To Promote Pay Equity, California Bans Asking Applicants About Salary History

Background

Gender pay equity has been a hot topic nationally and in California in recent years. Proponents of salary history bans argue that the gender pay gap is exacerbated when employers base compensation on prior rates of pay, which may reflect historic inequities or pay discrimination by previous employers. However, employers have generally argued that they utilize salary history information for legitimate, non-discriminatory reasons, such as matching their job offers to current market rates. Reviewing salary history information allows both parties to avoid wasting time where the employee’s salary expectations far exceed what the employer is willing to offer for the position.

In the last year, a growing number of jurisdictions (Delaware, Massachusetts, Oregon, Puerto Rico, Philadelphia, and New York City) have passed laws banning employers from asking job applicants about their salary history. Last summer, San Francisco also passed such an ordinance that will go into effect on July 1, 2018.

Summary of New Laws

State of California – AB 168

Effective January 1, 2018, AB 168 generally prohibits employers from asking an applicant about their salary history and from using salary history information when deciding whether to offer employment or what salary to offer the applicant. AB 168 also prohibits agents of the company from making salary inquiries so companies may not work around the law by having external recruiters gather pay information in the screening process.

If an applicant discloses salary history “voluntarily and without prompting,” the employer may consider or rely on that information when determining the applicant’s compensation. Even in that circumstance, employers should remember that the California Equal Pay Act prohibits using salary history alone as the justification for a disparity in pay between different genders, races, or ethnicities.

What could cause the most headaches for employers is that, in addition to prohibiting inquiries into salary history information, AB 168 also requires employers to provide pay scale information to a prospective applicant, upon request. Therefore, if an applicant inquires how much a specific position pays, the employer is required to provide the pay scale for that position. This is an odd result where an applicant has the right to more pay information than current employees. Existing law does not require employers to provide current employees with the range of pay earned by their co-workers.

Note that AB 168 does not preempt local ordinances so employers must also comply with the applicable local ordinances (like San Francisco).

San Francisco Ordinance

The San Francisco ordinance, which applies to applicants for a job to be performed in the City of San Francisco, is similar to AB 168 with a few notable differences:

• In addition to prohibiting inquiries regarding salary history, San Francisco also prohibits companies from disclosing salary information of its current or former employees to prospective employers without written authorization from the individual.
• The ordinance will add yet another poster to the extensive list that San Francisco already requires employers to post. The San Francisco Office of Labor Standards Enforcement (OLSE) will publish the poster closer to the ordinance’s July 1, 2018, effective date.

California Employers Should…

…remove any requests for salary information from the recruiting process and train employees and external recruiters on the new law. Many standard applications from HR vendors ask for “rate of pay’ in the employment history section and that is a standard question asked by external recruiters. Note, however, that under both the California and San Francisco laws, it is still permissible to ask an applicant what their salary expectations are for the new position.

 …prepare to meet applicant requests for a position’s pay scale. Many Goodwin clients do not maintain formal pay scales for positions and will need to think about whether to create a pay scale.

 …companies should utilize Goodwin’s California Labor & Employment team to audit their pay practices and recruiting processes for compliance with California’s growing body of pay equity laws. Many California employment law specialists speculate that a wave of pay equity class action suits is looming as a result of the developments in the law over the past few years and increased transparency is likely to increase that risk.