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Recently, the gender pay gap has become the subject of increased scrutiny and media attention as a growing movement works to bring an end to gender-based wage differentials. On April 9, 2018, there was an interesting development in this vein. The Court of Appeals for the Ninth Circuit, sitting en banc, held, in Rizo v. Yovino, that an employee’s salary history is not “a factor other than sex” that can be considered under the Equal Pay Act when setting salary. Therefore, an employer cannot consider prior salary, either alone or in combination with other factors, in setting pay. In light of the attention this subject is receiving, companies need to keep the issue of wage disparity in mind, not only as they hire new employees, but as they engage with their shareholders and in M&A activity.
The Ninth Circuit Decision comes on the heels of the passage of a number of laws by cities and states, such as New York City, Massachusetts and California, which generally prohibit employers from inquiring about the salary history of job applicants or relying on the salary history of a job applicant when determining his or her salary amount. To highlight this trend, in 2017 alone, 42 state legislatures introduced legislation aimed at ending gender-based pay gaps. Further, as has been reported, and as we are finding as we prepare our 16th Annual Corporate Governance & Executive Compensation Survey, companies are increasingly facing shareholder proposals demanding information on gender pay and steps being taken to address any gaps. Finally, activity has not been limited to the United States, as a recent government directive in the U.K. required employers with more than 250 employees to report their gender pay gap as of April 4, 2018.
Although it goes without saying that employers need to be aware of the rules regarding salary history in the hiring process, the focus of investors on the issue of pay disparity means that those involved in shareholder engagement should prepare to address questions. Further, in M&A transactions, both buyers and sellers may face unanticipated problems if issues of pay disparity are not addressed early in the deal process.
The following are some suggested actions companies should consider in order to guard against potential external challenges to pay practices:
 See Rizo v. Yovino, No. 16-15372 (9th Cir. Apr. 9, 2018). We note that the Seventh Circuit has ruled that salary history is a “factor other than sex,” thus making this issue ripe for Supreme Court review. See Wernsing v. Department of Human Services, 427 F.3d 466 (7th Cir. 2005).
 See “States Notch Multiple Equal Pay Victories in 2017” at https://www.aauw.org/2017/10/13/state-equal-pay-victories-in-2017/.