The U.S. Court of Appeals for the Third Circuit has ruled that a Philadelphia city ordinance that prohibits Philadelphia employers from asking applicants about their current or past pay rates is constitutional. In April 2018, a Philadelphia federal court judge held that the ban was unconstitutional because it violated the free speech clause of the First Amendment. However, this month, the Third Circuit vacated the lower court ruling and held that the ban is constitutional. As a result, Philadelphia employers must immediately begin complying with Philadelphia’s salary history ban.

Background

In 2017, Philadelphia became the first city in the country to implement a salary history ban. Many other cities and states have enacted similar bans. The Philadelphia ban prohibits employers from inquiring about an applicant’s wage history (the “inquiry provision”) or relying on wage history when determining the wages for an individual at any stage of employment (the “reliance provision”).

The inquiry provision of the ordinance prohibits “ask[ing] a job applicant in writing or otherwise . . . about [the applicant’s] wage history, requir[ing] disclosure of wage history, or condition[ing] employment or consideration for an interview or employment on disclosure of wage history[.]” The reliance provision makes it illegal for employers to “rely on the wage history of a prospective employee from any current or former employer of the individual in determining the wages for such individual at any stage in the employment process, including the negotiation or drafting of any employment contract.” The stated goal of the ban and similar statutes is to combat systematic disparities in pay among employees of different genders, races and ethnicities, on the theory that pay inequities are perpetuated when current salary is based on salary history.

Shortly after the Philadelphia ordinance was enacted, the Greater Philadelphia Chamber of Commerce sued the city, alleging that the ordinance violated the free speech rights of employers. In April 2018, a Philadelphia federal court judge found the inquiry provision of the ordinance, but not the reliance provision, to be unconstitutional. Attorneys representing both parties, the Greater Philadelphia Chamber of Commerce and the City of Philadelphia, appealed the decision to the U.S. Court of Appeals for the Third Circuit.

The Third Circuit’s Decision

On February 6, 2020, in a unanimous decision, the Third Circuit reversed the lower court decision blocking the inquiry provision of the city’s equal pay reform from taking effect, and affirmed the lower court’s decision not to block the law’s reliance provision.

With respect to the reliance provision, the Third Circuit determined that the lower court “correctly concluded that this provision does not regulate speech,” and therefore, did not necessitate a First Amendment analysis. The court explained that the reliance provision “does not restrict an employer from communicating an applicant’s worth” insofar as an employer “may still discuss an applicant’s value based on his or her qualifications and abilities.” The provision “simply attempts to prevent the employer from unknowingly incorporating past wage discrimination into the terms of an applicant’s job offer.” The employer “remains free to communicate its own valuation of the employee by making as many offers at whatever salary it deems appropriate.”

The Third Circuit agreed that a First Amendment analysis of the inquiry provision was appropriate, because the provision limits employers’ speech.

The court held that “remedying wage discrimination and promoting wage equity” is a substantial government interest and ultimately found that the city had produced sufficient evidence to establish that the ordinance would advance that interest. In evaluating whether the ordinance was sufficiently narrowly tailored, as the First Amendment analysis requires, the court explained:

[The inquiry provision] only prohibits employers from inquiring about a single topic, while leaving employers free to ask a wide range of other questions, including qualifications, work history, skills and any other job related questions relevant to performance or fit with the company. Additionally, the provision does not prohibit employers from obtaining market salary information from other sources.

[. . . ]

[I]t simply prohibits employers from inquiring about wage history at a specific point in time—after a prospective employee has applied for a job and before s/he is hired and a wage is set—when the City has determined that the risk is greatest for conduct that perpetuates discrimination. Moreover, applicants can voluntarily provide salary history if they feel it is in their best interest.

The Third Circuit ultimately found that the ordinance withstood the First Amendment challenge, reversing and vacating the district court’s ruling. As a result, both the inquiry ban and the reliance ban are now in effect and applicable to all Philadelphia employers.

Next Steps for Employers

Philadelphia is far from alone in implementing salary history bans. Similar bans have been enacted in California, Delaware, Massachusetts, New Jersey, New York, New York City, and San Francisco. If asking for salary history is part of your business’s job application or interview process, you should determine if any of the states/cities where your business operates have implemented salary history bans. If a salary history ban is applicable, take immediate steps to remove such salary history inquiries from your hiring process. Failure to do so can result in various financial penalties for Philadelphia employers, including compensatory damages to the applicant/employee, $2,000 in punitive damages per violation, and up to 90 days’ imprisonment.

Nothing in the Philadelphia salary history ban prohibits employers from asking an applicant for the applicant’s salary expectations. This is one way employers can have a conversation about salary while staying within the confines of the law. Employers should continue to watch this case, as the U.S. Supreme Court may hear it on appeal. We will keep you apprised of any updates.