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Court: Basing pay on past salary may spark Equal Pay Act lawsuits

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in Compensation and Benefits,Discrimination and Harassment,Human Resources

A surprising court ruling says that if your organization uses a common pay practice—setting new hires' salaries based on their past pay—you could be violating the Equal Pay Act (EPA). The ruling gives you added reason to base new employees' salaries on tangible factors that are more discrimination-proof, such as experience, education, responsibilities and production goals.

In an increasing number of EPA cases, women have claimed that their former employers depressed their salaries based on sex discrimination, and now you (the new employer) are perpetuating that discrimination by basing starting salaries on bias-stained levels.

The EPA says you can pay male employees more than females for the same job, as long as the decision is based on "a factor other than sex," such as seniority, education or quality of work. Many courts have said that's true even if the actual business decision wasn't a logical one. For example, most courts say starting salaries based on prior pay are legal. But a new federal appeals court ruling has challenged that conventional wisdom.

Recent case: When Jenny Wernsing took a job at the Illinois Department of Human Services, her starting salary was 30 percent higher than her previous job. Sounds good, right? The problem: A male who started the same job on the same day was paid far more than Wernsing.

Reason: The agency bases its starting pay on employees' salaries at their past jobs. And the new male employee had been paid much more at his last position.

Wernsing filed an EPA suit. The court ultimately dismissed the case because she didn't present the right type of proof. But the court practically invited other women to file suit if they could show that their prior salaries (at their previous jobs) were based on discrimination. "If sex discrimination led to lower wages in 'feeder' jobs," the court concluded, "then using those wages as the base for pay ... would indeed perpetuate discrimination and violate the Equal Pay Act." (Wernsing v. Illinois Department of Human Services, No. 04-2225, 7th Cir.)

Final note: This is an evolving legal concept worth watching. It has the potential to make your organization liable for the continuing effects of sex discrimination it had nothing to do with. The best bet is to base salaries on bias-proof factors, such as experience and production goals.

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