Mum’s the Word: California Joins the Growing List of Jurisdictions to Restrict Reliance on Prior Salary

California continues to pace the nation in terms of equal pay protections, most recently through Governor Jerry Brown’s signing of Assembly Bill 168 on October 12, 2017.  Effective January 1, 2018, California’s new law prohibits employers from asking job candidates about their prior salary, although it allows employers to consider prior salary information if a job candidate voluntarily discloses it.   California’s law further contains an unprecedented provision that requires employers to disclose to job candidates the “pay scale” for the position at issue if the job candidate requests it.  Governor Brown also signed Assembly Bill 46, which clarifies that the state’s equal pay laws apply to both private and public employers.

On October 15, 2017, Governor Brown also vetoed Assembly Bill 1209, which would have required employers with 500 or more employees in California to collect certain information on gender wage disparity for exempt employees and board members and submit such information to the Secretary of State for publication.  In vetoing this bill, Governor Brown affirmed his support for “transparency” and for “policies that ensure women are compensated equitable,” but he stated it was “unclear that the bill as written, given its ambiguous wording, w[ould] provide data that will meaningfully contribute to efforts to close the gender wage gap” and that “this ambiguity could be exploited to encourage more litigation than pay equity.”  The governor also acknowledged efforts by California’s “Pay Equity Task Force, which is comprised of members from his administration, business, academia, labor, the legislature and pay equity advocates,” and stated that “[g]uidance and recommendations coming out of the Task Force will assist companies around the state with assessing their current wage practices.”

These developments continue a trend of increasingly frequent pay equity activity in the Golden State.  Indeed, Governor Brown also signed legislation on September 30, 2016 to amend Labor Code section 1197.5 and prohibit employers from relying exclusively on prior salary in justifying pay disparities.  Accordingly, even though AB 186 still allows employers to consider prior salary if a job candidate voluntarily discloses it, the employer nevertheless may not rely on prior salary alone to justify any wage disparities between individuals performing substantially similar work.

Federal Context

To fully appreciate the significance of this issue and other restrictions materializing across the country, it is helpful to understand that federal law does not impose a strict prohibition against the use of prior salary.  Rather, such reliance is appropriate where it is one of several factors considered by an employer and is not known to be based on discriminatory market factors or used in a discriminatory manner.  See Kouba v. Allstate Ins. Co., 691 F.2d 873, 878 (9th Cir. 1982).  Within this context, several factors typically contribute to an applicant’s prior salary, including job history, experiences, skills, and market conditions.  For example, an employer may rely on education and experience (which imply greater prior pay) to explain differences in starting salaries.  King v. Acosta Sales & Mktg., Inc., 678 F.3d 470, 474 (7th Cir. 2012).

On May 11, 2017, however, Congresswoman Eleanor Holmes Norton (and a former EEOC chair) introduced House Resolution 2418, the Pay Equity for All Act of 2017, which would prohibit screening of employees based on previous wages, or requesting or requiring, as a condition for an interview or offer, the disclosure of previous wages.   The bill was referred to the House Committee on Education and the Workforce, but the Committee has taken no additional action.  In the meantime, several cities and states have taken the matter into their own hands.

Other States and Cities Restricting Reliance on Prior Salary

Already in effect are limitations in both Puerto Rico (effective March 8, 2017) and Oregon (effective October 6, 2017) that prohibit employers from asking job applicants about salary history. Unlike Oregon’s more restrictive protections, on which we previously reported, Puerto Rico provides a caveat that employers may inquire into salary history if details are volunteered by an applicant or set forth or after salary is confirmed in an offer letter.

Also, as previously reported, New York City recently enacted law to take effect on October 31, 2017, that makes it an unlawful discriminatory act for an employer to solicit applicants’ salary history information, though employers may continue to use such salary history information where provided on a voluntary basis without prompting.  The New York City law also explicitly permits employers to discuss salary expectations with a candidate.  Although the new California law does not specifically include the salary expectations language, the law seemingly allows employers to engage in such a discussion as well.

Effective December 14, 2017, employers in Delaware will be barred from asking for prior salary history.  Initial violations of the Delaware statute carry civil penalties of $1,000 to $5,000, while employers are subject to penalties ranging from $5,000 to $10,000 for each subsequent violation.

The City of San Francisco, in legislation that closely mirrors the New York City law, recently enacted a city ordinance to take effect July 1, 2018, that prohibits employers from soliciting applicants’ salary history information, considering such information in determining what salary to offer a prospective employee, and disclosing a current or former employee’s wage history without the employee’s express authorization.  More details regarding the San Francisco ordinance are available here.

Also effective July 1, 2018, Massachusetts employers will be broadly prohibited from discussing salaries or asking about an applicant’s salary history before an employment offer is made.  Massachusetts law will also prohibit employers from seeking applicant salary history from current or prior employers prior to an offer of employment, with the caveat that such inquiry is permitted if a prospective employee voluntarily discloses his or her prior compensation.

Additional municipalities to adopt prior salary laws include Philadelphia, New Orleans, and Pittsburg.  Enforcement of Philadelphia’s ordinance is currently postponed due to litigation and contemplated preemption by state legislation.

In light of these developments and increased scrutiny over employer reliance on prior salary, employers nationwide should familiarize themselves with any state or local restrictions and begin reviewing their hiring policies and practices to determine whether modifications should be made.  In jurisdictions where reliance on prior salary is not impacted by a state or local restriction, employers should also take care to consider and appropriately document the various other factors necessarily entwined with an applicant’s prior salary.