In a ruling that could provide a roadmap for challenging salary history bans in other jurisdictions, a Philadelphia federal judge issued an opinion on April 30 invalidating a major element of the Philadelphia salary history ordinance enacted by the city in January 2017. Judge Mitchell S. Goldberg held that the portion of the ordinance prohibiting an employer from inquiring about a prospective employee’s wage history is unconstitutional because it violates the First Amendment’s free speech clause. However, Judge Goldberg also held that the portion of the law prohibiting employers from relying on wage history to determine a salary for an employee did not implicate constitutional concerns. Philadelphia employers now find themselves in a difficult position: They are permitted to ask about an applicant’s salary history but cannot rely on that information.

Background

Over the past two years, numerous states and cities have enacted legislation prohibiting employers from inquiring about the salary histories of applicants for employment. The stated goal of these 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. In January 2017, Philadelphia became the first city in the nation to adopt a “salary history” ban. In addition to Philadelphia, similar bans have been enacted by California, Delaware, Massachusetts, New York, Oregon, San Francisco and New York City. These laws, including the Philadelphia ordinance, generally prevent employers from asking prospective employees questions about wage history or requiring prospective employees to disclose wage history as a condition of employment, and they prohibit employers from relying on a prospective employee’s wage history in determining the wages of the employee.

As succinctly described by Judge Goldberg, Philadelphia’s salary ordinance contains two primary parts: an “Inquiry Provision” that “prohibits an employer from inquiring about a prospective employee’s wage history” and a “Reliance Provision” that “makes it illegal for an employer to rely on wage history ‘at any stage in the employment process’ to determine a salary for an employee.” The ordinance provides that violators of the law could be liable for up to $2,000 in punitive damages per violation and up to 90 days’ imprisonment for repeat offenders.

Constitutional Challenge and the Court’s Opinion

Before the ordinance’s effective date, the Philadelphia Chamber of Commerce sued the City of Philadelphia and the Philadelphia Commission on Human Relations, seeking a preliminary injunction prohibiting the implementation of the city’s salary ban ordinance on the grounds that it violated the First Amendment’s free speech clause. The court ruled on the validity of the Chamber of Commerce’s arguments in its April 30 opinion.

The court easily concluded that the Inquiry Provision implicated speech because “it forbids employers from asking questions on a specific topic.” In determining whether the ban violated the First Amendment, Judge Goldberg ruled that an employer’s salary history question to a potential employee is a form of “commercial speech.” Although protected by the First Amendment, commercial speech (defined by the Supreme Court as “expression related solely to the economic interests of the speaker and its audience”) is entitled to less protection than other types of speech, and courts typically apply a lower level of scrutiny to governmental limits on commercial speech.

While the court found that the city “has a substantial interest in promoting wage equity and reducing discriminatory wage disparities,” and that a gender pay disparity does exist, the court noted that there is scant evidence that prohibiting employers from asking applicants about their wage history would actually do anything to reduce the wage disparity. According to the court, none of the testimony before the Philadelphia City Council “addressed why asking about wage history necessarily results in the perpetuation of an initial discriminatory wage” and no witness before City Council “cited to evidence that prior wage history inquiry contributes to a discriminatory wage gap.” Judge Goldberg ruled that, even under the relaxed “commercial speech” standard, there is “insufficient evidence to establish the alleged harm of discriminatory wages being perpetuated in subsequent wages such that they contribute to a discriminatory wage gap.”

With regard to the Reliance Provision, however, the court determined that it does not implicate First Amendment concerns because it does not address “speech.” Rather, it addresses employers’ reliance on wage history.

Implications for Employers

It is likely that one or both of the parties will appeal Judge Goldberg’s ruling to the Third Circuit Court of Appeals, and it is even possible that this case eventually will make its way to the U.S. Supreme Court. In the meantime, even though Philadelphia employers are free to ask applicants about their salary history, we recommend that they strongly consider eliminating questions about salary history from their job application process. Since the part of the ordinance prohibiting employers from considering salary history at any point of the employment process still stands, employers that have obtained salary history will have a difficult time “unringing the bell” and defending a claim that, although they asked an applicant about his or her salary history, they did not consider that history during the job application process. Regardless of whether employers obtain salary history information, they will have to prove that any wage disparities between employees in different protected categories are the result of a permissible reason and not the result of past salary information.