E.E.O.C. v. Aetna Ins. Co.

• Citation: 616 F.2d 719
• Decision Date: 27 February 1980
• Docket Number: No. 79-1086,79-1086
• Parties: 22 Fair Empl.Prac.Cas. 607, 24 Wage & Hour Cas. (BN 641, 22 Empl. Prac. Dec. P 30,881, 88 Lab.Cas. P 33,888 EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Appellant, v. AETNA INSURANCE COMPANY, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 719

616 F.2d 719

22 Fair Empl.Prac.Cas. 607,

24 Wage & Hour Cas. (BN 641,

22 Empl. Prac. Dec. P 30,881, 88 Lab.Cas. P 33,888

EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Appellant, v. AETNA INSURANCE COMPANY, Appellee.

No. 79-1086.

United States Court of Appeals Fourth Circuit.

Argued Dec. 5, 1979.

Decided Feb. 27, 1980.

Colleen M. O'Connor, E. E. O. C. (Marshall H. Harris, Regional Sol., Philadelphia, Pa., Carin Ann Clauss, Sol. of Labor, Donald S. Shire, Associate Sol., Lois G. Williams, Mary Ann Bernard, U. S. Dept. of Labor, Washington, D. C., on brief), for appellant.

James Patrick McElligott, Jr., Richmond, Va. (W. Carter Younger, McGuire, Woods & Battle, Richmond, Va., on brief), for appellee.

Before FIELD, MURNAGHAN and SPROUSE, Circuit Judges.

MURNAGHAN, Circuit Judge:

The Secretary of Labor, ¹ on behalf of Nellie Barratt, an insurance underwriter for Aetna Insurance Company ("Aetna"), brought an action under section 17 of the Fair Labor Standards Act, 29 U.S.C. § 217, to enjoin Aetna from violating the Equal Pay Act, 29 U.S.C.A. § 206(d), and to recover from Aetna unpaid wages due under the Act. The Secretary alleged that Aetna was discriminating against Barratt on the basis of sex because a male employee, who performed the same job as she, was paid more. The District Court (Warriner, J.) found that Barratt and the male employee performed substantially the same job but that any disparity in pay between Barratt and the male employee was attributable to a bona fide merit system. Such a merit system is one of the four specified exemptions under the Equal Pay Act. While we agree that the hiring of the male employee at a higher salary was pursuant to one of the four exemptions, we affirm, not on the basis of the merit system exemption, but rather because of the exemption permitting differences in pay if based upon factors other than sex.

Factual Background

In early 1970, Aetna's regional office in Richmond, Virginia hired Nellie Barratt as a Grade 11 ² commercial casualty underwriter at an annual salary of $7,000. When joining Aetna, Barratt had six years of experience in the insurance industry, most of which was in the underwriting area. For that experience, Aetna gave her credit for 2 years, 6 months experience.

Three years later, on March 19, 1973, Aetna hired James W. Garrett as a Grade 12B commercial underwriter. His salary was $11,000; because he had over 15 years of underwriting experience, Aetna gave him credit for 4 years of prior experience. When he was hired, Barratt was earning $8,800. However, a month after Garrett was hired, Barratt was promoted to Grade 12 and her salary was raised to $9,500. Although Barratt and Garrett performed the identical job, Garrett received $1,500 more in compensation. During the next three years, Barratt and Garrett worked side by side until January 1976 when Aetna terminated Garrett for poor job performance. At the time of his dismissal Garrett's salary was $13,200; Barratt's salary was $11,900. During the 3-year period Garrett's salary was consistently higher than Barratt's.

Barratt, after discovering that her co-worker had been compensated at a higher rate than she, complained to her supervisor and to the Department of Labor. The latter undertook an investigation. Probably due to the impetus of the government's investigation, Aetna voluntarily gave Barratt a retroactive pay increase so that her salary receipts belatedly matched those of Garrett for the period that they worked together. As a consequence, any possible claim that Barratt might have against Aetna for wage discrimination, as between her and Garrett, was rendered moot.

To fill the void left by Garrett's departure, Aetna, on February 2, 1976, hired Christopher Archer. Archer, who had 8 years of underwriting experience, was hired as a Grade 12E underwriter at a salary of $14,700. As a commercial casualty underwriter, Archer had the same job, performed the same duties, and assumed the same responsibilities as Barratt and Garrett. Notwithstanding, Archer was compensated at a rate of $14,700 a year while Barratt was receiving $11,900. On April 5, 1976, her salary was raised to $13,000 and on September 9, 1976 her salary was raised to $13,200. Despite the increases, Barratt was still paid less than Archer.

After being with Aetna for less than one year, Archer was promoted to the position of training coordinator at a salary of $16,300 a year. Soon thereafter, on April 4, 1977, Barratt's salary was raised to $14,200, a figure still not as high as Archer's starting salary. A year later, she was promoted to Senior Casualty Underwriter, Grade 13, with a salary of $16,700.

The Secretary contended that the salary differential existing between Barratt and Archer during the one year they performed the same job was based upon sex discrimination in violation of the Equal Pay Act. Following a lengthy trial, the lower court, after a careful examination and comparison of the duties and responsibilities of both Barratt and Archer, held that the Secretary had established a prima facie case of sex discrimination by showing that "the work performed by female Barratt was substantially equal to that performed by male Archer, that their respective duties required substantially equal skill, effort and responsibility, that they worked under similar working conditions, and that male Archer was paid a higher salary than female Barratt."

The court then turned to whether Aetna was able to rebut the Secretary's prima facie showing by proving that the pay differential was justified by one of the four statutory exemptions. It concluded that Aetna had proven that the differential came within the merit system exemption of the Act. 29 U.S.C. § 206(d)(1)(ii). More specifically, the court found that Aetna had two distinct and separate merit systems: one for incoming employees; and another for persons already employed at the company. With respect to the former, the company assessed the "merit" of the prospective employee by "evaluating his job application information and his responses to a number of interviews by supervisory personnel," while the other merit system was in writing and made periodic salary adjustments for employees who had accumulated service with the company according to past performance and the company's goals and objectives. In Archer's case, the hiring decision was based upon the interviews and application information. The court acknowledged that, by its nature, the criteria was subjective and could "be subject to conscious or unconscious sex bias" but then proceeded to state that Archer's salary was set by a system different from that which set Barratt's salary. We read that as a finding that sex bias was not the cause of the pay differential, the explanation being rather that Archer was measured by one sex-blind standard applicable to new hires, while Barratt was measured by another sex-blind standard applicable to existing employees.

In addition, the court was convinced that "the difference between Mrs. Barratt's salary and Mr. Archer's starting salary was not determined on the basis of sex but was based upon Aetna's reasonable expectation that Mr. Archer's ability and more substantial prior underwriting and managerial experience would allow him to take on greater responsibility and would make him a more valuable employee." Noting that decisions like those here involved are by necessity matters of judgment, the court declined to substitute its judgment for Aetna's in view of the conclusion that the company's decision was not based upon an impermissible consideration. Furthermore, the court mentioned that, while subjective decisions may invite discrimination, especially when routine work is involved, they are necessary nonetheless when jobs such as casualty underwriter, which involve complex decisionmaking, are concerned.

Were the Trial Court's Findings Clearly Erroneous?

There is only one issue that appellant presents for our review: did the lower court err in concluding that the pay differential between Barratt and Archer was not attributable to discrimination but rather to a merit system within the meaning of the Equal Pay Act. Our review is governed by the clearly erroneous rule, F.R.Civ.P. 52(a): a lower court's findings must be upheld provided that "substantial evidence" exists to support their determination. Hodgson v. First National Bank, 446 F.2d 47, 48 (5th Cir. 1971). See also Gunther v. County of Washington, 602 F.2d 882, 887 (9th Cir. 1979); Keyes v. Lenoir Rhyne College, 552 F.2d 579, 580 (4th Cir. 1977), cert. denied, 434 U.S. 904, 98 S.Ct. 300, 54 L.Ed.2d 190 (1977); Hodgson v. Golden Isles Convalescent Homes, Inc., 468 F.2d 1256, 1257 (5th Cir. 1972). Of critical importance to us, therefore, is the substance of the testimony relating to Aetna's compensation standards as well as the justifications offered by the company for its decision to compensate Archer at a rate which turned out to be higher than the rate for Barratt.

At the trial, three Aetna managerial representatives, involved in the hiring of Archer, testified: John Evans Rees, commercial underwriter supervisor; Michael Katos, agency development manager; and Jean McFarland, underwriting manager. They testified that, following the termination of Garrett, the company embarked on an active search to locate a new underwriter, one with commercial casualty experience. Such experience was critical to Aetna at that time in its development because the commercial casualty area was one in which Aetna perceived itself deficient. It believed that an underwriter with a strong background in the area would, in all probability, strengthen its position in the marketplace.

To find a new underwriter, Aetna, in addition to launching an independent search of its own, sought the services of an employment agency. Soon thereafter, the employment agency referred Christopher Archer to Aetna. Rees, Katos, and McFarland each interviewed Archer. Th...