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Asking for Salary History: Are you Violating the Equal Pay Act?

As Published in the January, 2017 Issue of the PELRAS Newsletter

Published on: Fri 3rd Feb, 2017 By: Joshua Hausman

In January 2017, the City of Philadelphia passed legislation prohibiting employers from inquiring about salary history from job applicants. In the same month, the City of Pittsburgh passed legislation that prohibits the City of Pittsburgh from making the same inquiries during its hiring process and encourages other employers to follow suit. Why the sudden interest in restricting use of salary history? The answer lies in a decades-long effort to close the wage gap between the genders starting with passage of the Equal Pay Act in 1963, which prohibits employers from discriminating between employees on the basis of gender in relation to wages paid. 29 U.S.C. § 206. Fast forward to a 2016 Congressional Report to the Joint Economic Committee, reciting evidence that women still make 79% of what men make who perform the same work. This statistic has renewed efforts to achieve pay equality across genders. Equal pay advocates, including the EEOC, believe that use of salary history in the hiring process locks in historical pay discrimination and that compensation decisions should be based solely on what the job requires or involves, not on what a person previously earned.

Philadelphia Bill No. 160840, which goes into effect on May 23, 2017, will make it an unlawful employment practice for any employer in the City of Philadelphia to inquire about a job applicant’s wage history or to require that an applicant disclose his or her wage history. The Bill will further make it unlawful for an employer to condition employment, or consideration for an interview or employment, on the disclosure of an applicant’s wage history, or to retaliate against an applicant for a failure to disclose. Employers will be further prohibited from basing a prospective employee’s salary on wage history “at any stage in the employment process,” unless the applicant knowingly and willingly chooses to disclose his or her wage history. “Wages” are broadly defined by the Bill as all forms of compensation paid to an employee arising out of an employment relationship. Accordingly, employers in Philadelphia must carefully examine their application materials and interview practices to ensure compliance with the new law.

The Pittsburgh legislation is ordinance No. 2017-1121, which is awaiting signature by the Mayor as of the date this article was authored. The Pittsburgh Ordinance only applies to the City’s hiring practices, but it encourages other employers to follow the City’s lead and forego using salary history to set compensation. It should be noted that the ordinances do not prohibit inquiry into a prospective employee’s desired salary, but, as detailed below, employers should consider the equal pay issues that can arise when differentials exist between compensation for the same or similar positions.

Employers beyond Philadelphia and Pittsburgh need to pay attention to equal pay issues. When any employer compensates employees in the same or similar positions differently, an equal pay issue can arise unless the differential falls into an exception under the Act such as a seniority or merit system or another factor other than gender. The federal Equal Pay Act provides that employers may not pay unequal wages to men and women who perform jobs that require substantially equal skill, effort and responsibility, and that are performed under similar working conditions within the same establishment. 29 U.S.C. § 206. Therefore, compensation decisions should be based on skills, effort, responsibilities, and working conditions, with seniority and merit based pay scales permitted. If an employer cannot demonstrate that compensation is established based on those factors, it may be vulnerable to a claim under the Equal Pay Act.

What if an employer wants to set a prospective employee’s compensation higher than that of another employee in the same or similar position, based on education or current market demand? The answer is that this could lead to a claim under the Equal Pay Act if the employees are of different genders. In such a scenario, it is crucial that the employer adopt and follow a clearly worded written policy establishing the employer’s criteria for setting compensation. Adherence to a clearly worded policy will assist in defending against an equal pay claim because such adherence is evidence that the pay differential is based on a factor other than gender

Philadelphia and Pittsburgh are not the only jurisdictions to recently amend their equal pay laws. In 2016, Massachusetts became the first state in the country to require employers to state the compensation for a position during the application process and to bar employers from asking about the applicant’s prior salary. Equal pay is also listed by the EEOC as one of six areas of strategic enforcement in 2017. Accordingly, all local governments should consider whether any of their compensation practices are vulnerable to an Equal Pay Act claim and take appropriate measures to avoid a claim.