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The Latest Trend in Employment Law: Banning Salary History Inquiries

by Christopher D'Angelo
Employment Law Strategist
September 5, 2017

Christopher D'Angelo's article, "The Latest Trend in Employment Law: Banning Salary History Inquiries," was published in Employment Law Strategist on September 5, 2017.

Reprinted with permission from the September issue of Employment Law Strategist. © 2017 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

The Latest Trend in Employment Law: Banning Salary History Inquiries

Add salary history to the growing list of inquires off limits to those who interview and evaluate prospective job candidates. As mentioned previously in these pages, several cities and states have passed legislation that, broadly, prohibits a prospective employer in the private sector from asking questions about an applicant’s compensation history. With a law recently passed and becoming effective on Oct. 31, 2017, New York City joins Philadelphia, Massachusetts, Delaware, Oregon, and Puerto Rico as the newest member of this club. Similar legislation has been proposed in several jurisdictions, including California, New Jersey and Washington State as well, while New York State, Pittsburgh and New Orleans have enacted laws or issued executive orders prohibiting such inquiries in the public sector.

Rationale Behind the Ban

Employers in most industries are inclined to inquire about a candidate’s salary history. Job applications often seek such information; recruiters typically solicit facts about compensation during their intake with job seekers; and questions about prior pay are inevitably addressed during an applicant’s initial interview or as the hiring process progresses. Employers like having this information because it can inform decision-making, possibly allowing them to avoid candidates who are too “expensive.” It also assists in the development of compensation packages.

If this information is helpful to employers, why are so many jurisdictions moving to prevent it from being discussed? The answer is simple: the gender pay gap. According to a Pew Research Center analysis of median hourly pay in 2015, women make 83% of what men earn. Though the same study suggests that the gap is smaller for females aged 25-34 (90%), a gap exists nonetheless —€ a discrepancy influencing legislators and government executives. Thus, it is no surprise that the Philadelphia law specifically references the gender gap in its preamble; the Massachusetts law is titled “An Act to Establish Pay Equity”; and Mayor Bill De Blasio, when signing the New York legislation into law earlier this year, referenced the fight for “equal pay for equal work.” Notably, he pointed out that the pay gap is an issue “not just for women, but people of color as well.”

What Exactly Is Prohibited?

While the laws passed in these various jurisdictions all seem to share a common goal of eradicating pay disparity between the sexes, they are each unique in their own ways. Some use broad language, while others are more narrowly drafted. And some include specific exemptions or safe harbors, where others are silent as to any permissible use of salary history during the hiring process. Here is a brief sampling:

The New York City law, passed in May 2017, prohibits employers from inquiring about salary history during all stages of the hiring process. The law specifically permits, however, pre-employment discussions about salary expectations, and it establishes a “safe harbor” for employers that learn of an applicant’s compensation history through a voluntary disclosure. Indeed, when a prospective employee voluntarily reveals his or her salary history to an employer, the New York City law will permit the employer to rely on that information in making salary determinations. Of note, the law in New York exempts employers from the ban on salary history inquiries where federal, state or local laws authorize them to verify salary or require such disclosure.

The Philadelphia law is very similar to the New York City law. It bans pre-employment salary history inquiries, and prohibits reliance on salary history in determining compensation for a new employee, “unless such applicant knowingly and willingly disclosed his or her wage history.” Philadelphia also maintains the same exemption as New York (e.g., employers can ask candidates about compensation history when federal, state or local laws allow for the verification of salary, etc.).

The law in Massachusetts addresses the issue from several angles. There, it is an unlawful employment practice for an employer to “screen” applicants based on compensation or salary history, “including by requiring that an applicant’s prior wages … satisfy minimum or maximum criteria.” Employers also may not require applicants to disclose their salary history “as a condition of being interviewed, or as a condition of continuing to be considered for an offer of employment.” Moreover, and unlike other jurisdictions that prohibit salary history inquiries, Massachusetts goes one step further by imposing a ban on employer conduct during the employer-employee relationship, making it an unlawful employment practice for an employer to require employees to refrain from discussing or disclosing their wages, benefits or other compensation “as a condition of employment.”

Delaware, like Massachusetts, disallows “screening” of an applicant based on salary history. Also, employers in that state cannot require that a prospective employee’s prior compensation satisfy some stated minimum or maximum. Yet similar to the law in New York, the Delaware statute permits discussions regarding salary expectations, and also allows an employer to request salary history after an offer of employment (“with terms of compensation”) has been made.

The Oregon law follows suit by prohibiting employers from “screening” applicants based on salary history. In addition, employers may not determine compensation for a position based on the “past compensation of a prospective employee.” That being said, the law in Oregon makes clear that it is not intended to prevent an employer from considering the compensation of a current employee “during a transfer, move or hire of the employee to a new position … .” Parenthetically, the New York law includes a similar provision. Oregon goes further, though, amending its Equal Pay Act to prohibit pay discrimination based on race, color, religion, sexual orientation, national origin, marital status, disability, age and veteran status.

Finally, the proposed law in California, while rather simple and straightforward, includes its own wrinkle. The legislation as presented succinctly states that an employer cannot “seek salary history information, including compensation and benefits, about an applicant for employment.” However, in its current form, the proposed law would require an employer to provide any applicant, “upon reasonable request,” with the pay scale for the position being applied for.

Are the Exceptions and Safe Harbor Provisions Meaningful?

As noted, some jurisdictions specifically permit employers to discuss salary expectations, and others exempt from the law an applicant’s “voluntary” disclosures of salary history information. But this begs the question: Are these exceptions meaningful, or are they fraught with peril? As a review of each law indicates, compliance should not be taken lightly. The remedial provisions they include generally call for compensatory damages, the imposition of fines and penalties, and the prospect of punitive damages as well.

In addition, it is easy to foresee lawsuits emerging from disgruntled candidates arguing that discussions during the hiring process involved the prohibited topic of salary history, as opposed to the sometimes permissible subject of “expectations.” No doubt, employers planning to address salary expectations with prospective employees would likely be armed with data regarding market rates for vacant positions, as well as information concerning market variables (e.g., education and experience). Yet this pretext would not necessarily shield employers from liability.

Whether or not a prospective employee has volunteered information about salary history presents an even thornier issue that may also likely be fodder for litigation. Surely, an interviewer’s discussion about the compensation and benefits of a particular position might be perceived by an applicant as pressure to reveal salary history. Such disputes would likely turn on the exact words uttered during the course of hiring, a perilous road for employers to be sure.

In either case, employers will likely admonish those responsible for conducting interviews to refrain from stating or even suggesting that an applicant’s current salary or salary history is important to obtain, and perhaps even utilize a fixed set of questions and talking points about the job under consideration. For smaller companies operating in only one city or state, this is easily accomplished. Larger companies doing business in multiple cities and states (e.g., those that ban the inquiry and those that do not) will have to tailor their approach on a jurisdiction-by-jurisdiction basis, or create a “one-size-fits-all” method that avoids the topic of salary history altogether.

Are Female Applicants Better Off Revealing Their Salary History?

Ironically, at the same time prohibitions of past salary inquiries are gaining ground, a recent study suggests that women —€ among the intended beneficiaries of these new laws —€ fare better in the marketplace when they disclose or otherwise discuss their salary history during the interview process. As set forth in a survey by PayScale, reported in a recent issue of HR Daily Newsletter (a publication of the Society of Human Resource Managers), women who do not reveal their salary history when asked to do so during job interviews “tend to earn 1.8 percent less, on average, than women who do disclose their compensation.” Yet male candidates who decline to provide such information “tend to get paid 1.2 percent more on average than men who reveal their compensation,” this according to the same survey.

These surprising findings suggest that female job applicants would be better off in the absence of salary inquiry laws, provided, of course, that they offer their compensation histories when asked. But why is this so? The HR Daily Newsletter surmises that providing salary history signals a willingness to negotiate, which is likely to minimize pay disparities.

What’s Next?

Beyond the State of California, New Jersey, Washington State and San Francisco are currently considering laws banning salary history inquiries. In the cities and states where such laws already have been passed, they are not without controversy. As of this writing, the Philadelphia law, which was to be effective in May 2017, has been put on hold pending a legal challenge. The lawsuit, brought by the Philadelphia Chamber of Commerce, was originally dismissed in May, but revived when the Chamber filed an amended complaint. There has also been discussion about a legal challenge to the New York law, scheduled to go into effect next month. As for the laws in Delaware (December 2017), Massachusetts (January 2018) and Oregon (January 2024), none of them is operative yet, making an evaluation impossible.

Legal challenges and distant effective dates aside, it seems likely that laws banning salary history inquiries will continue to gain ground, particularly in more progressive states or areas where the pay disparity directly impacts a large segment of eligible voters. As such, prudent employers will prepare themselves to address this new workforce right through smart planning and proper training of employees, including managers, supervisors and HR personnel responsible for ensuring a lawful hiring process.