United States: Countdown To New York City's Salary History Ban

On October 31, 2017, New York City's salary history ban, the most recent amendment to the City Human Rights Law (CHRL), becomes effective. 

The new law makes it an "unlawful discriminatory practice" for employers to (1) "inquire" about the salary history of an applicant for employment or (2) rely on salary history in determining the applicant's compensation and/or benefits, except where the applicant "voluntarily and without prompting" by the employer discloses his or her salary history. 

The law reflects the continuing trend in New York and elsewhere to eliminate wage gaps based on gender, race and ethnicity. Other jurisdictions to implement similar laws restricting employers' ability to inquire about salary history include California (effective January 1, 2018), Delaware (effective December 14, 2017), Puerto Rico, Oregon (effective January 1, 2019), Massachusetts (effective July 1, 2018), Philadelphia (stayed pending legal challenge) and San Francisco ( effective July 1, 2018). Numerous other states are considering similar measures.

Scope of Coverage

Employer and Applicant Coverage

Although the law does not specifically address employer coverage, guidance in the form of FAQs recently published by the City Commission on Human Rights (CCHR) confirms that the law applies to all employers of any size that are hiring job applicants in New York City. 

The Commission's guidance clarifies that the law generally does not apply to former employers who disclose information about the salary history to a hiring employer; however, it notes that such employers may be held liable if they intentionally aid and abet a violation by the hiring employer.

The Commission's guidance further confirms that most applicants for jobs in New York City are covered by the law. "Applicant," however, is not defined in the law or the guidance. An applicant Fact Sheet issued by the CCHR asserts that the law applies to both independent contractors and interns. Although this interpretation is consistent with application of the CHRL more generally, the salary history ban law itself expressly bans inquiries into "the salary history of an applicant for employment" or reliance on the salary history "for such an applicant."  See Intro. 1253, Section 1, (amending Administrative Code Section 8-107(25)(b) (1), (2) (emphasis added).

The law specifically does not apply to applicants for internal transfer or promotion with their current employer. However, employers should be mindful that, depending on the circumstances, a temporary employee or subcontractor who is offered permanent employment may qualify either as an applicant for a new position, in which case the salary history prohibitions apply to them, or for internal transfer or promotion, in which case they do not.

The law also does not apply to applicants for public sector jobs where salary is governed by a collective bargaining agreement.

Agent Liability

The law's prohibition against the unlawful discriminatory practices outlined above apply not only to employers, but also to employment agencies, as well as employees or agents of the employer or employment agency. The Commission guidance clarifies that headhunters are not exempted from the law's requirements, and further notes that headhunters who qualify as employers, employment agencies or agents of an employer, or who "aid and abet" a violation, may be liable under the law. 

The guidance further recommends that, to protect against liability, headhunters engaged in negotiations with prospective employers should obtain written confirmation from job candidates that they consent to the disclosure of their salary history and, further, that the prospective employer, to protect against liability, should request a copy of the applicant's written consent authorizing the headhunter to disclose that information.

Geographic Scope

The Commission's guidance attempts to clarify the geographic scope of coverage, noting that the law likely will apply where, for example, an applicant is asked about salary history during an in-person interview that takes place in New York City—presumably regardless of where the job is located and/or regardless of where the applicant lives. The guidance also notes that the law would apply even when the prohibited inquiry occurs outside New York City, but the impact is felt in New York City, for example, by virtue of the fact that the job is New York City.

If, however, the prohibited inquiry is made outside New York City and the job is located outside New York City, but the applicant resides in New York City, the law most likely would not apply. In other words, the guidance confirms that the same jurisdictional analysis typically applied in the broader CHRL context similarly applies to the salary history ban, which means an applicant's residency in New York City alone generally will be insufficient to establish impact in New York City.

How "Salary History" Is Defined

"Salary history" is defined under the law to include not only an applicant's current or prior wage, but also benefits and any other form of compensation he or she may have received. The Commission's guidance clarifies that "benefits" and "other compensation" are to be construed broadly and "may include many factors, including, but not limited to, a car allowance, retirement plan, or bonuses."

The Commission's guidance further explains how the law's prohibitions apply with respect to commission-based and profit percentage-based compensation, stating that while the amount of commissions an applicant earned are off limits, as is an applicant's current or former profit percentage, employers are permitted to ask about objective indicators of performance, such as the volume, value or frequency of sales, as well as the size of the applicant's book of business and profits generated.

Employers may, however, ask whether the applicant will have to forfeit deferred compensation or unvested equity by leaving his or her former employer and, the guidance explains, inquire as to the value and structure of that deferred compensation or unvested equity, request documentation to verify the same, and consider such information in making an offer to the applicant.

In addition, competing offers and counteroffers the applicant has received—and the value of those offers—are fair game and do not fall within the scope of "salary history."

How "Inquire" Is Defined

"Inquire" is broadly defined under the law to cover communication (in writing or otherwise) of any question or statement to an applicant, his or her current or prior employer, or a current or former employee or agent of such employer, for the purpose of obtaining the applicant's salary history. 

Searches of Public Records

Prohibited inquiries also include searching publicly available records or reports for the purpose of obtaining the applicant's salary history. While the Commission's guidance acknowledges that a prospective employer may search for general information about industry compensation standards, it specifies that such employer may not search for specific information about salary history that is intended to uncover a specific applicant's salary history. For example, the guidance notes, searching a website for information about the salaries paid to individuals with the applicant's specific title at the applicant's current or former place of employment on websites that collect such salary information would be deemed a violation of the law.

Applications for Employment

Job applications may not include a request for salary history information, even if, the guidance explains, the employer makes clear that any response is voluntary. Similarly, an employer who uses a boilerplate application that requests salary history will not avoid liability simply by adding a disclaimer that individuals in New York City or those applying for jobs in New York City need not answer the question.

Background Checks

The law does not prohibit an employer from verifying an applicant's disclosure of non-salary related information or conducting a background check (although any such background check should comply with the CHRL's requirements with respect to criminal history and credit history). If the employer inadvertently learns of salary history through verification of the applicant's disclosure of non-salary related information or a background check, it must not rely on such information for purposes of determining compensation. Of course, it is difficult if not impossible to "un-see" such information once disclosed, but nonetheless employers should take care not to utilize any inadvertently disclosed salary history information when negotiating and/or setting compensation. 

To guard against such inadvertent disclosures in the first place, employers who utilize third parties to conduct background and reference checks or employment history verifications are well advised to initiate a dialogue with those individuals or entities and confirm they are aware of the law's requirements and know not to request or compile information on salary history. Indeed, the Commission recommends that employers specify to reporting agencies that information about salary history be excluded from any background check report.

Accidental/Inadvertent Discovery of Salary History

As alluded to above, the law provides that if an employer accidentally uncovers salary history information, it will not have committed a violation, provided that it does not rely on that information in determining salary, benefits or other compensation.

Voluntary Disclosure by Applicant

The law provides that if an applicant "voluntarily and without prompting" by the employer provides salary history, then such information can be used to determine salary, benefits and other compensation, and the prospective employer may also verify the salary history (including by asking for a W-2). 

Of course, the devil is in the details—while the law itself does not provide any further guidance as to what is considered a voluntary disclosure of salary history, or what could be deemed to "prompt" disclosure, the Commission's guidance provides that "[a] disclosure of salary history is 'without prompting' if the average job applicant would not think that the employer encouraged the disclosure based on the overall context and the employer's words or actions." How this standard will be applied in practice remains to be seen.

Permissible Salary Discussions

The law does not prohibit prospective employers from informing applicants of, or the prospective employer and applicant from discussing, the position's proposed or anticipated salary or salary range and other compensation and benefits being offered.

For example, the employer may inform the applicant about the expected salary for the position at issue and discuss the applicant's expectations with respect to compensation, including, as noted above, whether the applicant would forfeit any unvested equity or deferred compensation by leaving his or her current employer. 

In addition, as noted above, the prospective employer may inquire as to any competing offers the applicant has received and the value of any such offers, without committing a violation.

Corporate Acquisitions/Due Diligence

Although not addressed in the law itself, the Commission's guidance discusses salary information in the context of the due diligence process that typically accompanies corporate acquisitions, stating that employees of a target company are not "job applicants" for purposes of the salary history ban and, therefore, a company seeking to acquire the target company may obtain salary information about the target company's employees.

The guidance further states, however, that whether the acquiring company may then rely on salary history information when absorbing employees from the target depends on the circumstances. If the acquiring company is making compensation decisions on a non-individualized basis, then it may rely on salary history information. If it is requiring target company employees to interview for positions, then the law may be implicated. The guidance recommends, in such cases, that any salary information about target company employees that is disclosed during the due diligence process not be shared with hiring managers or others making decisions about compensation. Without further guidance, it remains unclear at this time how these principles will play out.

Penalties for Violation

As the salary history ban law amends the CHRL to make any violation an "unlawful discriminatory practice," aggrieved job applicants will be able to pursue claims against employers or prospective employers with either the CCHR or directly in court. The full range of relief under the CHRL, which includes recovery of back pay, front pay, compensatory damages, punitive damages and attorneys' fees, will be available in any civil lawsuit for violation.

Civil penalties for violations may also be imposed by the CCHR, in amounts of up to $125,000 for an unintentional violation and up to $250,000 where the violation is willful and malicious.

What Should Employers Do Now?

New York City employers should immediately review and revise, if necessary, their hiring practices to ensure compliance. All individuals who interview job candidates, as well as others involved in the recruitment and/or hiring process, should be trained to focus their questions on applicants' skills and qualifications for the position at issue, as always, and their salary demands and expectations (rather than salary history). To the extent that employers check employment references provided by the applicant, they should make sure those conducting such verifications do not ask for salary history information.

If they have not already done so, employers should review and revise, if necessary, all employment applications and other hiring documents, including background check disclosure and consent forms, to ensure there are no inquiries regarding salary history. Similarly, all job postings and advertisements, regardless of the form or medium, should not inquire about salary or indicate that an applicant will be asked about salary.

Employers also should communicate with any third parties, including staffing agencies, recruiters and consumer reporting agencies that they use in the recruiting and/or hiring process, to ensure they are aware of their obligations under the law and are in compliance, and confirm the same in writing.

Regulations and/or enforcement guidance further clarifying the law's scope and requirements may be forthcoming. The Commission has indicated it intends to create educational materials on the law and conduct community outreach to ensure that workers know their rights. On October 24, 2017, the Commission is holding a session in conjunction with the U.S. Equal Employment Opportunity Commission and Public Advocate Letitia James to discuss the law, how it will be enforced and steps employers can take to ensure compliance. View information concerning this session here.

For More 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 regularly in 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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