Salary bans require new approach to the hiring process

It used to be common practice for employers to ask applicants about their current salary or salary history during the recruitment process. Indeed, no federal law prevents such questions. However, since 2016, an ever increasing number of states and localities have passed legislation prohibiting employers from asking applicants about their prior compensation. This is an effort to prevent well-documented pay disparities between men and women by eliminating the anchoring effect of salary histories. Massachusetts was the first such state to enact what is now commonly referred to as a “salary ban.” Under Massachusetts’s law, which takes effect July 1, 2018, employers cannot screen candidates based on their previous salary or ask salary-related questions during the interview process.

To date, seven other states and one commonwealth have outlawed pay history questions through similar salary bans: Delaware, California, Illinois, Louisiana, New Jersey, New York, Oregon, and Puerto Rico. In addition, the following municipalities have adopted salary bans: New York City, San Francisco, San Diego, New Orleans, Pittsburgh, Albany, Westchester County, and Philadelphia. A number of other states are in the process of passing similar legislation, including but not limited to Texas, Rhode Island, Maryland, Vermont, Hawaii, Florida, New Hampshire, Virginia, and Colorado. Most jurisdictions have construed the term salary broadly to encompass all manner of compensation, including but not limited to bonuses, a car allowance, and a retirement plan.

Salary bans come in different flavors. For example, the bans adopted by Philadelphia, New Jersey, and New Orleans apply only to public employers, whereas most of the state salary bans apply to private and public employers alike. California’s salary ban prohibits an employer from considering prior salary in deciding whether or not to hire an employee, even if that information is already or becomes known to the employer. Delaware’s and Puerto Rico’s salary bans, on the other hand, allow for confirmation of salary history information once an offer has been extended and compensation set, and in the case of Puerto Rico, if the applicant volunteers the information.

Similarly, certain states have adopted unique provisions that go beyond prohibiting salary questions. For example, California’s salary ban requires employers to provide a “pay scale” for the position in question upon “reasonable request” (neither of these terms is defined.) Massachusetts’s salary ban makes it an unlawful employment practice for an employer to require employees to refrain from discussing or disclosing their wages, benefits, or other compensation “as a condition of employment.”

Notwithstanding the variations among jurisdictions in terms of what the salary ban prohibits, employers that violate salary bans in any jurisdiction face fines ranging from $100 to as high as $250,000 per violation and in certain jurisdictions, even incarceration. Massachusetts’s salary ban provides applicants with a private right of action and even permits class actions. If successful, an applicant could recover liquidated damages and attorneys’ fees and costs. Salary bans do not just impact prospective employers; current and former employers may violate certain salary bans by providing or confirming an applicant’s salary without the applicant’s authorization.

In recent months, however, some states have taken the opposite tact. Both Michigan and Wisconsin have enacted preemption legislation that prohibits local governments from adopting ordinances on salary history, effectively banning salary bans within their borders. Similar attempts were made in Minnesota and Mississippi but did not ultimately succeed. Of even farther ranging import, earlier this month a federal judge in Philadelphia struck down the portion of the city’s salary ban prohibiting wage history inquiries as unconstitutional because it violates the First Amendment’s free speech clause. The portion of the ordinance prohibiting employers from relying on salary history to determine a candidate’s salary remains intact. Although this decision will likely be appealed and could end up before the Supreme Court, in the meantime it may prompt additional legal challenges to other salary bans, resulting in the modification or even wholesale elimination of salary bans in other jurisdictions.

So, are discussions of salary history completely taboo in jurisdictions with salary bans? Not quite. Many jurisdictions, such as New York City, Delaware, and Massachusetts, allow an employer to ask an applicant about his or her salary expectations for the role: i.e., the applicant’s desired salary, benefits, and other compensation. Other jurisdictions, as noted above, exempt an applicant’s voluntary disclosure of salary history information. In addition, in New York City, an employer can ask an applicant about deferred compensation or unvested equity that an applicant would have to forego in taking a new job. Relying on these “safe harbors,” however, could prove problematic. For example, an applicant could claim that his or her disclosure of past pay was not, in fact, voluntary, but due to pressure applied by the employer. Only some jurisdictions have provided guidance on this issue. New York City issued a Q&A on its salary ban advising, e.g., that a disclosure of salary history is voluntary “if the average job applicant would not think that the employer encouraged the disclosure based on the overall context and the employer’s words or actions.” Even questions about salary expectations could lead to trouble if interviewers do not explicitly state that the inquiry pertains to the applicant’s compensation expectations and does not relate to applicant’s current or past salary.

How should employers respond to salary bans? At a minimum, all employers should review their hiring process to determine whether their employment applications, background check forms, or any other forms or policies used during hiring contain salary history questions, and whether any third-party background checking vendors used by the employer request salary history when confirming prior employment. Employers that operate in only one jurisdiction can fairly easily revamp their hiring process to comply with that jurisdiction’s salary ban and retrain their staff. However, many large companies operate in multiple jurisdictions. For multi-state employers, crafting human resource policies on a jurisdiction-by-jurisdiction basis will be time consuming, costly, and likely imprudent, as many applicants interview with company representatives in multiple states. For administrative ease and to promote compliance, employers may want to consider following the lead of companies like Google, Facebook, Cisco, Bank of America, Amazon, and Wells Fargo, all of which have simply outlawed all questions about salary history at any point in the employment process in every company location.

About The Author

Carly Baratt is an Associate in the Employment, Labor & Workforce Management and Litigation & Business Disputes practices, in the New York office of Epstein Becker Green. She can be reached at cbaratt@ebglaw.com.