United States: Emerging Laws Prohibit Employers From Inquiring About Past Pay Histories

Executive Summary: Subject to limited exceptions, federal, state, and local laws already require employers to pay men and women equally for doing similar work under similar working conditions. In another important effort to narrow the gender wage gap, four U.S. states, three cities, and the territory of Puerto Rico have recently passed laws that impose even stricter equal pay obligations on employers. These "past pay privacy" laws prohibit employers from seeking certain information about job applicants' historical salaries. Without exception, these laws are gender-neutral. Thus, they aim to stop lower wages from following both women and minority workers in their professional careers and stop wage disparities from perpetuating in the United States labor market.

In August 2016, Massachusetts enacted the first past pay privacy law banning questions about job applicants' pay histories. Other jurisdictions have followed the Massachusetts example and recently passed similar statutes. The Oregon and Puerto Rico laws became effective earlier in 2017. The Massachusetts, California, Delaware, New York City, and San Francisco laws are scheduled to take effect between now and mid-next year. Philadelphia's "Fair Practices Ordinance" was set to take effect in the spring of 2017, but the effective date was postponed, pending legal challenges.

The Details

The level of restrictions varies from jurisdiction to jurisdiction. However, all statutes prohibit screening job applicants based on their past and/or current pay information and usually include additional mechanisms for promoting pay transparency in the workplace:

  • Effective March 8, 2017, Puerto Rico hiring managers may not ask a job applicant, or his or her current or former employer, about the applicant's salary history, but the applicant may voluntarily contribute such information. If the applicant does, or the employer has already extended an offer of employment, the employer may further inquire about or confirm the individual's salary history. The Puerto Rico law also promotes pay transparency in the workplace by prohibiting employers from restricting applicants' or employees' questions or discussions of their own pay information or that of another employee with comparable duties.
  • Effective October 6, 2017, Oregon prohibits hiring managers from screening job applicants based on their current or past compensation and setting applicants' pay based on their current or past compensation. This law does not apply to current employees seeking a transfer to another position.
  • Effective October 31, 2017, New York City will prohibit hiring managers from asking job applicants, their current or former employers, and other enumerated third parties about the applicants' past salary histories. The ordinance will also prohibit employers from conducting public records searches for purposes of obtaining applicants' pay histories, as well as relying on any past pay data to determine the salary, benefits, and other compensation for applicants during the hiring process. The New York City ordinance expressly permits discussions between the prospective employer and the applicant about the parties' expectations with respect to the applicant's desired compensation. The ordinance does permit the applicant to voluntarily divulge information about his or her current or former pay. If the applicant voluntarily discloses this information, the employer may verify it and take it into consideration in determining the applicant's salary, benefits, and other compensation. The New York City ordinance will not apply to current employees transferring to a new position.
  • Effective December 14, 2017, Delaware hiring managers will no longer be allowed to screen job applicants based on their compensation histories, including by requiring their prior pay satisfy minimum or maximum criteria, or seek the applicants' pay history from their current or former employers. The law will not prohibit the employer from discussing and negotiating compensation expectations with the prospective employee, so long as the individual's past pay history remains confidential. The law will allow the employer to inquire about and verify the job applicant's past compensation history, but only after the offer of employment stating the compensation terms has been extended and accepted by the applicant.
  • Effective January 1, 2018, California hiring managers will be prohibited from seeking (on their own or through third parties) and relying on job applicants' past pay information as a factor in determining whether to offer a job applicant employment and on what compensation terms. The California law, unlike other laws, will also require employers, upon reasonable request, to provide the pay range for the applied-for position. In California, job applicants may voluntarily—and "without prompting"—contribute information about their pay histories, in which case employers are expressly allowed to weigh or rely on such information when setting parameters for compensation. Prior salary by itself, however, may never justify a compensation disparity.
  • Effective July 1, 2018, Massachusetts hiring managers will be prohibited from requiring, as a condition of employment, that an applicant refrain from inquiring about or discussing his or her compensation or the compensation of another. The law will also prohibit employers from screening applicants based on their pay histories, including by requiring the disclosure as a condition of employment or requiring that the former pay satisfy minimum or maximum criteria. While Massachusetts will not permit the employer to seek the applicant's historical pay information from the applicant, or any of his or her current or former employers, the law apparently will not preclude the applicant from voluntarily discussing his or her pay information or discussing or inquiring about the pay information of another.
  • Effective July 1, 2018, San Francisco's "Parity in Pay Ordinance" will prohibit hiring managers from inquiring about a job applicant's salary history or considering and relying on such information as a factor in determining whether to extend an offer of employment to the applicant and on what terms. San Francisco employers will also be expressly prohibited from releasing a current or former employee's compensation information to his or her prospective employer, unless with that employee's written authorization. As with some other laws, the applicant may voluntarily, and "without prompting," release such information, in which case the employer may consider or verify such information. The ordinance expressly authorizes the applicant for employment and his or her prospective employer to participate in pre-employment compensation negotiations.
  • Philadelphia's "Fair Practices Ordinance: Protection Against Unlawful Discrimination" (effective date stayed pending litigation) will prohibit employers from inquiring about or requiring disclosure of a job applicant's wage history, or conditioning the offer of employment or consideration for an interview based on such disclosure. The ordinance will also prohibit hiring managers from relying on the past compensation history that was obtained from the applicant's current or former employer in determining the applicant's wages at any stage in the employment process, including during the negotiation or drafting of any employment contract, unless the applicant "knowingly and willingly" discloses his or her past wage history to the prospective employer.

Exposure Issues and Potential Compliance Traps

Considering these rapidly emerging laws prohibiting, with limited exceptions, pay decisions based on job applicants' historical salaries, employers should become familiar with any past pay privacy laws that apply (or will soon apply) to their businesses and closely examine their hiring practices in light of those laws. Some potential ambiguities with respect to what practices employers may continue to legally engage in under the new laws may complicate that task. For example, California and New York City employers are expressly allowed to rely on past pay information in setting the parameters for the applicant's compensation after a voluntary disclosure, whereas other jurisdictions that permit the applicant's voluntary disclosure are silent on whether employers may legally consider that information in setting pay. In another example, Delaware and New York City employers may legally ask applicants about their expectations with respect to compensation, whereas other jurisdictions do not address the legality of such questions.

Several statutes expressly include anti-retaliation provisions. While the level of specificity varies, such clauses generally reach a broad range of conduct in connection with job applicants' refusal to answer any illegal pre-employment questions, as well as their complaints about or opposition to any conduct expressly prohibited under the laws. These past pay privacy laws provide for generous monetary damages for prevailing plaintiffs. Depending on jurisdiction, they authorize recovery of some combination of back pay wages, benefits, and other compensation; liquidated damages; punitive damages; and attorney's fees and costs.

Employers in the affected jurisdictions should review their hiring documents, including hard-copy and electronic employment applications, background check forms, and any other documents that may seek applicants' past pay information to ensure these documents comply with the relevant laws. Employers should also review their job advertisement postings on social media, on head hunter websites, and in print, to ensure compliance. Further, employers should educate their hiring managers and supervisors regarding the questions that may and may not be asked during the hiring process and the information that may and may not be considered in determining pay. Employers should consider reviewing their employee handbooks to ensure any included equal pay and anti-discrimination or anti-retaliation-related policies reflect the most up-to-date statutory language. Finally, employers that operate in more than one jurisdiction should audit their hiring practices in all locations to ensure compliance.

Employers should not forget third-party service providers they may be using, as employers may face additional legal exposure based on background checks performed by third parties that obtain applicants' past pay histories as part of those routine background checks. Some jurisdictions recognize the risk of a third-party background check provider causing a potential breach on behalf of the employer and carve out exceptions in certain circumstances. For example, the New York City exempts from prohibited employment practices "[a]ny attempt by an employer . . . to . . . conduct a background check, provided that if such . . . background check discloses the applicant's salary history, such disclosure shall not be relied upon for purposes of determining the salary, benefits or other compensation of such applicant during the hiring process." The San Francisco ordinance, in another example, uses similar language and exempts employers from liability for discovery of applicants' past pay history through background checks, so long as the disclosed information plays no role in determining the amount of pay during the hiring process or in determining whether the offer of employment will be made at all. The laws in other jurisdictions contain no exceptions similar to those in New York City and San Francisco, which could result in employer liability for routine background checks performed by third-party providers.

Conclusion

In recent months, a number of past pay privacy laws have sprouted up in various United States jurisdictions. Based on this new trend, the popularity of such laws is highly unlikely to decrease in the future. Although past pay privacy laws rightfully aim to benefit the groups that historically have been disadvantage by lower wages, they also create legal exposure and compliance issues. In jurisdictions that are already, or soon will be, affected by the new past pay privacy laws, clients are advised to contact legal counsel and have their employment policies and practices reviewed to ensure compliance. In jurisdictions that have not yet been affected by similar laws, employers should monitor their state and local legislative bodies to ensure proper preparation and timely response to potential new legislation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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