United States: Another San Francisco Treat: Mayor Lee Signs Salary History Ban

On July 19, 2017, Mayor Ed Lee signed an ordinance that will significantly affect the hiring practices of San Francisco employers. When Ordinance No. 170350 becomes operative on July 1, 2018, it will be illegal for employers to inquire about a job applicant's salary history or to provide such information about current or former employees.1

Ordinance No. 170350 amends the San Francisco Police and Administrative Codes and applies to nearly all employers. It covers all individuals, corporations, groups, or other organizations, however structured, that are required to be registered to do business in the City. While the ordinance generally excludes governmental employers, it specifically applies to the City of San Francisco, both as an employer and a contracting party. Indeed, subject to certain exceptions, all contracts and subcontracts with the City for public works, commodities or services must include a provision requiring compliance with the salary history ordinance.

As with salary history laws popping up in other jurisdictions,2 the purpose of the ordinance is to help ensure equal pay. The rationale underlying Ordinance No. 170350 is that pay inequities are perpetuated when current pay is based on past employer compensation decisions that could have been discriminatory. Ordinance No. 170350 attempts to level the playing field in several ways.

Restrictions on Salary History Inquiries

The new law prohibits inquiries into a candidate's salary history for any applicant who will work within the City's geographic boundaries. No inquiries may be made in any manner, including on a job application or during an interview, or from any source, including a prior employer. Employers also may not consider an applicant's salary history when deciding whether to hire the candidate or when determining his or her rate of pay. A candidate's salary history includes an applicant's current and past compensation, including wages, commissions, and any other monetary gain. Importantly, "salary history" does not include objective measures of productivity, so employers may ask about revenue generated, sales figures, or similar benchmarks.

These restrictions protect applicants for any type of employment, including part-time, seasonal, temporary and contingent work, as well as work obtained through a staffing agency. There are two notable exceptions, however. Neither independent contractors, nor current employees applying for positions within their same employer, are covered by the new law.

Despite its broad prohibitions, the ordinance recognizes that an applicant may choose to willingly disclose salary history information. If an applicant voluntarily—and without prompting—shares his or her salary history, the prospective employer may consider it and may verify that data with a prior employer. Additionally, an employer may openly discuss with an applicant his or her expectations with respect to salary, as long as it avoids asking about salary history. The parties also may discuss salary, including unvested equity, deferred compensation, or bonuses, which an applicant would lose by resigning from his or her current job to take a position with the new employer.

The ordinance, moreover, does not prohibit an employer from verifying non-salary-related information disclosed by the applicant. Nor does it preclude an employer from running a background check—as long as that background check is otherwise consistent with the law and the employer does not consider any salary history information that is revealed during the background check.

Additional Protections and Requirements of the Ordinance

Second, beyond the ban on inquiries, the new law prevents San Francisco employers from releasing salary history information about a current or former employee to any prospective employer, without written authorization from the individual. This limitation does not apply where the release of salary history is otherwise required by law, is publicly available, or is subject to a collective bargaining agreement.

As a third measure of protection, Ordinance No. 170350 provides that employers may not refuse to hire, or otherwise discriminate or retaliate against, an applicant who declines to disclose his or her salary history. Relatedly, San Francisco employers must bear in mind that—even when they may legally access and rely on salary history information—they must comply with pertinent state law. Under the California Labor Code, prior salary alone cannot be used to justify paying any employee of a different sex, race, or ethnicity less than another employee for performing substantially similar work under similar working conditions.3 The ordinance expands on that principle, stating that salary history by itself cannot justify any pay disparity between an employee and an applicant of different sexes, races, or ethnicities.

Finally, Ordinance No. 170350 imposes a workplace posting obligation. The San Francisco Office of Labor Standards Enforcement (OLSE) must develop a notice, in several languages, for employers to conspicuously post at all work sites. The OLSE, which will enforce the new law, is also required to promulgate rules guiding its implementation. The ordinance authorizes the OLSE to collect administrative penalties for violations, but not until July 1, 2019.

Looking Ahead

For now, San Francisco employers should keep this ordinance and the pending OLSE regulations on their radar. Ordinance No. 170350 may not take effect for nearly a year, but employers may need that time to consider retraining personnel, revising job applications, or otherwise refining hiring procedures. Employers also may want to keep an eye on legislation percolating at the state level, as one assembly bill would prohibit pay history inquiries throughout California.4 Littler's Workplace Policy Institute (WPI) will continue to monitor these developments.

Footnotes

1 The ordinance and its history are available here.

2 See, e.g., Ilyse Schuman & Michael J. Lotito, Mid-Year Roundup: Equal Pay and Related Bills Command Attention in 2017, WPI Report (Jul. 5, 2017).

3 See Cal. Lab. Code § 1197.5.

4 See, e.g. Bruce J. Sarchet & Ilyse Schuman, California's Fair Pay Laws Continue to Evolve, (Podcast, June 13, 2017) Assembly Bill 168 would prohibit any employer (both public and private sector) from seeking any salary history information, including compensation and benefits, about an applicant for employment. To date, AB 168 has passed the California State Assembly and is under review by Senate committees. It is unclear whether Governor Brown would veto the bill, should it reach his desk. The bill and its history are available here.

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