Delaware; Massachusetts (effective July 1, 2018); Oregon; California; Massachusetts; Puerto Rico; New York City and Albany, New York; New Orleans, Louisiana; and Philadelphia, Pennsylvania have enacted legislation that prohibits an employer from inquiring about salary history on a job application. Similar legislation is being considered in Illinois, Idaho, Maryland, New York, Rhode Island, Texas, and Virginia. Some states prohibit government employers from inquiring, but not private employers. Applicants remain free to voluntarily disclose this information.
"Salary" is generally defined broadly to include all forms of compensation and fringe benefits.
The intention of these bans it to promote equal employment opportunities for women and minorities, two groups containing, historically, the most victims of pay discrimination.
Although some allege employers use the information to discriminate, many employers use the information to help determine if they can afford to pay the applicant what the applicant has made in the past. It is common knowledge that underpaying someone is less likely to lead to an engaged worker.
Currently, the federal courts are split as to what is the proper use of salary history information under the federal Equal Pay Act (EPA), which prohibits discrimination in pay based on gender. In defending EPA claims, employers can assert affirmative defenses as to wage disparities: a seniority or merit system; a quantity or quality production system; or a differential based on "any other factor other than sex." This third option, of course, is where the courts disagree.
Can an employer rely on salary history alone as a "factor other than sex" to justify a pay differential? The Seventh, Eighth, and Ninth Circuits would allow it, while the Tenth and Eleventh Circuit Courts of Appeal have held that the EPA prohibits employers from using salary history as the sole justification for a pay disparity. As in all matters involving a split on the issues in the federal court, this question will most likely end up being decided by the U.S. Supreme Court in the future.
If your state or city bans the practice of making salary inquiries of applicants, stop doing so. Even if it is not prohibited where you are hiring, here are some best practice considerations for employers:
1. Remove wage history questions from job applications. This is the safest route for preventing charges of discrimination. Moreover, it will simplify procedures, especially if you are a multi-jurisdictional employer.
2. Train your hiring managers and human resources personnel regarding the proper practices. Refrain from relying on salary databases.
3. Base compensation decisions, at hiring and going forward, on legitimate business reasons.
4. Document when an applicant voluntarily discloses salary information, taking care not to allow the information to be a determining factor.
5. Regularly audit your hiring practices and compensation to make sure they are nondiscriminatory with regard to any protected class status. These audits can form the basis for a defense to an EPA claim or at least as to punitive damages.