As we wrote about in April, starting on October 31, 2017, a NYC law will make it unlawful for employers of any size to inquire about a job applicant’s salary history during the hiring process by either: (1) asking about compensation history on a job application or during the interview process; or (2) conducting internet or other searches, contacting prior employers or running background checks in an effort to determine the applicant’s compensation history. Employers can only use an applicant’s compensation history to build a job offer if the applicant “unprompted” and “willingly” discloses that information.
California joins Delaware, Massachusetts, Oregon and several municipalities, including New York City and San Francisco, by banning inquiries into salary history. Aimed at combating wage disparity based on gender, the new law (AB 168), to be codified at Labor Code section 432.3, prohibits employers from seeking or relying upon salary history information.
Ban on Seeking Salary History Information
AB 168, which goes into effect on January 1, 2018, prohibits employers from seeking salary history information about applicants for employment. Specifically, employers may not, orally or in writing, seek salary history information, which includes compensation and benefits. The new law also prohibits employers from seeking such information through agents such as headhunters or recruiters.
Last week, District Court Judge Mitchell Goldberg granted the City of Philadelphia’s Motion to Dismiss the Philadelphia Chamber of Commerce’s lawsuit challenging Philadelphia’s controversial new pay history ordinance. As we have discussed previously (see Here’s What that New Philadelphia ‘Pay History’ Law Means for Your Business and Philadelphia Wage Equity Ordinance On Hold … For Now), the ordinance would make it unlawful for an employer to inquire about a job applicant’s pay history and would severely restrict an employer’s ability to base a new hire’s initial pay on his or her compensation history. The ordinance had been scheduled to go into effect on May 23, but was stayed by Judge Goldberg, with agreement of the City, pending resolution of the City’s motion to dismiss the Chamber’s lawsuit challenging the ordinance.
Judge Goldberg’s decision is likely not the last word however, as it did not address the merits of the ordinance. Rather, the Court held that the Chamber, because of the way the lawsuit was worded, did not have standing to challenge the ordinance, and it gave the Chamber until June 13, 2017 to file an amended complaint to cure those deficiencies. The Chamber is now expected to do just that.
In the meantime, the question is whether and, if so when, Philadelphia employers need to start complying with the ordinance. Despite the fact that Judge Goldberg’s decision, in dismissing the Chamber’s lawsuit, arguably lifted the stay, the City announced the following position through a spokesperson:
If the chamber files an amended complaint that cures the standing defects identified by the court, the city will adhere to its agreement not to enforce the order until the chamber’s motion for preliminary injunction is resolved. If no amended complaint is filed within the period stipulated by the court, the city will begin taking steps to enforce the ordinance….
Given this statement, we believe that the best approach is for Philadelphia employers to continue to prepare to comply with the ordinance, but to hold off on implementation until we see what the Chamber does between now and June 13. If, as expected, the Chamber files an amended complaint, we will be back to playing the waiting game for a little while longer.
We will continue to provide updates as developments occur.
By October of 2017, NYC employers – and their recruiting agencies – will no longer be allowed to ask about an applicant’s salary and benefits history during the interview process due to a recent amendment to the NYC Human Rights Law. This law follows Executive Orders signed in November 2016 by Mayor de Blasio, and in January 2017 by Governor Cuomo, banning questions about salary history for NYC and NY state public-sector applicants prior to a conditional offer of employment. In addition, private employers in Philadelphia as of May 2017, and Massachusetts as of July 1, 2018, will also be banned from asking applicants about their compensation history. These laws are intended to help break the perpetuation of salary inequities by prohibiting reliance on prior, possibly inequitable compensation levels, as a means to set salaries and other compensation for incoming employees. Public Advocate Letitia James co-sponsored the NYC bill after a study conducted by her office found that women in New York earn $5.8 billion less in wages than men every year, or 87 cents for every dollar that men make, and the wage discrepancies were worse for minority females.
What does the NYC law prohibit?
It will be a discriminatory employment practice to do the following.
(1) Ask an applicant, or their current/prior employer – either in writing or during the interview process – about the applicant’s wage, benefits or other compensation history. This prohibition extends to inquiries made by search firms on behalf of the prospective employer. However, applicants can be asked about their historic productivity metrics, such as their level of revenue or sales at their current or prior employers.
(2) Conduct internet or other searches of public records in an effort to determine the candidate’s salary history. Employers are still permitted to conduct background checks of applicants, but if the background check discloses an applicant’s salary history, the employer may not rely on such disclosure for purposes of determining an applicant’s compensation.
(3) Rely on the compensation history of an applicant in determining what to offer the applicant with regards to salary, benefits or other compensation, unless the applicant “unprompted” and “willingly” discloses that information. However, this exception is not necessarily that helpful as employers can expect that the issue of whether a disclosure was truly “willing and unprompted” to be the subject of much debate.
What are the penalties for violations?
The NYC Commission on Human Rights will enforce the prohibition, and may impose a civil penalty of up to $125 for an intentional violation, and up to $250,000 for an “intentional malicious violation.” Plaintiffs’ employment lawyers will also file private cause of actions, and will likely seek discovery related to recruiting practices in an effort to ferret out potential violations they will cite to as evidence in support of disparate impact sex discrimination claims.
What should employers do now?
Employers are watching to see if these laws will be challenged before implementation. For example, Philadelphia’s law is currently being challenged in a federal lawsuit filed in early April by The Chamber of Commerce for Greater Philadelphia seeking to block implementation of the law on ground of violation of First Amendment rights. The NYC law is also expected to face a challenge from industry groups, although the Bronx Chamber of Commerce has publicly supported the new law.
Until a challenge is successful, employers should consider the following action items with regards to the NYC law:
- Remove salary history questions from job applications, including online applications.
- Provide notice, in writing, to recruiting agencies and background check companies, to exclude salary history inquiries as part of their process, and direct them not to provide salary history information to your company as the potential employer. You can also work this into contract renewals and any Statement of Work or recruiting search request, along with an indemnification obligation if a lawsuit ensues due to an agency’s failure to comply.
- Train HR, internal recruiters and other employees who interface with job applicants not to ask about salary/benefits/compensation history, but to explore other permissible areas. For example, the NYC law allows employers to discuss an applicant’s compensation expectations, including with regards to unvested equity or deferred compensation that an applicant would forfeit if they left their current employer to accept a new job offer. Interviewers are also still able to ask questions to probe the candidate’s level of experience and proficiency such as performance results, management experience, etc.
- Train these same individuals about the need to document, in writing, when a candidate makes an unprompted disclosure of his/her salary history.
- Consider posting salaries, or salary ranges, for open jobs. The new NYC law does not require this, but the bill suggests to businesses that they post salaries for jobs instead of relying on salary history to set compensation.
- Don’t ignore ongoing obligations to audit to protect against potential pay inequities. As we have been discussing, all private employers with 100 or more employees will likely have to report pay data broken down by gender and race as part of the new federal EEO-1 reports due in March 2018 for 2017 data, and California employers must comply with record keeping requirements imposed by California’s Fair Pay Law in effect since 2016. California’s Fair Pay Law was also amended, effective January 1, 2017, to provide that prior salary will not, by itself, justify a disparity between the salaries of similarly situated employees.
Also, keep in mind that while removing prior salary history from the hiring process may help limit perpetuation of wage gaps, the practical reality is that a candidate’s ability to negotiate a higher salary will likely still drive salary differentials. Employers will need to protect against unintended pay inequities resulting from the recruiting process.
David Woolf wrote an article for the Philadelphia Business Journal titled, “Here’s what that new Philadelphia ‘pay history’ law means for your business.” Philadelphia will likely become the first city in the nation to ban employers and employment agencies from asking job applicants for their salary history or requiring disclosure of such information. The Philadelphia City Council unanimously approved the bill on December 8; if enacted as expected, the new law will go into effect 120 days after the Mayor signs it. David discusses what this new bill means for local businesses.
Dave notes that the ordinance would also make it unlawful for an employer to base their compensation offer on an applicant’s prior salary unless the applicant knowingly and willingly discloses their salary history to the employer. The new law is meant to lessen the wage gap earnings between white males and women and minorities, but has been met with some controversy. The Philadelphia Chamber of Commerce has openly opposed the bill, stating that the legislation “goes too far in dictating how employers can interact with potential hires.”
Though Philadelphia has previously enacted legislation prohibiting or limiting certain questions that it considers “out of bounds,” this restriction is arguably different in that employers regularly use salary information in the hiring process. Dave highlights that while the inquiries may have unintended consequences, they can also add value, such as gauging an applicant’s assertions regarding their level of authority and responsibility in their current position, their advancement history and potential for future advancement, and a general sense of the applicant’s market value.
Dave advises employers to notify and train those involved in the hiring process of the anticipated ordinance, update their job application materials as needed and develop additional tools to still to get at the information needed. He also advises employers to look as the issue of pay equity more broadly.
On September 14, 2016, Representative Eleanor Holmes Norton (D – D.C. At Large) introduced the Pay Equity for All Act of 2016 (the “PEAA”) in the U.S. House of Representatives. In relevant part, the PEAA would amend the Fair Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. §§ 201 et seq., to prohibit employers from asking prospective employees about their previous wages or salary histories, including benefits or other compensation. In addition to prohibiting these pre-hire inquiries, the PEAA prohibits employers from seeking out the information on their own. The PEAA prohibits employers from retaliating against any employee or applicant because the employee opposed any practice unlawful under the law or for testifying or participating in any investigation or proceeding relating to any act or practice made unlawful by the PEAA. Any “person” who violates the PEAA is subject to a civil penalty of $5,000 for the first “offense,” which increases by $1,000 for each subsequent offense, up to $10,000. In addition, any person violating the PEAA is liable to each employee or prospective employee who is subject to a violation for special damages not to exceed $10,000 plus attorneys’ fees, as well as potential injunctive relief.
In her introductory remarks, Representative Norton explained that the purpose of the PEAA was to “help eliminate the gender and racial pay gap” and to “ensure that applicants’ salaries are based on their skills and merit, not on a potentially problematic salary history.” The bill initially was co-sponsored by Representatives Rosa DeLauro (D – CT), Jerrold Nadler (D – NY), and Jackie Speier (D – CA); subsequent co-sponsors include Representatives Gwen Moore (D – WI), John Conyers, Jr. (D – MI), Barbara Lee (D – CA), and Frederica S. Wilson (D – FL). The PEAA was immediately referred to the House Committee on Education and the Workforce.
The PEAA follows the enactment of a similar piece of legislation by Massachusetts in August of this year. That new law, An Act to Establish Pay Equity, takes effect on July 1, 2018.
If passed, the PEAA could dramatically impact employers’ ability to gauge “market rate” pay for new employees. At the same time, setting pay prospectively based on employers’ objective beliefs about the positions in question, without the benefit of employees’ past pay histories, may reduce potential pay inequity in subsequent audits down the road.
Although the PEAA is in its early stages, and there is no guarantee that it will ultimately pass, employers should continue to monitor this important piece of legislation. The text of the current language of the bill can be accessed by the following link.