Will Salary Disclosure Laws Close the Pay Gap or Bring Unintended Consequences?

Stephanie Cook, Senior Principal, 20/20 Foresight

That question that job candidates like you hate and struggle with -- how much do you make? -- may no longer be asked in many places across the nation as states and municipalities are passing laws prohibiting employers from asking prospective employees their salary history. 

Employers in New York City lost their ability to ask candidates about their salary history with a law that went into effect in November 2017.  If found in violation, New York City employers can be fined can be as much as $250,000. San Francisco’s "Parity In Pay" ordinance takes effect on July 1, 2018 with employers in the City by the Bay facing penalties of $100 to $500 per offense starting July 1, 2019. 

In addition to those mentioned above, the states and cities that have already enacted the restriction on salary history are:

·       California (in effect);

·       Delaware (in effect);

·       Puerto Rico (in effect);

·       New Jersey (in effect for state agencies only);

·       New York (in effect for state agencies only);

·       Chicago (in effect for city agencies only);

·       Louisville (in effect for city agencies only);

·       New Orleans (in effect for city agencies and employees of contractors who work for the city only);

·       Pittsburgh (in effect for city agencies only);

·       Albany County, NY (in effect);

·       Westchester County (in effect);

·       Connecticut (takes effect Jan 1, 2019);

·       Massachusetts (takes effect in July 2018);

·       Oregon (takes effect in January 2019);

·       Vermont (takes effect July 1, 2018); and

·       Philadelphia (passed, but being fought in court by the Chamber of Commerce for Greater Philadelphia)

Meanwhile, legislatures in Michigan and Wisconsin passed measures prohibiting local jurisdictions from banning pay history inquiries and the governors of Illinois and Minnesota vetoed bills that banned the questions from being asked by employers in their states. 

Amazon Weighs In

Preemption language laws brought forward in Washington and Mississippi were voted down.  But, tackling the issue head-on, Amazon, one of the largest employers in Washington, announced in January that recruiters and interviewers working on its behalf can no longer ask interviewees what they made at their last job or consider their past pay.  With 30,000 employees in California where the law is in effect and thousands in other jurisdictions nationwide,  Amazon’s company-wide policy makes sense for them and was reflected in a statement released by the company that said the move is "in response" to changes in city and state law.

 Salary Inequity

Advocates behind the new laws believe that because of historical salary inequity between the sexes, demanding a salary history keeps women locked in a cycle of lower pay than men.  According to the Institute for Women's Policy Research, in 2017 the ratio of women’s to men’s median weekly full-time earnings was 81.8 percent.  Interestingly, the Harvard Business Review published a study in 2017 that found that women who were asked and refused to give information about their salary history were offered less than women who did disclose it. Conversely, men received a higher salary when they refused to answer the question than did the candidates who provided salary history.

As legislatures and local governments have been considering laws, the U.S. Court of Appeals for the 9th Circuit determined that considering prior compensation when setting a worker’s pay perpetuates gender disparities and defies the spirit of the Equal Pay Act.  The opinion says, “Before this decision, our law was unclear whether an employer could consider prior salary, either alone or in combination with other factors, when setting its employees’ salaries.  We now hold that prior salary alone or in combination with other factors cannot justify a wage differential.”

Some human resources and recruiting professionals believe that with the need for employees to continually add new competencies to their skill sets, going on past history alone is unfair to candidates and their skills.  There also is the fact that we are seeing many more job seekers who see salary as just one part of the compensation equation and are willing to sacrifice pay for more-flexible schedules, the opportunity to work remotely, an easier commute or other benefits they find key to job satisfaction.

Offering a bit of leeway, while the laws block employers from asking applicants about salary history in interviews or on applications, as a job applicant you are not prohibited from providing salary history.  Also, in some jurisdictions, employers still are allowed to ask applicants the salary range they expect for the roles and responsibilities of the position there are seeking.

Amid all this activity, we have found that the patchwork of regulations is confusing and complicates the hiring process.  But, whether passed piecemeal across the nation or if a federal law is enacted, the primary question remains: Will eliminating salary history questions assist in solving the pay inequity between men and women?   

Unintended Consequences?

As a senior principal in an executive marketing and job finding firm who deals with salary issues on a daily basis while counseling job candidates, I have concerns on unintended consequences of these laws and how they will affect the hiring process: 

·       When a prospective employer cannot determine a candidate’s current salary, will the initial offer be lower than it might have been had it been revealed? 

·       If they can’t ask about previous pay levels, will this cause an employer to ultimately pay less, rather than more had they had the knowledge? 

·       Could it be possible that these laws will diminish, not enhance, the chances for parity in pay between the sexes?

Answers to those questions are speculative and debatable at this point as the laws are recent and most haven’t been implemented. 

Know that with or without the provision of salary history data, on behalf of our clients we will continue to conduct respectful salary negotiations with both parties having full knowledge of the salary offer and the salary request.