San Francisco Adopts “Parity In Pay” Ordinance And Becomes The Latest City To Ban Employers From Asking About Prior Pay

San Francisco has become the latest city, along with a handful of states, to prohibit both private and public employers from asking job applicants to disclose their salary history.  The “Parity in Pay Ordinance” will take effect July 1, 2018, giving employers a little under a year to make any necessary changes to come into compliance.  The complete text of the ordinance, which will be enforced by the San Francisco Office of Labor Standards Enforcement (“OLSE”) is available here.

As with other states and cities that have adopted similar laws (including New York City, Philadelphia, Massachusetts, Delaware and Oregon), the San Francisco ban on prior pay inquires is based on the concept that basing current salary on prior salary perpetuates existing “pay gaps” between men and women.  As explained in the ordinance’s findings, “The problematic practices of seeking salary history from job applicants and relying on their current or past salaries to set employees’ pay rates contribute to the gender gap by perpetuating wage inequalities across the occupational spectrum. . .In effect, to the extent employers consider applicants’ salary history in setting salaries of new hires, historical patterns of gender bias and discrimination repeat themselves, causing women to continue earning less than their male counterparts and less than they would have earned, but for their gender.”

Although San Francisco’s ordinance prohibits employers from inquiring about salary history, if the applicant voluntarily discloses the information without prompting from the employer, the ordinance permits an employer to consider it in determining starting pay for the applicant.  The ordinance makes clear, however, that in such circumstances, salary history shall not by itself be used to justify paying employees of a different sex, race, or ethnicity differently for performing substantially similar work under similar working conditions, which in this respect, brings the ordinance in accordance with California’s Fair Pay Act (Labor Code Section 1197.5).  The ordinance also permits employers, without inquiring about salary history, to “engage in discussion” with an applicant about the applicant’s “expectations” with respect to starting pay, including but not limited to any unvested equity or deferred compensation or bonus that an applicant would forfeit or have cancelled by virtue of the applicant’s resignation from his or her current employer.

State and local laws prohibiting inquiries about prior pay, like San Francisco’s, are not without controversy.  Indeed, the Philadelphia Chamber of Commerce is suing the city to stop enforcement of Philadelphia’s ordinance on the basis that it is unconstitutional, will not advance gender wage equality, and will “chill the protected speech of employers and immeasurably complicate their task of making informed hiring decisions.”  Additionally, as we previously blogged, the Ninth Circuit in Rizo v. Yovino, 854 F.3d 1161, 1164-66 (9th Cir. 2017) recently held that an employer may rely on prior salary as an affirmative defense to claims under the federal Equal Pay Act (“EPA”) if “it show[s] that the factor ‘effectuate[s] some business policy’ and that the employer ‘use[s] the factor reasonably in light of the employer’s stated purpose as well as other practices.’”  Further, California’s Fair Pay Act does not prohibit employers from inquiring about prior salary; instead, as the San Francisco ordinance acknowledges, California’s equal pay law merely states that employers may not rely on salary history as the sole justification for differentials in pay between employees of a different sex, race or ethnicity when the employees perform work that is otherwise comparable under the act.

If the OLSE determines an employer has violated the San Francisco ordinance, it may subject employers to penalties, as well as bring an administrative enforcement action.  Additionally, if the OLSE determines that “prompt compliance is not forthcoming,” it may refer the matter to the City Attorney to initiate a civil action.  The ordinance also has notice and posting requirements, although the OLSE has not yet published the required notice.

It remains unsettled whether prohibitions on prior pay inquiries will sustain legal challenges, face new ones, or have any meaningful impact on addressing wage differentials.  Nevertheless, employers in San Francisco should take the opportunity now to review their policies and practices when it comes to starting pay, to ensure compliance by July 1, 2018.