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Women working full time in the United States have historically been paid just 80 percent of what their male counterparts are paid. This gap in pay tends to follow a woman from job to job because employers base a woman’s future salary on her previous, inequitable salary. Employers are blamed for perpetuating the gender pay gap and for capitalizing on cost savings in the pay disparity rather than closing the gap by paying men and women equally for the same position.

In an effort to combat this trend, many states and cities have passed salary history bans as part of broader legislative efforts to prevent employers from under-paying women. States like California, Oregon, Massachusetts and Delaware have already adopted salary history ban laws, and cities like San Francisco, San Diego, New Orleans, Pittsburgh, Albany, New York City and Philadelphia have also joined the cause. Even Puerto Rico has adopted salary ban legislation.  Some of these laws went into effect in 2017, while others will go into effect this year and into 2019.

Earlier this year, New Jersey Governor Phil Murphy signed an executive order, effective Feb. 1, which bans state agencies from asking applicants about their salary history.  In Gov. Murphy’s statement accompanying the executive order, he called the policy, “the first meaningful step towards gender equity and fighting the gender pay gap.” Eleven more states are expected to consider passing similar salary history ban laws in 2018.  Florida and New Hampshire already have pay equity bills drafted for consideration in their respective 2018 legislative sessions, which include bans on disclosure of past salary history.

The penalties for violating the salary history ban laws can be pricey. In New York City, the fine for an “unknowing” violation can be as high as $125,000, while the fine for a “knowing and continuing” violation can be as high as $250,000. In San Francisco, the fines for violating the “Parity In Pay” ordinance grows from $100 for the first offense, to $200 for the second offense, to $500 for every offense thereafter. Employers located in Philadelphia can be fined $2,000 per violation, plus jail time for repeat offenses. And in Massachusetts, affected workers can pursue class action claims.

By preventing employers from questioning a woman’s salary history to set pay decisions, the laws effectively force employers to value the position rather than the person, and to look at the market to determine a fair pay rate. Although well-intended, these laws do not remove a discussion of salary from the equation altogether. Employers can still query a female applicant about her earning expectations for the position that she is interested in securing. This puts the candidate in the awkward position of having to guess at what the employer may be willing to pay, which could lead to qualified candidates being removed from consideration because their compensation expectations are too high, or causing candidates to be underpaid because their guess was too low.

The salary ban laws also create a host of risk issues, policy inconsistencies and expense increases for employers. While job applicants may voluntarily disclose their salary history levels to a prospective employer, employers are at risk for claims by applicants who later claim that they did not voluntarily disclose the information. Employers who hire an applicant at a higher salary might face discrimination claims by another employee in the same position earning less money who was hired prior to the salary history ban.

Unable to rely on salary histories to set pay, employers are forced to expend resources in obtaining market data, surveys or analytical programs to set the rate for a certain role, costs which might reduce other benefits the employer would otherwise offer to its workforce. Those employers that are unable to afford to expend additional resources, are likely to simply guess at a fair salary range, and in doing so assume that a woman earned less than her male counterpart. Also, a wrong guess could cost the employer experienced applicants.

The salary ban laws are going to force employers to rely on their recruiting agencies to advise them on market rate and to assist in creating accurate salary ranges for a position level depending upon several additional factors like demand and experience. However, employers will not be able to circumvent the salary history ban by relying on a recruiter to obtain that information for them. A recruiter working on behalf of an employer to fill a position is, arguably, the employer’s agent and therefore would also be prohibited from extracting salary history from a candidate and sharing that information with the employer.

One of the primary concerns facing larger employers is how to remain compliant when the company operates in multiple states or jurisdictions. Some companies are simply adopting the salary history ban as the benchmark for their company’s entire human resources policies even for their offices in states or cities that do not have salary history ban laws. Setting the trend for self-policing are the giant tech companies and major banks. Earlier this year Bank of America joined Amazon and Wells Fargo by prohibiting its hiring managers across the country from asking prospective hires about their salary histories. This follows in the wake of similar action by companies like Google, Facebook and Cisco, which have also decided to prohibit inquiries about salary history across the board even though they are only required to abide by these laws in those states that have adopted salary history ban legislation.

While these companies cite administrative ease as a motivation for adopting broad-based restrictions on inquiries about salary history, they also note that the expanded policy is part of an effort to create a culture of fairness and respect, and to help address pay equity. That is, the policy expansion helps to ensure that new hires are considered based upon individual qualifications, roles and performance, rather than how they may have been compensated in the past.

The demand for pay equality is only going to grow, continuing to put pressure on legislators at all levels to consider implementing similar pay-equity legislation across the country. Despite the risks, employers are well-advised not to wait for these laws to be enacted and enforced, but to take a proactive approach to pay equity. Employers should revise their employment applications and recruitment procedures to remove salary history questions. Employers should also revise their recruitment policy and hiring documentation to expressly state that the employer prohibits inquiries about an applicant’s current or prior earnings or benefits.

Human resources managers should also be trained on appropriate interview techniques regarding compensation. For example, instead of asking for salary history, a candidate should be presented with the salary range set for a particular position, after which the candidate can determine whether to continue with the hiring process. Since Jan. 1, employers in California are required to provide the salary range for applicants upon reasonable request.

Employers also need to educate their outside recruiters. Employers should instruct their recruiters and agents who verify prior performance or perform background checks that they are not to inquire into an applicant’s current or prior earnings or benefits on the employer’s behalf, and that they are not to share any such information with the employer.

Someone’s salary history should never affect their salary in future roles. Employers who meet this challenge head-on and proactively set the tone for a culture of fairness and respect when it comes to pay equity will be sending a clear message to current and future employees that they strongly promote a productive work environment regardless of whether the state or city in which they operate has adopted salary history ban legislation.

 

Maddaloni and Flanagan are co-chairs of the Labor & Employment practice group of Schenck, Price, Smith & King, based in Florham Park.