Funds Talk: June 2017 - New York City Firms Face Restrictions on Compensation Questions During Hiring

by Kramer Levin Naftalis & Frankel LLP
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Kramer Levin Naftalis & Frankel LLP

A new New York City law will significantly affect the hiring practices of companies, including financial firms, operating within the city.

Passed by New York City Council on April 5 and signed by Mayor Bill de Blasio on May 4, the law prohibits questions related to compensation during the interview process. Due to the city’s key role as a global financial capital, the change will have a significant effect on funds and other financial firms with operations in the city, which must be aware of the new requirements and adjust their hiring practices accordingly.

Specifically, the law prohibits private employers from either (i) inquiring into an applicant’s current or previous salary with another employer or (ii) relying on an applicant’s salary history to make any compensation determinations during the hiring process. In addition, employers cannot search publicly available records or ask the applicant’s former employer for compensation information. Importantly, the law defines “salary” broadly as including salary, benefits and other compensation.

However, despite these restrictions, compensation is not an entirely forbidden subject. If an applicant “voluntarily and without prompting” chooses to reveal his or her salary history, an employer may consider this information in determining compensation. Employers also may announce in a job listing or elsewhere the salary or salary range for the position. Nor does the law apply to internal applicants for transfer or promotion, thus making it clear that an employer is permitted to consider a current employee’s compensation in making these decisions.

Furthermore, prospective employers are still allowed to ask applicants about their expectations regarding compensation and benefits, including any unvested equity or deferred compensation that an applicant would forfeit by leaving his or her current employer. Moreover, the law does not affect employers’ ability to conduct background checks, provided they do not seek compensation information from former employers or otherwise.

The law is now in a 180-day implementation phase before becoming effective on Oct. 31.

New York City is not the first jurisdiction to enact these restrictions, and it will not be the last. Similar laws are already on the books in Massachusetts (effective July 2018) and Philadelphia (effective May 2017). Additionally, more than 20 other cities and states have proposed similar legislation. Given this trend, employers that have employees outside New York City need to regularly monitor developments in other jurisdictions.

To comply with the new law, New York City employers should do the following:

  • Update employment applications to ensure questions regarding compensation history are removed from all hiring documentation.
  • Train recruiters and hiring managers to abstain from inquiring into an applicant’s historical compensation or benefits.
  • Ensure that background checks do not seek information regarding historical compensation.
  • Consider whether to implement a procedure to inquire about applicants’ compensation expectations as a standard part of the recruiting process.
  • Companies operating in multiple jurisdictions should consider whether to enact companywide policies preventing salary history inquiries during the hiring process, which would need to ensure compliance with the expanding universe of laws addressing such issues and their sometimes divergent requirements, or whether such restrictions should instead be implemented on a jurisdiction-by-jurisdiction basis.

[View source.]

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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