02-07-2018
By Rhonda J. Moll, Esq.
No doubt, you have heard the statistics – the U.S. Department of Labor data for 2016 showed women earned about 82 cents for every dollar a man made in 2016. The gap was much larger for African American and Hispanic women – roughly 63 cents and 54 cents, respectively.1 During the 1980s and 1990s, the pay disparity was significantly reduced, but Recently, many states and cities across the nation have enacted and implemented (or are in the process of doing so) legislation to make it unlawful for employers to ask applicants about their salary history. The purpose behind this legislation is, among others, to level the playing field for women who have historically been disadvantaged in terms of compensation, including salary and benefits. The theory behind the salary history ban laws is that asking questions during the interview and negotiation stage of hiring disadvantages women by requiring them to disclose a history of being paid less than men, resulting in the perpetuation of disparities in wages between the sexes.
But Title VII of the Civil Rights Act (Title VII), which has been in place since 1964, protects women from discrimination in employment, including in terms of compensation and benefits. Also, the Equal Pay Act (EPA), which passed in 1963, also protects against compensation inequalities between women and men. So, with these protections in place, not to mention state and local laws prohibiting sex discrimination, why do we need salary history ban legislation and what protections does it provide in the different jurisdictions that have enacted it to date?
The EPA and Its Interpretations
The EPA prohibits unlawful wage discrimination based on gender. Under the EPA, an employer is prohibited from discriminating “between employees on the basis of sex by paying wages to employees … at a rate less than the rate at which he pays wages to employees of the opposite sex ... for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and are performed under similar working conditions …”2 “The Equal Pay Act creates a type of strict liability; no intent to discriminate need be shown.”3 Under the EPA, a plaintiff has the burden at the outset to show only that he or she is receiving different wages for equal work.4
The EPA, however, sets forth exceptions to this general rule, making it lawful to engage in wage disparities based upon sex where “such payment is made pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any factor other than sex …”5 Therefore, employers can assert one or more of these affirmative defenses in an effort to defeat a claim of sex-based wage discrimination under the EPA.6
Courts that have considered EPA claims of sex-based salary discrimination based on consideration of prior salary have analyzed those claims under the “differential based on any factor other than sex” affirmative defense, asserted by defendant employers. The leading case considering such a claim is decades old, Kouba v. Allstate Ins. Co.7 In Kouba, the employer, Allstate Insurance, “compute[d] the minimum salary guaranteed to a new sales agent on the basis of ability, education, experience, and prior salary.” As result of this practice, on average, female agents made less than male agents.8 The plaintiff alleged that Allstate’s “use of prior salary caused the wage differential,” and that therefore, the differential violated the EPA. Allstate claimed that to the extent its use of prior salary “caused the wage differential,” “prior salary constitute[d] a factor other than sex.”9
The Court of Appeals for the Ninth Circuit held that a prospective employee’s prior salary may be an acceptable factor to be considered by employers in setting wages. Thus, what a prior employer paid the employee may be a “reasonable factor other than sex.” The Kouba court noted that prior salary does not automatically qualify as a factor other than sex. Rather, it held that in order to establish the defense, the employer must prove that prior salary “effectuate[s] some business policy” and the employer must use prior salary “reasonably in light of [its] stated purpose as well as its other practices.”10 The court then directed the district court on remand to evaluate Allstate’s business policies upon which it relied to use prior salary as a factor – those policies as set forth by Allstate were (1) part of its sales incentive program – to motivate its sales employees to perform, and (2) an indicator of job performance. The court directed the district court to evaluate these policies to determine if they are reasonable and to determine whether Allstate re-evaluates its use of prior salary after the employee begins to earn commissions and proves herself on the job.
More recently, in Rizo v. Yovino,11 the Ninth Circuit reinforced this principle, holding that an employer can pay a woman less than a man for the same job if the woman was paid less in her previous job and the employer used prior salaries as a measure as part of its reasonable business policy. In Rizo, the plaintiff, a female math consultant, was hired by the Fresno County school system in 2009. The plaintiff had worked as a teacher in her prior job; her last salary there was approximately $52,000. Fresno County, pursuant to its salary policy which provided that new employees will receive five percent more than what they were paid for their prior job or the minimum salary in the range for the position at issue (whichever is greater), paid her $10,000 more to start, a nice increase for the plaintiff, but the bottom of the scale for the Fresno County position. In 2012, during a conversation with her colleagues over lunch, the plaintiff discovered that others in the same job, all of whom were men, were paid more than her.
After expressing her dissatisfaction to the County and being told that her salary was set pursuant to the County’s salary policy and would not be adjusted, the plaintiff sued the County, alleging that the County’s reliance on prior salary violated the EPA. The County asserted the affirmative defense, relying on Kouba and citing four business reasons supporting its consideration of prior salary in setting salaries for new employees. Specifically, the County argued, its policy (1) is objective, in that no subjective opinions of the new employee’s value enters into the salary setting calculus; (2) encourages candidates to leave their current jobs to take a job with the County because the County’s policy provided that every hiree would get at least five percent more than their current salary; (3) prevents favoritism and ensures consistency; and (4) furthers the County’s purpose of conserving taxpayer dollars.
The Rizo court remanded the case to the district court to evaluate these four business reasons to determine “whether the County used prior salary ‘reasonably in light of its stated purposes as well as its other practices.’”12 Rizo filed with the Ninth Circuit a petition to reconsider, arguing that if salary history can qualify as a reasonable factor other than sex, “the exception would swallow up the rule and inequality in pay among genders would be perpetuated.” The court has granted the plaintiff’s petition, ordering that an 11-judge panel will rule on the case.
While the Seventh and Eighth Circuits have ruled similarly to the Ninth Circuit,13 the Tenth and Eleventh Circuits have ruled otherwise; they hold that using salary history as the sole justification for a pay disparity violates the EPA.14
Salary History Ban Legislation Provisions
With this split in the circuit courts on the issue, several states and municipalities have passed legislation in the last several years to remedy an employer’s use of salary history as a basis for paying women less than men for equal work. As of this writing, the following states have passed such legislation – California, Delaware, Massachusetts, and Oregon. Puerto Rico has also passed a salary history ban law. Additionally, the following cities have also passed legislation – New Orleans, New York City, Philadelphia, Pittsburgh, San Francisco, and Albany. Below, we will take a look at the provisions of the state laws and highlight the laws of some of the cities and Puerto Rico where they differ in a significant way.
State Laws
California
California’s law, which went into effect on January 1, 2018, bans both public and private employers from asking for salary history information, including compensation and benefits, about any applicant.15 If an applicant, “voluntarily and without prompting” discloses salary history or if the salary information for the applicant is publicly available, the employer may rely on that information in determining the applicant’s salary. The law also requires employers to provide applicants with the pay scale for the job in question. The law also provides that salary history alone is not enough to justify a disparity in compensation; therefore, California employers cannot decide compensation for new or existing employees based on prior salary alone. Under the California law, employers can be sued under the state Private Attorneys General Act and California’s unfair competition statute for violations of the salary history ban legislation.
Delaware
Delaware’s law, effective December 14, 2017, provides that employers cannot inquire into an applicant’s compensation history (including wages, benefits and other forms of compensation), either from the applicant or his or her prior employer, before an employment offer with specific terms of compensation has been made and accepted. Once those actions occur, the employer can then confirm salary history. Like California, the applicant can still offer compensation history information and the employer can then negotiate with the applicant regarding compensation. Unlike California, however, there is no prohibition on relying on salary history only when setting compensation where the applicant discloses the information.
Employers found in violation of the Delaware pay inquiry ban law can be fined between $1,000 and $5,000 for the first violation and between $5,000 and $10,000 for each violation thereafter.
Massachusetts
The Massachusetts Pay Equity Act became effective January 1, 2018. Like the other states, it prohibits employers from seeking the salary history (including wages and benefits) of applicants or screening applicants based on their wages.16 If an applicant gives written consent, the employer may, however, confirm prior wages and benefits with a former employer, but only after an offer of employment with compensation terms has been made to the candidate. Unlike in Delaware, the offer need not be accepted before the employer can make this inquiry. The Massachusetts law also provides that employers may not retaliate against employees who oppose an action or practice that is prohibited under the law.
The law provides a private right of action for violations, where the employee can seek the difference between the wages and benefits he or she earns and those earned by a comparator. An employer may avoid liability if it can show it has completed a good faith self-evaluation of its pay practices and has made reasonable progress in eliminating discriminatory wage differentials within the prior three years before the lawsuit was brought.
Oregon
The Oregon law went into effect in October 2017, and like the
Cities and Puerto Rico
As mentioned above, Puerto Rico and various cities across the United States have also passed legislation making it unlawful for employers to inquire into an applicant’s past compensation. We note below the distinctions some of those laws provide and recent highlights regarding their implementation.
New York City’s law, which went into effect on October 31, 2017, bars employers from conducting searches of public records to obtain salary history information (unlike California’s law) and makes it illegal to rely on such information in determining an applicant’s compensation package.18 Like the other laws, however, if a candidate “voluntarily and without prompting” offers his or her previous compensation, an employer can confirm that information and use it in determining compensation. The New York City Commission on Human Rights, the agency responsible for implementing and enforcing the law, issued
Philadelphia’s salary inquiry ban ordinance was scheduled to go into effect in May 2017,19 but it has been put on hold pending a legal challenge filed by the Philadelphia Chamber of Commerce. The Chamber of Commerce argues against enforcement of the ordinance on several constitutional grounds, most notably, the First Amendment. According to the Chamber, the ordinance contains both content-based and speaker-based restrictions on employer speech that should be subject to “strict scrutiny” review.20 Under this analysis, sometimes described as “strict in theory, but fatal in fact,” the City would have to show that its restrictions on employer speech are “narrowly tailored” to, or the least restrictive means of, achieving the law’s goal of combatting gender-based pay disparities.21 The Chamber argues that the ordinance does nothing to directly address the wage gap and, even if it did, less restrictive alternatives exist. For example, under one alternative, the City would “encourage employers to conduct self-evaluations to ensure their employees receive a fair market wage.” Another less restrictive alternative suggested by the Chamber is that the City “more aggressively enforce existing equal-pay laws.” The Chamber also argues that the ordinance violates the First Amendment even if analyzed under “intermediate scrutiny” review. Intermediate scrutiny review would require the City to establish that its restrictions on employer speech further a substantial government interest, directly advance that interest, and are “not more extensive than is necessary to serve that interest.” The Chamber contends that there is no evidence a prohibition on wage history inquiries by prospective employers will have any substantial impact on reducing gender-based wage discrimination. Again, the Chamber suggests alternatives to the ordinance’s complete bar on obtaining and using wage histories.
Takeaways for Employers
Employers should review their applications, recruitment strategies, and hiring practices and policies to determine whether they are in violation of any state, city, or other applicable laws which may prohibit inquiries into or reliance upon an applicant’s prior compensation. Questions relating to prior salaries should be removed from job application forms and other hiring documents in those jurisdictions where such inquiries are prohibited.
In addition, employers should ensure that they are not releasing prior salary and benefits information of any employee or former employee without a properly executed written consent from the individual at issue.
Human resources staff, managers who participate in the interview process, and outside recruiters involved in hiring should be trained on the requirements of these new laws. Where the law may permit conversations regarding prior salary, for example, or in circumstances where the applicant voluntarily and without prompting discloses the information, such communications should be carefully documented in writing to avoid disputes arising about the nature of such communications.
Employers should also apply benchmarks to determine compensation that