California Pay Equity Update: Employers Cannot Ask for Prior Salary

On October 12, 2017, Governor Brown signed into law AB 168, which makes it illegal for employers to ask for or rely upon a candidate’s salary history—both compensation and benefits—in determining whether to offer employment, or at what salary. Significantly, the new law, which adds section 432.3 to the Labor Code, also requires employers—upon “reasonable request” by the candidate—to provide the pay scale for the position for which the candidate is applying. The new law takes effect on January 1, 2018, and will apply to all employers, regardless of size.

There are two limited exceptions to the salary history restriction. First, employers may review and consider salary history information that is publicly available pursuant to federal or state law (for example, under the California Public Records Act or the Freedom of Information Act). Second, salary history may be discussed if an applicant “voluntarily and without prompting” discloses that history to a potential employer. In those circumstances, the employer may consider and rely on prior salary in setting that applicant’s starting compensation. However, even when an applicant makes voluntary disclosure, an employer cannot use prior salary, by itself, to justify any pay disparity, as provided in Labor Code section 1197.5.

As noted in our recent advisory, laws proscribing the use of prior salary in setting compensation appear to be the trend. These new laws are aimed at eliminating the so-called “gender gap,” by abolishing a practice that a number of state and local legislatures have determined perpetuates historic pay disparities between men and women. In passing AB 168, California has joined the ranks of New York City, San Francisco, Philadelphia, Oregon, Massachusetts, and Delaware, which already have similar proscriptions on their books.

In view of the new statute’s rapidly approaching effective date, employers with operations in California need to take the following actions to ensure compliance:

• Employment application forms (or any other documentation required of candidates during any phase of the recruiting, application, interview, or hiring process) must be scrubbed of any inquiries seeking wage or benefit data. Note that “agents” of the employer—such as recruiters—must also comply with the new statute, and an employer will be held responsible for violations by its agents. Thus, employers should take steps to ensure that any third-party recruiters that may be considered their agents also comply with these requirements.
• Managers, supervisors, and recruiting personnel must be trained not to ask candidates or prospective candidates any questions about salary history.
• In some cases, cities may have their own, more stringent and/or additional requirements to take into consideration. For example, San Francisco’s ordinance explicitly mandates that employers not “refuse to hire, or otherwise disfavor, injure, or retaliate against” an applicant for not disclosing his or her salary history, and prohibits employers from releasing the salary history of any current or former employee to that person’s prospective employer without written authorization from the employee. The ordinance further outlines specific notice requirements as well as penalties for violations found by the city’s Office of Labor Standards Enforcement. Employers based in these cities should be sure to maintain compliance with both local ordinances and the new state requirements.
• Employers will need to develop a salary range for each and every job position in California. Not only is this implicitly required by AB 168 in order to enable the employer to respond to the “reasonable requests” of applicants for this information; but also, if done properly, a pay range for each role—within which each applicant will be placed based on job-related skills, background, education, experience, and other permitted factors—will be useful in defending against any pay equity claims.  The law does not set forth what information must be included in the pay scale; it remains an open question, for example, as to whether incentives are expected to be accounted for in this scale.
• The law also does not explicitly require that pay scale information be provided in writing to the applicant. However, a written response will reduce the risks of disputes as to when, whether and what information was provided to the applicant. While no specific time limit is provided for responding to such “reasonable requests,” employers should endeavor to respond as quickly as possible, and be prepared to explain any inordinate delay.
• The statute does not provide penalties for non-compliance. Non-compliance might form the basis of an action under PAGA, with the attendant imposition of penalties and recovery of attorneys’ fees. Presumably, any actual damages suffered by an applicant or employee would also be recoverable. We anticipate that, as with equal pay claims brought under section 1197.5, the Labor Commissioner will have the authority to enforce claims brought under section 432.3, and the Department of Fair Employment and Housing will enforce pay-related discrimination claims.

As we have previously noted, the pay equity landscape is rapidly evolving. The many new laws and ordinances carry with them potentially significant increased risks for employers, especially those with operations in multiple states and cities. Before embarking on any analysis of or changes to your compensation systems and practices, you should consult experienced employment counsel to ensure that any such analyses are protected from disclosure under the attorney-client and work product privileges.