Bans on Salary History Inquiries Raise Concerns for Employers

Eric D. Olson

In recent years, a number of states and localities have passed regulations on the ability of employers to inquire into the criminal and work history of potential employees. The highest-profile of these movements has been the so-called “ban the box” effort, which seeks to bar employers from inquiring into whether applicants had been arrested or convicted of a crime in the past during certain phases of the application process. However, a lower-profile but potentially more worrisome set of laws and ordinances have begun to take effect: bans on inquiries into and the use of applicant salary histories during the hiring process. As of the date of this alert, such bans have gone into effect in California, Delaware, New York City, Oregon, and Puerto Rico, while bans go into effect in San Francisco and Massachusetts later this year and a similar ordinance has been stayed in Philadelphia pending resolution of a legal challenge.

Bans on salary history inquiries have generally arisen out of concerns regarding gender- and race-based pay inequity. Proponents of these bans contend that when employers base new employees’ compensation on past salary, the employers enshrine the pay disparities or wage discrimination of the applicant’s past employers. However, there are good reasons for employers to look at an employee’s past salary: to match salary offers to the market and to determine whether an applicant’s salary expectations align with the employer’s pay scale, among other legitimate, non-discriminatory reasons. Either way, employers must adjust their hiring processes and policies to comply with these new laws, which typically prohibit two actions: inquiring into salary history and using volunteered or inadvertently obtained salary history information.

Prohibited Inquiries and Use of Compensation History

As a general rule, the bans on salary history inquiries bar potential employers from asking applicants or their current or former employers for information about applicants’ current or former compensation, including all types of compensation, such as salary, bonuses, equity, and benefits. However, some jurisdictions’ bans go even further: New York City also prohibits searching publicly available records for the purpose of obtaining compensation information, while California (and San Francisco) prohibit inquiries directed at any source of salary history information.

Despite these jurisdictions’ limitation on asking applicants for compensation history information, nearly all jurisdictions permit the employer to use salary history information to determine compensation if the applicant voluntarily discloses that information (without an inquiry), with the exception of Oregon. Oregon also prohibits employers from using salary history to screen applicants using even voluntarily-disclosed salary history information, as do Delaware and Massachusetts, while New York City and San Francisco bar employers from using salary history information inadvertently obtained from sources other than the applicant, such as a background check.

Exceptions

Notwithstanding, employers may still ask questions which arguably touch upon salary history, though extreme caution should be exercised to avoid crossing the line into a prohibited inquiry. For example, employers may ask applicants to provide an expected salary range, or may discuss the proposed salary for the position. Employers may also ask about measures of productivity, such as hours worked or revenue created, or the value of any deferred compensation which the applicant would forego upon resignation. Some jurisdictions also permit employers to inquire into salary once a job offer has been extended and a salary has been negotiated, or after an offer has been accepted. Employers should seek counsel before undertaking such inquiries. The laws passed to date generally do not prevent an employer from considering an internal candidate’s salary when promoting or hiring a current employee into another internal position.

Recommended Steps for Employers

Employers in jurisdictions where salary history inquiry bans have gone into effect (or will go into effect) should consider taking several steps to ensure that their hiring practices are in compliance:

  1. Revise hiring manuals and procedures to emphasize that hiring managers or interviewers cannot request current or prior salary information from applicants.
  2. Train hiring managers or interviewers to ask instead about salary expectations and the anticipated salary of the position, as these questions remain permissible.
  3. Revise job application forms, if applicable, to ensure that any questions seeking salary history information are excised.
  4. Ensure that non-employee hiring agents or recruiters are aware of the applicable laws regarding salary history, and request copies of any policies designed to ensure compliance.
  5. Contact any consumer reporting agency engaged by your company to prepare background checks of applicants to ensure that the background checks do not include compensation information.
  6. Make sure that even volunteered salary information is the only type of such information used in the hiring process (unless the employer is located in Oregon, which bars the use of even volunteered salary history information).
  7. To ensure compliance with any statutes, rules, or ordinances limiting the disclosure of salary information by former employers, employers should consider revising any policies about giving recommendations for former employees so that salary information is not disclosed.

Of course, this summary only covers the broad strokes of these bans, and employers should consider engaging counsel to ensure that they are in compliance with the specific requirements of the statute or statutes that affect their hiring practices. If you have questions or would like the attorneys of Rock Hutchinson, PLLP to conduct an audit of your hiring practices to ensure compliance with these new laws and other hiring requirements, please contact us at 612-573-3688.