While relying on salary history may be a common practice in setting compensation levels, it could open an employer up to a claim of gender-based discrimination.
The Equal Pay Act requires that men and women be paid the same wages for the same work. The only exceptions permitted are when payment is based on (i) a seniority system, (ii) a merit system, (iii) a system which measures earnings by quantity or quality of production, or (iv) a differential based on any other factor other than sex.
In 2018, the California court of appeals unanimously found that an employee who systemically paid women less than men for the same work was in violation of the Equal Pay Act, even though the payment differences were a result of prior salary history for each individual employee. The case is pending before the United States Supreme Court.
Employers who are looking to establish best practices to avoid Equal Pay Act claims may want to avoid any compensation practices that set salaries or wages based on each individual’s prior compensation history.