Closing the Gender Pay Gap: Salary Histories Are Off Limits

A few weeks ago, the California state legislature passed a bill that unequivocally prohibits employers from using an employee’s prior salary, even in combination with legitimate factors, to justify a gender- and race-based pay differential for performing the same or similar work. The new legislation, which California Governor Jerry Brown signed into law on July 18th, reflects a welcome trend both at the federal and state levels to combat a common pay practice that has perpetuated the gender pay gap for decades: basing new employee compensation on the applicant’s salary history.

According to the National Women’s Law Center, women across the U.S. earn an average of around 80 cents to each dollar a man earns. The numbers are even more alarming when race is factored in: an African American woman earns 65 cents for each dollar a white man earns while Latino women earn 58 cents. This pay disparity persists more than 50 years after the passage of the Equal Pay Act of 1963, which aimed “to put an end to the ‘serious and endemic problem of employment discrimination in private industry’ and to carry out a broad mandate of equal pay for equal work regardless of sex.”

The Ninth Circuit Court of Appeals recently recognized the significant harm caused by employers’ reliance on an applicant’s prior salary in Rizo v. Yovino, a landmark en banc decision authored by late Judge Stephen Reinhardt. The court held that prior salary alone or in combination with other factors cannot justify a wage differential:

To hold otherwise – to allow employers to capitalize on the persistence of the wage gap and perpetuate that gap ad infinitum – would be contrary to the text and history of the Equal Pay Act, and would vitiate the very purpose for which the Act stands.

Similarly, many U.S. cities and states have passed laws restricting or banning the practice of questioning applicants about their salary histories, and many others have proposed similar legislation. Prohibiting discussions of a female candidate’s salary history is intended to reduce the risk that a prospective employer will underpay her for a position based on her previous wages rather than determine an objectively fair wage. In enacting its legislation, New York City explained that “rather than rely on an applicant’s previous salary, employers and job applicants can now engage in salary negotiations focused on the applicant’s qualifications and requirements for the job to set a salary.”

These laws could significantly change the hiring process for both candidates and employers – and hopefully, bring the U.S. closer to finally bridging the wage gap.

The Federal Equal Pay Act

The Equal Pay Act requires that men and women be paid equally for substantially equal work in the same establishment. “Substantially equal” jobs do not have to be identical, or have the same title, but “require substantially equal skill, effort, and responsibility and are performed under similar working conditions” within the same establishment. An employee or job applicant who alleges a violation of the EPA has the option to file a claim with the U.S. EEOC (Equal Employment Opportunity Commission), or she may take her case directly to court. Either action must be initiated within two years of the claimed unlawful compensation practice (or three years if it is a willful violation).

Disparities in pay that seem to be in violation of the EPA can be excused if they fall into one of four enumerated exceptions:

where such payment is made pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex….

Employers frequently claim that disparities in pay based on prior salary history fall into the fourth category of exception-that they are a “differential based on any other factor other than sex.” In Rizo, the Ninth Circuit specifically attacks this defense:

It is inconceivable that Congress, in an Act the primary purpose of which was to eliminate long-existing “endemic” sex-based wage disparities, would create an exception for basing new hires’ salaries on those very disparities-disparities that Congress declared are not only related to sex but caused by sex. To accept the County’s argument would be to perpetuate rather than eliminate the pervasive discrimination at which the Act was aimed.

New Laws Give Teeth to Established Legislation

As a way to combat pay inequality and carry out the legislative intent of the EPA, the local and state salary history laws are taking specific steps to close the pay gap and eliminate the “factor other than sex” defense. Most of these laws make it illegal for employers to ask about applicants’ salary histories during any point of the hiring process, including in advertisements for positions, on applications, or in interviews.

Unfortunately, the many different bans vary wildly in language and scope. Oregon’s, for example, prohibits a prospective employer from using prior salary information in any way to make decisions about compensation – even if the candidate volunteers the information. These variations can make it extremely difficult for employers to ensure that their hiring practices remain compliant across multiple jurisdictions and for candidates to know when their rights have been violated. Many of the new laws carry significant penalties for violations, including hefty fines and even potential jail time. Employers that violate New York City’s prohibition, for example, can be fined up to $250,000 for a single occurrence.

As of early 2018, Massachusetts, California, Oregon, Delaware, Puerto Rico, New York City, San Francisco, Pittsburgh, and New Orleans have passed some manner of restrictions or prohibitions on using salary history to determine new employees’ pay. (Philadelphia also enacted a ban that has been put on hold pending the outcome of a legal challenge.) Wage history bans have also been passed by New Jersey and Illinois legislatures but were vetoed by those states’ governors. Maryland, New Jersey, and New York state have previously proposed legislation on the topic that has failed to pass. These and many other states will likely see additional bills in the near future.

(*Prior results do not guarantee a similar outcome.)