A Growing Number of States and Cities Banning Salary History Inquiries

Employers who ask applicants about their salary history should be wary of a significant increase in state and local legislation barring this question. Over the past year, numerous states and localities have enacted such laws that apply to private employers, including Delaware, Massachusetts, Oregon, Puerto Rico, Philadelphia, San Francisco, and New York City. Other states are considering such legislation, including Idaho, Maryland, New York, Rhode Island, Texas and Virginia. Additional jurisdictions have passed legislation that prohibits the government from inquiring about prior salaries, but does not restrict private employers. With little meaningful action on equal pay issues anticipated at the federal level, many commentators believe states and localities will continue to forge the path on this issue, similar to efforts among states and cities to increase the minimum wage.

Salary history bans generally prohibit employers from asking applicants about their prior salary during the hiring and salary negotiation process. While each jurisdiction's law varies, "salary" is typically broadly defined to include all forms of compensation and fringe benefits. The asserted intention of these bans is to level the playing field for women and minorities, who historically have been subject to pay discrimination. The laws seek to stop prior wage discrimination from being perpetuated and compounded, and to ensure that employees are paid for what their jobs and skills are actually worth. However, applicants usually remain able to voluntarily disclose salary history information. Again, each jurisdiction's law has specific nuances.

The proper use of salary history information is an open question under the federal Equal Pay Act (EPA). The EPA prohibits unlawful wage discrimination on the basis of sex. Under the EPA, employers cannot pay higher wages to members of the opposite sex for equal work on jobs which require equal skill, effort, and responsibility that are performed under similar working conditions. The EPA places the burden on employees to demonstrate they were paid less because of sex. Employers may assert any of these four affirmative defenses that permit certain wage disparities:

• A seniority system
• A merit system
• A system which measures earnings by quantity or quality of production
• A differential based on "any other factor other than sex"

Currently, courts disagree about whether employers may rely on an employee's salary history alone as a permissible "factor other than sex." Kouba v. Allstate Insurance Company is a case many courts rely on to hold that a prospective employee's prior salary is an acceptable factor for employers to consider in setting wages. In Kouba, the Ninth Circuit Court of Appeals held that prior salary alone constitutes a permissible "factor other than sex" under the EPA. See Kouba v. Allstate Ins. Co., 691 F.2d 873 (9th Cir. 1982). Most recently, the same court addressed the use of prior salary again in Rizo v. Yovino. In Rizo, the court upheld Kouba, by restating that prior salary alone can be a permissible "factor other than sex" under the EPA. Rizo v. Yovino, 854 F.3d 1161 (9th Cir. 2017). The court noted that it does not draw any distinction between using prior salary alone and using it in combination with other factors. Id. The Seventh and Eighth Circuit courts have ruled similarly. See Wernsing v. Dep't of Human Servs., 427 F.3d 466, 467 (7th Cir. 2005); Taylor v. White, 321 F.3d 710, 719 (8th Cir. 2003). This differs from courts in the Tenth and Eleventh Circuits, which hold that the EPA bars employers from using salary history as the sole justification for a pay disparity. See Angove v. Williams-Sonoma, Inc., 70 Fed. Appx. 500, 502 (10th Cir. 2003); Irby v. Bittick, 44 F.3d 949, 952 (11th Cir. 1995). With the growing focus on equal pay laws, this circuit split could ultimately reach the U.S. Supreme Court for resolution.

Practical Guidance for Employers

Given this legal landscape, it is recommended that employers eliminate salary history inquiries from their hiring and salary negotiation processes—particularly if the employer recruits nationwide. The law is changing rapidly and there is significant risk to a blanket practice of salary history inquiries. If an employer believes salary history information is necessary in a jurisdiction where this inquiry is not prohibited, salary history information should be obtained later in the application process and not on the initial employment application. Any time an employer wants to ask about salary history, it should ensure that the salary-based questions are related to a legitimate business policy or reason.

Employers should also regularly audit their compensation practices to ensure pay equity across gender, race and other protected classes. Compensation decisions, such as with respect to starting salaries and bonus amounts, should be justified by legitimate business reasons such as skills, experience, training, education, and other relevant job factors. Employers should document the reasons for their compensation decisions and be able to explain pay differences.