly interpreting the FLSA.  The Court said that rather than using a narrow construction, courts should make a "fair reading" of FLSA exemptions, construing their meaning in a common sense type of way, rather than the overly restrictive Ninth Circuit analysis.

This latter holding is of particular interest to those of us who worry about how the statutory exemptions of the FLSA, and there are more than two dozen of them, are to be applied.  Interpreting them in a moderate and common sense way should make it easier for employers and plaintiffs’  lawyers alike to measure their cases effectively.