On February 6, 2020 the U.S. Court of Appeals for the Third Circuit upheld a Philadelphia pay equity ordinance banning employers from inquiring into prospective employees’ prior pay or relying on prior pay in making compensation decisions unless candidates knowingly and willingly disclose the information. In upholding the ordinance, the Third Circuit vacated a lower court decision that enjoined enforcement of the inquiry provision on the grounds that it violated employers’ First Amendment free speech rights. While the Third Circuit acknowledged that the ordinance implicated First Amendment rights, the court found that there was “a plethora of evidence” provided by the city to meet its burden of clearing intermediate scrutiny for commercial speech. Consequently, it was reasonable for the city to conclude that the inquiry provision would address gender and race-based wage gaps based on experiments, witness testimony, and historical research concluding as much.
What This Means for Employers.
Wage History Inquiries. Employers operating in Philadelphia cannot ask candidates about their wage history in writing or otherwise; cannot require disclosure of wage history; cannot condition employment or consideration for an interview on wage history disclosure; and cannot retaliate against candidates who refuse to provide wage history.
Reliance on Wage History. Employers cannot rely on candidates’ wage history in making compensation decisions at any stage during the employment process, including negotiating or drafting employment contracts, unless candidates “knowingly and willingly” disclose the information. A disclosure is “knowingly and willingly” made only if it is voluntarily, not made in response to an interviewer’s question, and made by an individual who knows or is informed that the information could be used to determine a salary offer.
Employers are free to ask candidates about their salary requirements or expectations and can consider market data when making compensation decisions. Failure to comply with the ordinance may subject employers to civil and criminal penalties, including compensable damages, up to $2000 in punitive damages per violation, and an additional $2000 and 90-days’ incarceration for a repeat offense. Given the ordinance carries hefty fines for violations, employers should ensure those involved in the hiring and offer process are fully apprised of the law.
The ordinance, originally scheduled to take effect on May 23, 2017 will go into effect after the lower court denies the preliminary injunction per the Third Circuit’s remand instructions.