Will Pay History Bans Complicate Hiring Practices?

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By Genevieve Douglas

Cities and states with measures prohibiting employers from asking about an individual’s pay history see the laws as a promising solution to closing the gender wage gap. But what might these laws mean for employer hiring practices?

Laws that restrict employers from asking about past pay may be problematic for large employers, a management attorney said. Companies “are almost throwing up their hands at the prospect of different requirements in different jurisdictions—a ban on pay history being just one of the pieces to comply with,” David M. Wirtz, a shareholder in Littler Mendelson’s New York office, told Bloomberg BNA June 8. “It’s extremely challenging for large employers, and I think there’s some despair about it.”

Moreover, Wirtz said, pay history laws might not lead to pay parity. “There’s no data that I have seen that shows that this will reduce gender disparity in pay, and we’re watching for it,” he said.

Data show that women start their careers at a pay disadvantage. Women’s wages are diminished early on in their work lives, according to research from the American Association for University Women. Many women one year out of college who are working full-time are paid, on average, just 82 percent of what their male peers are paid, the research found.

If a worker’s past salary is used as a benchmark for future salary offers, there’s a “snowballing effect” in terms of perpetuating the gender wage gap, Victoria Budson, founder and executive director of the Women and Public Policy program at the Harvard Kennedy School of Government, told Bloomberg BNA June 6.

Banning employers from basing current pay on previous salaries is gaining traction because it may yield actual results, attorney Carla N. Murphy, a partner in Duane Morris LLP’s Baltimore office, told Bloomberg BNA June 8. More traditional equal pay laws can be difficult to enforce because there are so many reasons why employees may be paid differently, Murphy said. But by removing the question of past pay, employers may also remove “a ceiling” for future salaries, she said.

Budson noted that salary history plays a big role in the gender wage gap but there are other factors. “There is a whole constellation of issues that create the wage gap in the United States. They range from implicit to explicit bias presented in a variety of ways,” she said. Everything from motherhood penalties to a scarcity of job opportunities and promotions for women in high-paying science, technology, engineering and math (STEM) sectors have been cited as factors that drive down women’s wages, Budson added.

States, City Laws

California, Massachusetts, Maryland, New York City, and most recently Oregon have enacted salary history measures. In general, these measures make it unlawful for employers to seek out details on past compensation before making a job offer, and they also prohibit retaliation against applicants who refuse to disclose their salary histories.

“This salary history ban is beneficial to every worker,” Budson said. “Prospective employees have not lost any tools they can use in salary negotiations.”

In Philadelphia, a lawsuit against the city’s salary history statute by the local chamber of commerce was dismissed. The chamber claimed the ordinance would violate employers’ First Amendment rights and that “there is no evidence that prohibiting inquiries into wage history will do anything to address wage inequity.”

Although the Philadelphia lawsuit was thrown out based on standing, “it’s likely there will be another lawsuit filed” to try and block the bill, Murphy said.

How Should Employers Proceed?

Without an individual’s salary history, employers and recruiters first and foremost will need to figure out ways to base salaries “more on the market than on the person’s prior salary level,” Murphy said.

Employers should also educate recruiters and managers conducting new hire interviews about what is and is not allowed under these laws, she said. When it comes to background checks and screening, HR will need to ensure that third-party background screening companies also don’t ask for or provide salary history information, Murphy said.

“Manager training will really be essential if these laws are implemented,” Murphy added. “I think it’s tricky, and it’s going to depend on the specific language of the law,” Murphy said. Some laws may still allow general conversations about salary expectations, but “employers are going to have to be careful about that,” she added.

The issue of whether an applicant volunteers past salary will likely be a heightened source for litigation as opposed to whether that information was actually volunteered, Wirtz said. HR should have a form that specifically addresses this, he said, warning that overly frequent volunteering of this information could look suspicious.

Audits, Blanket Policies

“The goal of this legislation is not to be punitive, the goal is for organizations to get it right,” Budson said, referring to equal pay practices. Employers should start with an internal wage audit, because it is a key to figuring out what is and isn’t working in terms of disparate pay, she said. “It’s exceptionally hard to close gaps where we have no measurement tool.”

Murphy also advised that HR should make sure to conduct an internal pay audit with the help of an attorney “in an effort to make it privileged.” That may better protect an employer in the event of a lawsuit, she said.

Corporations with multiple locations may want to “err on side of caution” when it comes to asking anyone about their pay history, Murphy said, because there is potential for a lawsuit if companies can ask in one jurisdiction but can’t ask in another, and end up paying similarly situated employees differently because of knowledge of pay history.

Budson noted, however, that large companies already frequently deal with hiring employees in different regions across the nation and globe. “Multinational companies are hiring in very diverse areas,” and with these laws, such as in Massachusetts, employers are still allowed to account for a difference in pay because of geography, education, seniority, or other factors, she said.

To contact the reporter on this story: Genevieve Douglas in Washington at gdouglas@bna.com

To contact the editor responsible for this story: Tony Harris at tharris@bna.com

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