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Oracle Loss Shows Pay History Policies Can Bolster Class Actions

May 6, 2020, 10:30 AM

Oracle Corp.'s alleged tying of workers’ pay to their prior salaries proved key in a recent court win for women in their compensation and promotion lawsuit, signaling that the common business practice could allow some discrimination class actions to survive where others have not.

A California judge last week certified a class action of more than 4,000 women against Oracle, in part because the workers’ attorney pointed to the use of applicants’ salary history to set their pay. A similar argument about prior pay has been raised in a proposed pay discrimination class action against Google Inc., also pending in a California court.

“It’s a common policy and practice that holds everything together,” said James Finberg, an Altshuler Berzon attorney who represents both the Oracle and Google workers.

Women who separately sued Microsoft Corp. and Twitter Inc. over alleged pay and promotion imbalances have failed to convince courts to let them pursue their claims as a group. The rulings in these cases, filed under the federal Title VII of the 1964 Civil Rights Act, were upheld on appeal. Although the Oracle suit faced lower class action hurdles under California’s equal pay law, attorneys say the existence of a specific prior salary policy could help workers support other discrimination class actions.

Because women have historically made less than men, the reliance on salary history to determine pay has been criticized in recent years, including by the Equal Employment Opportunity Commission. The U.S. Supreme Court could also soon consider the issue under the Equal Pay Act, another federal anti-bias law. Several states have already banned the practice, citing it as a business tool to bake in discrimination.

Oracle’s attorneys declined to comment, but said in court documents that the company in 2017 instituted a ban against relying on salary history for applicants nationwide. They added that nothing previously prohibited the practice and decisions were left to managers’ discretion. The company also didn’t respond to a request for comment.

Women job applicants, especially women of color, are likely to have lower prior salaries than their male counterparts, according to the National Women’s Law Center. Recent data shows women make 80 cents for every dollar paid to their male counterparts—and compared to white, non-Hispanic men, women of color face even larger wage gaps. A study released this month found evidence of pay gaps shrinking, and earnings for women increasing, in states that adopted salary history bans.

“There’s a strong correlation between wage gaps within the company and these policies,” said Andrea Johnson, the center’s director of state policy. “This is a practice, if you are using it, no matter how much you support equal pay, is undercutting what you are doing and setting yourself up for liability.”

Still, business groups have argued that the common practice is neutral, and a way to benefit both men and women compensated well by previous employers. They’ve asked the Supreme Court to sanction the practice as legal.

Class Action Hurdles

The California class action against Oracle was filed by former company engineer Sue Petersen and two other women who claim that the company paid women less than men for “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.” They said the company’s reliance on salary history contributed to the discrimination.

A separate $400 million action against Oracle, brought by the U.S. Labor Department, also includes claims that the use of prior salaries created a “pathway” for pay discrimination against female and minority workers.

The California Equal Pay Act, which requires equal pay for workers performing substantially similar jobs, makes it easier for workers to join together as a class, in comparison to other federal or state laws, attorneys said. Amendments to the state law say that employers can’t base an employee’s pay on previous salary history.

In the Oracle case, job codes that had salary ranges associated for the software engineer positions were used to unite the women, Finberg said. The fact that previous salary was used before Oracle changed its policy in 2017 was also a factor. Oracle claims that managers had discretion to set pay based on salary.

A common policy, as opposed to managerial discretion, is key in these cases on the federal level. The Supreme Court in its 2011 Wal-Mart Stores, Inc. v. Dukes ruling created a high hurdle for discrimination class actions filed under Title VII’s sex discrimination protections. It found that roughly 1.5 million women didn’t have enough in common to sue Walmart as a class. The recent class actions against Microsoft and Twitter similarly didn’t meet that bar.

Yet, Finberg said if a company does have a practice of using prior compensation, workers could argue that the common policy can support a Title VII class action, as well. The difficulty is that appeals courts are split on whether the practice violates certain equal pay laws, something the Supreme Court could settle.

Companies have largely changed the practice of using prior salary, said Megan Winter, a Fisher Phillips partner in San Diego, who represents companies. She said employers could still be vulnerable to pay equity lawsuits for decisions made years, or even decades ago.

“Plaintiffs’ attorneys are on the lookout for those scenarios as a source of possible class liability. Even if a class claim is barred by arbitration or cannot be certified, individual claims can be expensive,” Winter said.

Supreme Court Poised

The Supreme Court could reconsider a U.S. Court of Appeals for the Ninth Circuit decision that found that prior salary can’t be used to determine compensation under the federal Equal Pay Act.

The Ninth Circuit’s ruling in Yovino v. Rizo was previously vacated by the high court because the justice who penned the original ruling died before it was issued. The appeals court reaffirmed the original ruling. The case is again pending before the Supreme Court. It has drawn interest from business groups, including the U.S. Chamber of Commerce, which told the court that the “widely used practice” has long been understood to be justified and has “nothing to do with sex.”

“Employers large and small, in every region of the United States, have historically used prior salary as a metric to assess a range of matters, including the caliber and experience of applicants, the viability and competitiveness of their own compensation packages, and, ultimately, the fairness of the wages they pay to employees,” the Chamber’s attorneys argued. “This sex-neutral practice can benefit female and male applicants alike—particularly those who were highly valued by their prior employers—by increasing the pay that they might otherwise receive.”

The Third Circuit recently upheld Philadelphia’s ordinance that bans employers from asking job applicants about their salary history. The decision, for now, gave the city the green light to implement a 2017 ordinance. Philadelphia’s salary history ban was among the first in the nation and the first to go into effect, according to the city.

A wave of similar laws followed at the state and local levels. Massachusetts passed the first state-level salary history ban in 2016. California, Connecticut, Oregon, Vermont, and Hawaii have adopted similar measures, while states such as New York and Illinois have such laws affecting the public sector. But federal legislation on the issue has stalled.

“Not only did the California legislature lead the country in passing legislation confirming prohibition of the practice, now its courts have affirmed a compelling blueprint for its accelerated enforcement,” said Noreen Farrell, executive director of Equal Rights Advocates, referring to the Oracle class certification. “With millions harmed by pay discrimination across the country, this is a powerful and long overdue combination sure to impact similar claims across the country.”

To contact the reporter on this story: Erin Mulvaney in Washington at emulvaney@bloomberglaw.com

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Karl Hardy at khardy@bloomberglaw.com

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