United States: New San Francisco Ordinance Would Ban Employer Inquiries Into Salary History

In an effort to close the gender gap and remedy pay disparity, the Board of Supervisors for the City and County of San Francisco passed the Parity in Pay Ordinance on July 11, 2017. The new law will prohibit employers, including city contractors and subcontractors, from asking applicants about their salary history, from disclosing an employee's salary without permission, and from considering salary history in determining whether to offer employment to an applicant or what salary to offer. [Note: The ordinance was signed into law by Mayor Lee on July 19, 2017.]

San Francisco is the latest jurisdiction to enact a "pay parity" law, joining Philadelphia, New York City, Massachusetts, Maryland, Oregon and Delaware in prohibiting an employer's inquiries into a job applicants' salary history during the application process. The San Francisco ordinance is consistent with other efforts in California and around the nation to address pay disparity by gender. Under the California Fair Pay Act, salary history alone cannot be used to justify paying an employee differently for doing substantially similar work under similar working conditions. A bill banning salary history inquiries has been considered by the State of California, but has not yet become law. Similar bills are pending in Pennsylvania and New Jersey.

Forbidden Practices and New Requirements

San Francisco's new Parity in Pay Ordinance is premised on the theory that the practices of seeking salary history from job applicants and relying on their current or past salaries to set pay rates perpetuates wage inequalities across the occupational spectrum.

The ordinance would ban employers from asking job applicants about prior salary history. The ordinance would also forbid employers from disclosing any employee's salary history without the employee's written authorization, with certain exceptions relating to rates set by collective bargaining agreements, information contained in the public record or legal requirements. In addition, the ordinance contains anti-discrimination and anti-retaliation components, as an employer may not refuse to hire or otherwise disfavor, injure or retaliate against an applicant for not disclosing his or her past pay history to the employer.

The new law would take effect 30 days after it is enacted, authorizing the Office of Labor Standards Enforcement ("OLSE") to begin implementing the law and developing enforcement rules. The OLSE may impose warnings and notices to correct beginning on July 1, 2018, and may impose monetary penalties beginning on July 1, 2019. It would apply to all private employers required to be registered to do business in the City of San Francisco, regardless of size or industry, including job placement, referral and employment agencies. The ordinance would extend to applicants whose work would be performed in whole or in part in San Francisco for at least eight hours per week. With some exceptions, the law would also apply to applicants for employment with private employers when the applicant's work would be performed under a contract with the City and County of San Francisco or when the work would be performed in the city or on city property. City contracts and subcontracts must contain express provisions relating to the new law. The law would require posting in multiple languages.

Civil Penalties, Contract Deductions and Administrative Action

Job applicants and employees may report violations. Although the ordinance does not call for a private right of action by injured applicants, violators are subject to monetary penalties and potential civil action by the city. Further, the ordinance permits San Francisco to terminate or suspend city contracts or deduct penalties from amounts payable to city contractors or subcontractors.

What This Means for Employers

Under the ordinance, employers can ask about an applicant's salary expectations, including unvested equity, deferred compensation or bonuses that an applicant would forfeit by resigning from current employment. Voluntary disclosures by an applicant – and their subsequent consideration by an employer – are permitted, so long as the employer complies with the California Fair Pay Act and does not use salary history alone to justify lower pay for an employee of a different sex, race or ethnicity.

If the new law is enacted, employers in San Francisco, including those who contract or subcontract with the City and County of San Francisco, should remove from their applications for employment any reference to wage history and should not inquire about it during the interview or hiring process. If another law or regulation specifically authorizes employers to ask certain applicants about their wage histories, a separate application with an appropriate question consistent with those other legal requirements should be developed. Recruiting and hiring managers and others involved in the hiring process should be trained on the new obligations of the law.

Employers conducting background checks should proceed with caution. If such checks disclose prior pay, it should not be considered for purposes of determining the applicant's future salary or whether to offer the job to the applicant. Employers should also be aware that the new ordinance not only bans employers from asking direct questions about current and past compensation, but also from prompting oral or written communications about prior pay, either personally or through an agent. Those who contract with the City and County of San Francisco and who retain subcontractors to perform work on such jobs should make sure their contracts contain required language.

Employers should post the required notice when it becomes available.

For Further Information

If you have any questions about this Alert, please contact any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are in regular contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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