Benefits and Compensation, Diversity & Inclusion, HR Management & Compliance

7th Circuit Sends Sex-Based Salary Comments Back to the 1950s

As any high schooler with a smartphone will tell you, your words can haunt you long after you utter them. One high school recently learned the same is true for its employees, thanks to the Lilly Ledbetter Fair Pay Act. Read on to see why the U.S. 7th Circuit Court of Appeals (whose decisions apply to Illinois employers) recently refused to let an employer off the hook for alleged discriminatory comments made in 2006.

salary equality
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D.I.N.K.: Double Income, No Kidding

Cheryl Kellogg was hired as a teacher at the Indiana Academy for Science, Mathematics, and Humanities in 2006. She negotiated her starting salary with Dr. David Williams, the director, when she was hired. According to her, Williams told her during those negotiations she “didn’t need any more [starting salary] because he knew [her] husband worked at Ball State, so they would have a fine salary.” She claimed that throughout her 12-year tenure, she suffered the effects of this outdated and improper approach to her starting pay.

In 2017, Kellogg complained to the school that she received less pay than her similarly situated male colleagues. The school let her know her salary was lower than her male colleagues because of “salary compression.” It said those hired after her began at a higher salary and had different qualifications.

Kellogg wasn’t satisfied with the answer and filed a lawsuit against the school for violation of Title VII of the Civil Rights Act of 1964 and the Equal Pay Act (EPA).

Marriage of Convenience

Title VII makes it unlawful for an employer to discriminate against anyone with respect to compensation because of the individual’s sex. To avoid a pay discrimination claim under Title VII, the academy needed to articulate a legitimate, nondiscriminatory reason for paying Kellogg less than her male counterparts. Once it did that, then she needed to establish its alleged neutral reason was a pretext (excuse) for discrimination.

The school claimed it had gender-neutral explanations for the pay differential: salary compression and differential skills. Additionally, it argued Kellogg shouldn’t be allowed to rely on Williams’ alleged comment about her husband because it fell outside the statute of limitations (i.e., the comment was made too long ago).

The federal trial court agreed with each of the arguments and issued judgment without a trial in the employer’s favor. Kellogg appealed the decision to the 7th Circuit.

Cold Feet

The 7th Circuit said its decision came down to one central question: Are the school’s nondiscriminatory explanations for Kellogg’s pay a pretext for discrimination?

To establish pretext, Kellogg needed to show the school didn’t honestly believe the nondiscriminatory reasons it offered. She argued Williams’ comment about her husband demonstrated the employer didn’t honestly believe her salary was lower because of salary compression. In response, the school argued the court should ignore the director’s statement altogether because it occurred outside the statute of limitations and thus couldn’t establish liability.

The 7th Circuit rejected the school’s argument outright based on the Ledbetter Act. Under the Act, an actionable “unlawful employment practice occurs, with respect to discrimination in compensation . . . each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice.” In other words, a new pay discrimination claim arises every time an employee receives a paycheck resulting from an earlier discriminatory compensation practice, even if it occurred outside the statute of limitations, including as far back as 2006.

The 7th Circuit found it could and should consider Williams’ decision about Kellogg’s starting salary when determining whether she had established pretext. Indeed, this was precisely the kind of issue covered by the Ledbetter Act.

Tie the Knot

Williams’ statement cast doubt on whether the school honestly believed in the nondiscriminatory reasons it offered (i.e., salary compression and skill differentials) for the differentials. In fact, the comment was a straightforward explanation by the school’s director, who had control over setting salaries, that Kellogg didn’t need any more money “because” her husband worked at the university.

Therefore, the 7th Circuit reversed the lower court’s decision, and Kellogg’s claim will be headed to a jury. Kellogg v. Ball State Univ., d/b/a/ Indiana Academy for Science, Mathematics and Humanities, No. 20-1406 (7th Cir., Jan. 5, 2021).

Ball and Chain

As more attention is paid to salary differentials, you may want to consider conducting a pay equity audit to see if there are any areas of concern. Are employees in the same job categories or with similar tenure paid similarly? Are there legitimate business reasons to explain any disparities? These are just a few of the questions you may need to address.

Given the potential liability, however, you should consider consulting with legal counsel before starting any such audit. At the very least, the legal counsel can advise on how to best maintain the audit as privileged. Now, if only the same were true for those high schoolers’ text messages.

Kelly Smith-Haley is an attorney with Fox, Swibel, Levin & Carroll, LLP, in Chicago, Illinois. You can reach her at ksmithhaley@foxswibel.com.