Retention Raises and Equal Pay Claims

While most equal pay cases involve starting pay and annual salary increases, a recent case focuses on another compensation practice used by many employers – retention raises – and their possible discriminatory impact.

In Freyd v. University of Oregon, a female professor alleged that she was being paid less than male colleagues for doing substantially similar work, in violation of the Equal Pay Act and state law. She pointed to the employer’s practice of awarding retention raises. Such raises may be awarded as an incentive to remain when an employee is being recruited by another employer.

The U.S. Court of Appeals for the Ninth Circuit found that the professor offered evidence that the employer engaged in retention negotiations less often with female professors than males, and that when it did engage with females, those professors were less successful in their negotiations than their male colleagues. The Ninth Circuit also found that the professor offered a viable alternative practice that would still serve the employer’s needs – that when the employer gave a retention raise, it should “evaluate the resulting salary disparity with others in the same rank with comparable merit and seniority and give affected individuals a raise.” Whether or not this alternative was adequate was a question of fact that would need to be determined at trial.

As noted by the dissenting judge, retention raises are a market-driven practice often used to retain top talent. Employers utilizing this practice, however, should be mindful that there could be possible liability under pay equity laws, however, if there is a disparate impact on employees of one sex vis a vis the other.