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Bans on salary-history questions: a growing trend

finley-garyIt is a way to gauge expectations. It is frequently a source of stress and strategy for job applicants. It has been a standard part of job interviews since anyone can remember. And now, in Massachusetts, Connecticut and Vermont it is illegal.

The trio of states has joined a list of eight others and at least nine municipalities that prohibit employers from requesting salary history information from job applicants. Massachusetts became the first New England state to pass a salary history inquiry ban as part of its new pay equity statute, which went into effect on July 1, 2018.

Though these various laws differ in their details, all fall under the rubric of pay equity. The general premise is that women and people of color have historically been paid less than the rest of the workforce. As employers are likely to base salary offers on an applicant’s salary history, the theory is that continuing to allow prospective employers to ask about salary history (and, presumably to base their offers on that salary history) has the tendency to perpetuate a system of salary disparity based on gender, race, and other factors unrelated to merit.

Massachusetts 

The Massachusetts law provides that an employer may not ask about a prospective employee’s wage or salary history until after an offer of employment has been made, unless the prospective employee voluntarily discloses the information on his or her own.

The law applies to all employers, regardless of the number of employees they have. Given the new law’s broad definition of “wages,” it appears employers will be prohibited from asking not only about a candidate’s previous salary, but also about other forms of past compensation, such as commissions or benefits. (However, an applicant may be asked whether he or she successfully met assigned sales quotas.)

The Massachusetts statute provides that either the affected individual or the attorney general has the right to sue any employer who violates the provisions of the law related to prohibited salary inquiries. Though an affected individual can recover liquidated (double) damages plus attorneys’ fees for “any damages incurred,” proving economic damages might be challenging.

Vermont

Vermont’s law, entitled “An Act Relating to Inquiries About an Applicant’s Salary History,” went into effect on July 1, 2018.

The Vermont law specifically prohibits all employers, regardless of size, from seeking information related to past or present compensation from either the prospective employee or any of that individual’s current or past employers.

“Compensation” is defined broadly and includes wages, salary, bonuses, benefits, fringe benefits and equity-based compensation.

Vermont employers are also prohibited from requiring a prospective employee’s past compensation to meet a minimum threshold, and from determining whether to interview an individual based on his or her salary history. Thus, compensation history cannot be taken into account even if an employer happened to learn that information from a source other than the applicant.

Employers should be aware that there are certain carve-outs to the Vermont law. Specifically, prospective employees are not prohibited from voluntarily revealing past salary information; and, in such instances, employers are not prohibited from confirming the information with past employers, but only after making an offer of employment (complete with a compensation offer).

The Vermont law explicitly protects an employer’s right to ask a prospective employee about his or her salary expectations and to provide prospective employees with information about the wages, benefits, compensation, or salary offered in relation to a position.

The Vermont law does not specify an enforcement mechanism.

Employers who are comfortable banning salary history inquiries altogether — particularly multi-state employers — may decide that doing so is the easiest way to comply with all such laws.

Connecticut

Though it was enacted approximately two weeks before the Vermont Law, Connecticut’s “Act Concerning Pay Equity” did not go into effect until Jan. 1, 2019.

Connecticut’s law specifically applies to all employers of one or more individuals and prohibits an employer from inquiring, or directing a third party to inquire, about a prospective employee’s wage and salary history.

The Connecticut act defines “wage” as “compensation for labor or services rendered by an employee, whether the amount is determined on a time, task, piece, commission or other basis of calculation.”

Employers may inquire about a prospective employee’s compensation structure, so long as they do not ask the prospective employee about the value of the elements of that compensation structure.

The Connecticut act provides carve-outs for when a prospective employee volunteers salary information and for any federal or state law that specifically authorizes the disclosure or verification of salary history for employment purposes.

Connecticut’s law includes a private right of action allowing courts broad freedom to fashion appropriate remedies, including “compensatory damages, attorney’s fees and costs, punitive damages and such legal and equitable relief as the court deems just and proper.”

Other states and municipalities

Though only these three New England states currently have laws on the books prohibiting prospective employers from inquiring about salary history, similar legislation has been introduced in Maine, New Hampshire and Rhode Island.

The recent New England legislation seems to be a part of a growing national trend. As of this writing, four additional states (California, Delaware, Hawaii and Oregon) and Puerto Rico have enacted similar prohibitions that apply to both public and private entities, while another four states (Louisiana, New Jersey, New York and Pennsylvania) have adopted laws prohibiting public entities from asking applicants for salary history information.

Employers should also be aware that a number of municipalities, including San Francisco, Philadelphia, New York City, and Albany and Westchester counties in New York have passed similar measures that extend to private sector employers.

What employers should do now

Given the recent proliferation of laws prohibiting employers from inquiring about prospective employees’ salary history information, employers are encouraged, in conjunction with counsel, to review the relevant laws in all jurisdictions in which they do business. In light of that information, employers might need to reconsider whether their application materials and hiring practices need to be revised.

Employers who are comfortable banning salary history inquiries altogether — particularly multi-state employers — may decide that doing so is the easiest way to comply with all such laws.

Whether by choice or because of a legal mandate, employers who no longer ask prospective employees for their salary history as a part of the hiring process must reconsider how to set salaries for new employees.

There are several options. First, because most of these new laws do not prohibit asking prospective employees about their salary expectations, that can provide a viable option for gauging an offer.

Second, employers might use industry data in order to determine fair and competitive salary offers.

Third, an employer might consider that the salary current employees are being paid for the same work provides a good baseline for an offer. However, regarding the third approach, employers in states such as Massachusetts must be able to establish that any salary differences between male and female employees can be justified according to the allowable criteria (e.g., differences in experience or education or merit pay).

But to the extent that an employer continues to find salary history information useful, it should carefully consider the specific prohibitions of each relevant law.

Because the issue is governed by a patchwork of state and municipal laws, each with its own specific prohibitions and exceptions, and because of the ever-increasing number of jurisdictions passing these types of laws, employers should carefully tailor and frequently update their policies and practices.

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