New York City, Massachusetts, California and Pennsylvania have all passed laws that prohibit or restrict employers from asking about salary/benefit history in the hiring process. The idea behind the laws is that gender based pay disparity may be perpetuated by basing pay on last position’s salary. Research shows that women start out with a lower salary than their male counterparts. If salary history is used as the basis for each job transition, this disparity can follow a female throughout her career and compound over time. Similar legislation has been introduced in 18 other states, so this issue is not going to go away in all likelihood (although it is being challenged in court in some areas).
As it relates to the New York law, the following are considered discriminatory employment practices:
(1) Asking an applicant, or their current/prior employer – either in writing or during the interview process – about the applicant’s wage, benefits or other compensation history. This prohibition extends to inquiries made by search firms on behalf of the prospective employer. Applicants can be asked about their historic productivity metrics, such as their level of revenue or sales at their current or prior employers.
(2) Conducting internet or other searches of public records in an effort to determine the candidate’s salary history. Employers are still permitted to conduct background checks of applicants, but if the background check discloses an applicant’s salary history, the employer may not rely on such disclosure for purposes of determining an applicant’s compensation.
(3) Relying on the compensation history of an applicant in determining what to offer the applicant with regards to salary, benefits or other compensation, unless the applicant “unprompted” and “willingly” discloses that information. If someone discloses this information, it should be documented that it was provided without prompting.
Although this is not law in Ohio, relying on past salary as the basis for determining pay may nonetheless lead to a discrimination claim if it results in pay disparity. The best practice is to ask about salary expectations as opposed to salary history. There should also be a focus on establishing the market price for the position prior to search. Deviations from the market rate for the position should be based on applicants’ skill and experience.
One situation where this can be difficult to navigate is a when a candidate has unvested equity that will be left on the table. The NY law specifically permits discussion around this issue and also around the issue of incentive comp that might be lost if a move is made. This carve out in the law is important, as often, in high level positions, making sure that long term incentive compensation is matched through a similar equity grant or signing bonus is a vital consideration for the applicant.
Critics of these laws cite that that there is no empirical evidence that banning salary history inquiries will move the needle on pay inequity. Advocates argue that if the wage gap continues to narrow at its current rate, women will not achieve pay equity in this century. These laws, they argue, aim to accelerate the pace of progress.