Compensation-Related Information from Prospective Employees – Don’t Ask, Can Tell

New York City’s mayor signed legislation captioned, “Prohibiting Employers From Inquiring About a Prospective Employee’s Salary History” (Int. No. 1253-A) (the “NYC Salary Law”) on May 4, 2017. The NYC Salary Law amends the New York City Human Rights Law (the “NYCHRL”) and will be effective as of October 31, 2017. It will apply to all New York City employers, regardless of the number of employees.

Background

According to the official summary of the bill, the purpose of the NYC Salary Law is to address the gender wage gap and to “reduce the likelihood that women will be prejudiced by prior salary levels and help break the cycle of gender pay inequity.” A report from the NYC Council’s Committee on Civil Rights further explains that the bill was intended to “proactively address[] the ‘anchoring effect’ that salary histories, which follow women throughout their careers, can have on the gender pay gap.”

Previously, New York State enacted the Achieve Pay Equity Act, which expands protections for women in the workplace by prohibiting employers from forbidding their employees to inquire about, discuss or disclose wage information, except under very limited circumstances. The Achieve Pay Equity Act also increases the amount of liquidated damages that may be awarded under New York State’s labor law for failure to pay wages in the case of a willful violation.‎ Dechert previously published an OnPoint on this Act: Achieve Pay Equity Act and Other Developments Impose Additional Requirements on New York Employers.

There is also a bill currently before the New York State Senate that would prohibit employers from seeking salary history from prospective employees (New York State Senate, A.B. A5982). ‎ Several other jurisdictions have enacted similar legislation, including the State of Massachusetts (Mass. Gen. Laws ch. 149, § 105A(c)(2) (to become effective in 2018)) and the City of Philadelphia (Phila. Code § 9-1131). In addition, California has passed legislation requiring that prior salary shall not, by itself, justify any disparity in compensation (Cal. A.B. 1676), and several other states are considering similar legislation.

Bans on salary inquiries in different jurisdictions have raised legal challenges. In Philadelphia, recent legislation on this issue has been challenged on First Amendment grounds and implementation of the law has been stayed pending the outcome of the litigation. See The Chamber of Commerce for Greater Philadelphia v. City of Philadelphia Comm’n on Human Relations, Civil Action No. 17-01548 (E.D.P.A. filed Apr. 4, 2017).

Discussion

Under the NYC Salary Law, it is generally unlawful for an employer or an employment agency (or their employees or agents) to (i) communicate any question or statement regarding an applicant’s salary history to (A) an applicant, (B) an applicant’s current or prior employer, or (C) a current or former employee or agent of the applicant’s current or prior employer, or (ii) rely on the salary history of an applicant in determining the salary, benefits or other compensation for the applicant.

The NYC Salary Law contains a number of express exceptions to the new prohibitions. For example, there may be discussions about the applicant’s compensation expectations of the new employer. As another example, if an applicant “voluntarily and without prompting” discloses salary history, the prospective employer is permitted to consider the applicant’s salary history when determining salary, benefits and other compensation, and may take steps to verify the applicant’s self-reported salary history.

Under the NYCHRL, an aggrieved prospective employee may either file a complaint with the New York City Commission on Human Rights or file a lawsuit directly in New York State court. Under the broad protections of the NYCHRL, a wide range of relief is available to successful claimants, including punitive damages and attorney’s fees, and there is also the possibility of additional civil penalties.‎

Certain Legal Issues

Courts have held that the NYCHRL applies whenever the impact of the discriminatory action is felt or experienced within New York City. See e.g., Hardwick v. Auriemma, 116 A.D.3d 465, 467 (1st Dep’t 2014). Thus, there is a risk that an employer interviewing a candidate for a position based outside of New York City may still be held liable for a violation of the NYC Salary Law if the interview itself took place within New York City.

Another matter of concern involves the interplay between the NYC Salary Law and employment turnover in the context of mergers and acquisitions and other corporate and corporate-type transactions. It is not entirely clear how the NYC Salary Law would apply in the context of an asset sale and a variety of other transactional situations.

Next Steps

To prepare for compliance with the NYC Salary Law, employers may wish, for example, to review internal hiring policies and practices for possible compliance issues; remove salary history questions from all job application materials, as well as from background checks and other verification inquiries;‎ develop training programs geared to the NYC Salary Law’s prohibitions; confirm that external recruiters and other providers used by the company are familiar and in compliance with the NYC Salary Law; and develop record-keeping approaches designed to facilitate verification of compliance.

If you would like to discuss any aspect of the NYC Salary Law or would like any additional information, please contact one of the Dechert attorneys listed below or any Dechert attorney with whom you regularly work.