United States: Some, But Not All, Of Philadelphia's Wage Equity Ordinance Declared Unconstitutional

On April 30, 2018, the United States District Court for the Eastern District of Pennsylvania held that the portion of the Philadelphia Wage Equity Ordinance that prohibits employers from inquiring as to an applicant's wage history is unconstitutional. However, the portion of the law that prohibits employers from relying on an applicant's wage history in determining the wages for the applicant remains intact, creating ample confusion for Philadelphia employers.

How Did We Get Here?

Philadelphia was the first major city to enact wage equity legislation when Mayor Jim Kenney signed it into law on January 23, 2017. As originally enacted, the Philadelphia Wage Equity Ordinance ("Ordinance") made it unlawful for employers1 in the City of Philadelphia to inquire about or rely on wage history, require disclosure of wage history, condition employment on the disclosure of wage history or retaliate against an applicant for failing to respond to an inquiry about wage history. The City's stated interest in passing the Ordinance was to curb hiring discrimination and help diminish the gender wage gap.

The Ordinance was scheduled to take effect on May 23, 2017. However, shortly after its adoption, the Chamber of Commerce for Greater Philadelphia ("Chamber") filed suit in federal court questioning the constitutional validity of the Ordinance. On February 1, 2018, the Court held oral arguments on the Chamber's motion for a preliminary injunction to seek to enjoin the Ordinance from taking effect.

On April 30, 2018, the Court ruled that the portion of the Ordinance that prohibits employers from inquiring as to an applicant's wage history ("Inquiry Provision") is unconstitutional, but the portion of the Ordinance that prohibits employers from relying on an applicant's wage history in determining the applicant's wages (the "Reliance Provision") was constitutional and, therefore, remains in effect. The Chamber of Commerce for Greater Philadelphia v. The City of Philadelphia Commission on Human Relations, No. 2:17-cv-01548 (E.D. Pa. April 30, 2018).

The Ordinance's Inquiry Provision Violates the First Amendment

As written, the Inquiry Provision of the Ordinance made it unlawful for any Philadelphia employer, employment agency, or employee or agent thereof to "inquire about a prospective employee's wage history, require disclosure of wage history, or condition employment or consideration for an interview or employment on disclosure of wage history." The Chamber challenged this provision, arguing it infringed on employers' First Amendment rights.

Courts apply various levels of scrutiny when evaluating First Amendment challenges, depending on the type of speech involved. Although the Chamber argued the Court should apply the strictest form of scrutiny, the Court determined the Inquiry Provision implicated "commercial speech" and, as such, demanded less scrutiny. Applying an intermediate scrutiny standard, the Court held that the City failed to present sufficient evidence to support that banning wage history inquiries would achieve the intended purpose of reducing the wage gap and promoting wage equity, explaining: "[w]hile the conclusion that a discriminatory wage gap could be affected by prohibiting wage history inquiries was characterized by respected professionals as a logical, common sense outcome, more is needed." The Court also concluded the Chamber had adequately established irreparable harm from the Inquiry Provision—a real and adequate deprivation of its members' First Amendment rights. Thus, the Court enjoined implementation of the Inquiry Provision.

The Ordinance's Reliance Provision Remains Intact

The Reliance Provision makes it unlawful for Philadelphia employers, employment agencies, or employees or agents thereof "[t]o rely on the wage history of a prospective employee from any current or former employer of the individual in determining the wages for such individual at any stage in the employment process, including the negotiation or drafting of any employment contract."

Unlike the Inquiry Provision, the Court did not subject the Reliance Provision to First Amendment scrutiny, agreeing with the City's argument that the Reliance Provision regulates only conduct, not speech, and does not implicate the First Amendment.

The Court also rejected the Chamber's remaining arguments that the Ordinance, as written, is unconstitutionally vague, or violates the Due Process Clause of the Fourteenth Amendment, the Commerce Clause of the United States Constitution and the Constitution of the Commonwealth of Pennsylvania. Specifically, the Chamber took issue with (1) the provision of the Ordinance permitting employers to rely on wage history that is "knowingly and willingly disclosed," arguing those terms are unclear and (2) the Ordinance's purported scope, arguing it is excessive, governing all of an employer's hiring practices—"no matter where it makes its hiring decisions or where the prospective employee will work." The Court rejected these arguments, citing the Philadelphia Commission on Human Relations' (PCHR) Regulation No. 7.2 The Court held the relevant definitions provided in Regulation No. 7 made the Ordinance sufficiently clear.

Thus, while the Inquiry Provision of the Ordinance was held to be unconstitutional, the Reliance Provision remains intact and presumably is now in effect.

What This Means for Employers

The Court's decision raises practical concerns for employers. In declaring the Inquiry Provision of the Ordinance unconstitutional but the Reliance Provision constitutional, the Court essentially puts Philadelphia employers in an untenable position—employers may ask about an applicant's wage history, but then generally may not rely upon that information in setting the applicant's wages.

How, then, should employers prepare to demonstrate that they did not rely upon an applicant's wage history in determining how to set such individual's compensation? Employers may consider implementing the following practices in conducting a search for potential candidates for a position located within Philadelphia, although such practices may minimize, but not eliminate, the risk of an employer being deemed to have improperly relied on wage history information:

  • Prior to starting the search for potential candidates:

    • Recruiters or hiring managers should determine the real market price range for the position through the use of external data sources and assess the value of the role for the organization. Internal wage audits, in consultation with counsel, may help in that process.
    • Employers should internally document the anticipated salary (or range) for the position.
    • Employers should internally document other factors, not related to an applicant's wage history, that may impact the setting of the future salary, such as an applicant's relative skill level and experience relative to the position. Notably, PCHR Regulation 7.4(b) specifically provides that an employer may ask an applicant about the applicant's salary requirements or expectations (i.e., what the applicant wishes to be paid), his or her skill level and experience relevant to the position for which the applicant is being considered.
  • If an employer chooses to ask an applicant about wage history, the applicant should be asked to certify, in advance and in writing, that he or she understands that providing this information is voluntary.
  • An employer should also confirm if a federal, state or local law permits the disclosure or verification of wage history for employment purposes. This should be documented, in writing, and explained to the applicant. The Ordinance specifically permits inquiries and reliance upon such information under these circumstances.

Notably, the Ordinance also appears to create a narrow exception to the prohibition against an employer relying on the applicant's wage history where the applicant "knowingly or willingly" discloses his or her wage history. However, PCHR Regulation No. 7.3 provides that an applicant "'knowingly and willingly' discloses the employee's salary history in the context of an employment interview if the [applicant] voluntarily, and not in response to question from the interviewer, makes the disclosure while knowing or having been informed that such disclosure may be used in determining any offered salary." (Emphasis added.)

Thus, it appears that, to the extent an employer may rely on wage history, an employer may not obtain the wage history information through actually asking the applicant. Instead, reliance on this information would only be permitted if the applicant, unsolicited, voluntarily offers the information, having already been informed that such information may be used by the employer. What remains undefined, however, is how an employer can demonstrate it informed an applicant that the disclosure may be used, without implying to the applicant that the information is being requested.

If the parsing of the language seems strained or internally inconsistent, this may be because the PCHR promulgated the regulations prior to this recent court decision. Future guidance from the PCHR may bring clarity to these provisions.

Best Practice Is Caution

Employers recruiting for positions located within Philadelphia that desire to inquire about an applicant's wage history should proceed with caution, as such wage history inquiries may place the employer at risk of being accused of (perhaps inadvertently) impermissibly relying upon the wage history information in setting wages.

The safest course of action may be to refrain from asking about wage history. Indeed, the increasingly litigious climate of pay inequity claims was recently reinforced in a Ninth Circuit Court of Appeals decision holding that an employer's reliance on wage history is "not a legitimate factor other than sex" and can support a pay inequity claim.3 As such, wage history questions may present risks to employers even in a jurisdiction such as Philadelphia where inquiring about wage history is permitted.

Finally, employers should be mindful that Philadelphia is not alone in its quest to address wage inequality. Other jurisdictions (for example, Delaware, Massachusetts, San Francisco and New York City) have enacted laws prohibiting, to varying degrees, inquiries about, use of or reliance upon applicants' wage history. To what extent such laws will be subject to First Amendment challenges remains to be seen. In the meantime, employers should specifically tailor the hiring practices and inquiries made to the laws in their respective jurisdictions.

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 regularly in contact.

Footnotes

1 Employer is defined as: "any person who does business in the City of Philadelphia through employees or who employs one or more employees exclusive of parents, spouse or children, including any public agency or authority; any agency, authority or other instrumentality of the Commonwealth; and the city, its department, boards and commissions." In addition to these requirements, an employer "must be a person who engages in the process of interviewing a Prospective Employee with the intention of considering such Prospective Employee for a position located within the City."

2 On October 24, 2017, the PCHR adopted this regulation to clarify certain aspects of the Ordinance, including when an employee "knowingly and willingly" discloses salary history and the intended "scope" of the Ordinance.

3 Rizo v. Yovino, 887 F.3d 453 (9th Cir. 2018).

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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