California Provides Guidance Regarding Its Salary History Ban

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On January 1, 2018, California’s salary history ban (A.B. 168) took effect. Under A.B. 168, California employers are prohibited from “seek[ing] salary history information” from an applicant.1 The statute also prohibits employers from relying on an applicant’s prior salary history “as a factor in determining whether to offer employment . . . or what salary to offer an applicant.”2  In short, employers cannot ask applicants what they made at their last job, and, if the information is involuntarily disclosed, cannot rely on this information—in any way—in determining the terms of an employment offer.  On July 18, 2018, Governor Jerry Brown signed AB 2282, the Fair Pay Act Bill, which takes effect on January 1, 2019, and clarifies the application of California’s Equal Pay Act.

AB 2282 provides three main points of clarification to the original statutory text. First, it defines previously undefined terms. For example, under the California Equal Pay Act, employers must, upon “reasonable request,” provide an “applicant” with “the pay scale” that corresponds to the position sought.3  However, the legislature initially left these terms undefined, causing confusion among employers as to what a “pay scale” is, who is an applicant, and when an employer must provide one to an applicant. AB 2282, defines an “applicant” as “an individual who is seeking employment with the employer and is not currently employed with that employer in any capacity or position.”  The definition of applicant, while broad, should be considered in conjunction with “reasonable request”—defined as a “request made after an applicant has completed an initial interview with the employer.” Finally, and perhaps most important, “pay scale” is defined simply as a “salary or hourly wage range.” 

Reviewing these defined terms together, we learn that an employer is required to provide a pay scale only to an applicant—not a current employee. Further, an employer must do so only when the applicant has completed at least one interview with the employer. Stated differently, employers are not required to provide a pay scale to every individual who submits an application.

While these definitions certainly provide useful guidance, some open questions remain with respect to whether and when an employer is required to provide a pay scale. For example, the statute is silent as to whether an employer must create and provide a pay scale to an applicant where none exists.   

AB 2282 also provides some guidance regarding the questions an employer may ask during an interview with an applicant. The original statue provides a general prohibition against employer inquiries into “salary history information.” However, the original text also provides that if an applicant “voluntarily and without prompting” discloses salary history information, an employer may consider that information in determining the appropriate salary for the applicant.4 This exception created ambiguity as to what questions an employer could pose to applicants regarding their previous employment without violating the prohibition against “prompting.” AB 2282 clarifies that employers may ask applicants about their “salary expectations” for the position sought without running afoul of the statue.

Finally, AB 2282 fortifies the delineation between applicants for employment and current employees.  More specifically, it provides that, when making internal salary decisions regarding current employees, an employer may base compensation decisions on the current employees’ salary history. However, it is important to remember the Act’s general prohibition:  an employer may not pay any of its employees—including current employees—less than it pays employees of a different sex, race or ethnicity for substantially similar work. If there is a wage differential between employees of the a different sex, race or ethnicity who perform substantially similar work, California employers will avoid liability only if they can establish the disparity is due to one of the statute’s four permitted exceptions: (1) a seniority system; (2) a merit system; (3) a system that measures earnings by quantity or quality of production; (4) a bona fide factor other than sex, race or ethnicity, such as education, training or experience, that is job-related with respect to the position in question. Thus, even though employers may use current employees’ salary history in making compensation decisions going forward, they should pay close attention to any resulting wage disparities, and ensure that any disparity falls into one of these four exception categories.   

California employers should continue to critically examine their compensation structures and decisions. Employers should understand that any decision that relies principally upon salary history, even for current employees, could violate the California Equal Pay Act.

 

Footnotes

1 Id. 

2 See AB 2282, which amends Sections 423.3 and 1197.5 of the California Labor Code.

3 Id. 

4 Id.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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