Employers: New Law Bans Questions About Prior Compensation

New Law Banning Questions About Prior Compensation
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On Jan. 1, 2018, it becomes illegal for California employers of any size to ask job applicants their rate of pay, their bonus or commission structure, or whether they had medical coverage or other benefits in a prior job.

The law was framed in response to the payequity movement belief that tying the pay of women and minorities to prior jobs perpetuates gender and race discrimination in compensation.

Sounds easy enough. However, employers will need to learn the new rules of engagement on this issue, and do some prep in order to ensure compliance.

Scope of the New Law

The law broadly bans employers from seeking compensation history “orally or in writing, personally or through an agent,” such as through a recruiter, background investigation or placement service. The law applies to private sector and government employees.

Where an applicant “voluntarily and without prompting” shares compensation history, however, the prospective employer may consider or rely on that information in determining the salary to offer the applicant.

However, receiving such information voluntarily shared by an applicant exposes the employer to risk. Whether the applicant’s disclosure was actually voluntary and without prompting can later be negatively reinterpreted by a disgruntled applicant or employee, subjecting the employer to a claim that it asked for compensation information in violation of the law or coerced the applicant to disclose the information. The safest course may be to block applicants from sharing such information even if they genuinely wish to do so.

Also note that, even where such information is shared voluntarily, the employer may use the information only as a factor in deciding the pay to be offered to the applicant. Under the new law, even compensation information voluntarily shared may not be relied on as a factor in deciding whether to offer the applicant the job.

The new law also must be read in conjunction with California’s Fair Pay Act, which makes it illegal for employers to rely exclusively on an employee’s prior pay history to justify any difference in compensation between male and female employees or employees of different races or ethnicities. Where employees perform “substantially similar work,” the Fair Pay Act, Labor Code section 1197.5, sets out only a few narrow grounds on which employers may rely to justify paying employees of different genders, races or ethnicities differently; compensation history, alone, cannot legally justify such differences in pay.

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Finally, where an applicant requests it, the prospective employer must provide the pay scale for the job the applicant seeks. The law does not say how employers who don’t have a pay scale for a particular position are to respond to such requests. The law may be interpreted to mean that all employers must have pay scales for all positions for which they are hiring, although that’s unclear. Such an interpretation arguably would impose a significant additional burden on employers.

Consequences to Violators

As is too often the case with new employment laws in California, the new law suffers from a lack of clarity and seems to expose employers to potentially significant risk. For example, the new law does not set out whether applicants may sue employers in court for violations or any other consequences to which employers who violate the law may suffer. However, uncertainties in appellate decisions leave open the possibility of applicants suing prospective employers for the wrongful failure to hire in violation of public policy, claiming that the employer illegally asked for compensation history and didn’t hire them either because the applicants wouldn’t answer the question, or the employer didn’t like the answers.

Even more clearly, current law makes it illegal for an employer to retaliate against an employee who complains to the employer or a government agency that the employer is seeking compensation information from applicants or otherwise violating the new law. Under existing law, Labor Code section 1102.5, the employee who suffers such retaliation has a clear right to sue the employer for damages and attorney’s fees.

Actions Employers Must Take Well Before the New Year

Obviously, well before Jan. 1, all employers must review their recruiting practices, job application forms, employee manuals and new hire packets to remove all questions regarding pay and benefit history. Moreover, employers should implement policies providing that they will not seek compensation histories from applicants. Employers may wish to consider going further and adding language to their job applications saying outright that applicants shouldn’t voluntarily mention any prior pay or benefits.

All supervisors and managers involved in interviewing applicants or making hiring or compensation decisions must be trained to comply with the new law.  Jeffrey S. Horton Thomas

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