By Megan Winter
California is one of the leaders in the regulation of employee pay as states and municipalities charge ahead with pay equity laws, even as the topic has stalled at the federal level, and the California legislature has attempted to expand those laws in the current session.
Current California law requires companies to provide equal pay to employees of different genders, races, and ethnicities who perform substantially similar work and also prohibits companies from using prior salary as the sole justification for differences in pay between employees.
The legislature has expanded that latter prohibition by passing AB 168, which, if signed by Governor Jerry Brown, would further regulate companies’ inquiries into, and use of, an applicant’s prior salary history. AB 168 applies to companies of all sizes and amends the California Labor Code to prohibit companies from relying on the salary history of an applicant when deciding whether to offer employment or when deciding the level of compensation to offer an applicant.
Current law states that prior salary cannot by itself justify disparity in compensation, but the language of the current statute left open the possibility that prior salary could be one justification for compensation, just not the only justification. AB 168 would clarify that companies cannot rely on an applicant’s prior salary at all when determining compensation, even if it is just one factor. The stated purpose behind the bill is to stop companies from perpetuating prior gender discrimination at other companies by using the applicant’s salary history, but, if signed by the Governor, it will create compliance challenges for companies.
Companies have historically used salary history to screen applicants because declining compensation can be an indicator of an unsuccessful employment history. More commonly, a company seeks salary history in order to ensure its offer is competitive enough to lure the applicant away from his or her current employer. AB 168 will force companies to find alternative ways to achieve these objectives and will further push companies to standardize their compensation by factors such as position, education, and experience.
Not only does AB 168 restrict reliance on an applicant’s prior salary, it also prohibits companies from even asking about an applicant’s salary history, including compensation and benefits.
There is an exception for public employers whose employees’ salary information is available through public records requests.
This section of AB 168 will create several issues for companies. The legislation explicitly states that “agents” of a company are prohibited from making inquiries into salary history, which means any employee conducting interviews or any outside recruiter hired by the company could violate the law on behalf of the company.
Companies will need to train employees who are interviewing applicants to avoid questions about salary history and ensure that their outside recruiters are doing the same because the mere inquiry into salary history could violate the Labor Code.
AB 168 does not require that an applicant show harm from the inquiry into salary history. This means, for example, the company may violate the law if a manager asked an applicant about her current salary during an interview, even if that applicant was ultimately hired, paid a higher salary than all others in her position, and suffered no pay inequity. The question into salary history itself is the legal violation.
The only exception in the law is if the applicant voluntarily, and without prompting, discloses salary history. In that case, the company can consider and rely upon the salary history when determining the salary to offer the applicant. This exception, while favorable to companies because they can use information voluntarily revealed by applicants, could lead to disputes about whether a discussion of salary history in the interview process was “voluntary” and “without prompting.” Companies will have to ensure that interviewers do not unintentionally “prompt” an applicant to reveal salary history.
Finally, AB 168 also requires companies to provide the “pay scale” for a position if the applicant requests it. The term “pay scale” is not defined and will be subject to interpretation as to the detail of information necessary.
Additionally, AB 168 requires a “reasonable request” from an applicant, but is silent as to the amount of time that a company has to provide the pay scale information. Those companies that do not currently maintain formal pay scales will have to determine the range of possible pay for a given position, so they are prepared to comply with this requirement.
Employees who are interviewing applicants must understand this obligation because an applicant could ask an unaware employee for a pay scale, and then the company would violate the Labor Code if the pay scale is not provided. Again, the company will could have violated the Labor Code even if the applicant does not suffer individual harm by the company’s failure to comply with the request.
Governor Brown previously vetoed a similar bill, stating salary history restrictions were premature before other pay equity laws had a chance to affect the pay gap, so companies will have to wait and see if he signs it this time.
Megan C. Winter is a partner in the Fisher Phillips San Diego office. She can be reached at email@example.com.