Court Expands Federal Equal Pay Act: Look Out Marijuana Businesses!

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Equal pay is not only the right thing to do, it’s required by the law.

Equal pay legislation is sweeping the country. Oregon, Washington, and California all have equal pay legislation on the books that directly affects cannabis businesses. These equal pay laws require employers to pay employees the same amount for substantially similar work and prohibit employers from basing salaries on employee’s sex. Oregon and California’s laws, in specific, prohibit employers from asking applicants about their past salaries. With the cannabis industry growing so quickly, it is only a matter of time before employers start tripping on these new laws.

Following the trend of these state laws, a recent 9th Circuit Court of Appeals decision similarly expanded the federal Equal Pay Act to prohibit employers from basing an employee’s pay on past salaries and likely prohibit employers from asking about past salaries.  This decision applies to businesses, included, licensed cannabis businesses, in California, Washington, Nevada, Arizona, Oregon, Alaska, Hawaii, Idaho, and Montana. The ruling is especially significant in California and Oregon because employers can now be in violation of both the state law prohibiting questions about past salary and the federal Equal Pay Act.

The 9th Circuit’s decision comes from a case called Rizo v. Yovino. The plaintiff, Aileen Rizo, was hired by Fresno County office of Education in 2009. The County set Rizo’s salary at 5% more than she had been receiving at her previous positions. The County did not consider Rizo’s qualifications when setting her salary. A few years later Rizo learned she was making less money than her male colleague who was performing similar work. Rizo brought an Equal Pay Act violation against the County.

In a lengthy decision, the 9th Circuit held that:

“prior salary alone or in combination with other factors cannot justify a wage differential. To hold otherwise—to allow employers to capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum—would be contrary to the text and history of the Equal Pay Act, and would vitiate the very purpose for which the Act stands.”

The court also stated the decision did not bar an employer learning of a past salary:

“we do not decide whether or under what circumstances past salary may play a role in the course of an individualized salary negotiation. We prefer to reserve all questions relating to individualized negotiations for decision in subsequent cases.”

What does this cryptic language mean? It means that it is probably okay for employers to ask applicants what those applicants expect to be paid, and it likely allows the employer to negotiate a salary based on the applicant’s prior salary if the employee has volunteered this information.

So in light of this ruling, what should employers do? Employers should carefully examine their pay practices. Specifically, employers should work with counsel and conduct a pay audit to determine if there are compensation gaps, the reason for the gaps, and if the gaps are not justifiable under the state and federal equal pay acts, adjust the employees’ wages accordingly. Note that under the federal Equal Pay Act and in light of the 9th Circuit’s Ruling, if you have current employees whose wages are based on previous salaries, you could be found in violation of the Equal Pay Act.

Employers should also carefully review job applications and interview procedures. The safest way to move forward is to eliminate application questions requesting past salary or wage history. Employers should also avoid questions during interviews regarding past salary history. It is okay to ask applicants what they expect to be paid, but avoid questions surrounding their past wages.

Cannabis businesses are in a unique position to get this right. Recreational cannabis is still new, and practices are still being established and refined. For cannabis start-ups, now is the time to ensure the practices you have in place comply with the law. Consult with counsel to provide a plan to pay employees or to review your current practices. For well-established cannabis businesses, it’s never too late to have an audit done or to reevaluate your practices. The more employees you employ, the more important it is to ensure compliance to avoid expensive litigation down the road.

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Author: Megan Vaniman

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