Are questions about a job applicant’s salary history fair game or off limits?

published in McAfee & Taft EmployerLINC | May 31, 2017

By Tony Puckett

Prior salary history is a common question asked of job applicants, both during interviews and on job applications. Until recently, employers likely would not have thought twice about asking a candidate the question, “How much did you make at your last job?” But recent laws in some states and cities, as well as a court case, have raised a new question for employers: Should we even ask about salary history?

Increased efforts to address pay inequities

“Pay discrimination” is receiving more and more attention from state and municipal lawmakers, as well as courts. What is pay discrimination? The basic definition is paying unequal wages for equal work on the basis of gender – namely, paying women less for the same work that men perform. This has been the law since 1963 when the Equal Pay Act was passed by Congress.

The Lilly Ledbetter Fair Pay Act of 2009 refocused attention on gender-based pay inequities by overturning a U.S. Supreme Court case on the time period for filing complaints of compensation discrimination. Under Ledbetter Fair Pay Act, a claim of pay discrimination accrues with each paycheck. In other words, “paycheck discrimination” can occur with each payday, dramatically increasing the scope of potential liability.

Now lawmakers are attempting to address historical pay inequities. Several states and cities have passed laws to prohibit an employer from asking a job applicant to disclose pay history until after a job offer is made. The states and cities in which such laws took effect this year include Massachusetts, New York, New York City, Philadelphia, New Orleans and Pittsburgh. Several laws impose fines on employers for violations. Some include potential jail time for repeat offenses. At least 21 other states are considering similar legislation.

Why this new interest in prohibiting employers from asking applicants about salary history? A number of commentators have expressed the view that an individual’s prior salary history continues the cycle of pay inequality. Historically, women have been paid less than men for the same work. One study showed that women in New York state are paid 89 cents for every dollar that men are paid. Asking a woman applicant about her pay history often results in the employer’s pay decision being influenced by what the woman earned in her previous job, rather than pay being set based on market factors, such as job duties, the desirability of the position, the number of qualified applicants, and the broader job market.

State and municipal efforts to ban pay history questions have resulted in litigation. The Chamber of Commerce of Greater Philadelphia sued the city over the ban, arguing that the ordinance violated employers’ free speech rights and would make it more difficult for employers to set wages and attract the best candidates. The judge in the case issued an order staying the effective date of the ordinance until he can rule on the Chamber’s injunction request.

Employers’ use of prior salary histories also has come under scrutiny in a recent court case. Under the Equal Pay Act, a plaintiff must show only that she, or he, is receiving different wages for equal work. There is no requirement to prove intent. Once a plaintiff makes this showing, an employer may defend the pay difference by showing that the pay disparity is permitted by one of the four statutory exceptions in the Equal Pay Act. These exceptions are: (1) a seniority system; (2) a merit system; (3) a system that measures earnings by quantity or quality of production; or (4) a differential based on any other factor other than sex. The employer must prove one of these affirmative defenses to escape liability for the pay disparity.

Courts weigh in on pay disparity

The fourth exception is a catch-all that can justify a variety of pay practices. Recently, the Ninth Circuit Court of Appeals considered whether an employee’s prior pay history could be a “factor other than sex.” In the case, Rizo v. Yovino, 854 F.3d 1161 (9th Cir. 2017), the employer, a county in California, set all new employees’ salary at the step in the pay plan that corresponded to a 5% increase from the employee’s prior salary. This resulted in the plaintiff in the case being placed at Step 1 in the pay plan, while a male employee hired in the same position at about the same time was placed at Step 9. All the other male employees in the plaintiff’s position were also paid more than she was.

The county defended its policy as being based on a factor other than sex, namely each applicant’s prior salary history. The county offered four business reasons for its policy: (1) the policy was objective and avoided subjective opinion’s about a new employee’s value; (2) the policy encouraged applicants to leave their prior jobs to come to work for the county by ensuring a pay increase to each applicant; (3) the policy prevented favoritism; and (4) the policy was a judicious use of taxpayer monies.

The Ninth Circuit ordered the lower court to consider whether the employer’s use of prior salary can be a differential based on a factor other than sex. The lower court had refused to consider this defense by the county. The Ninth Circuit directed the lower court to determine whether the county used prior salary reasonably in light of the county’s stated business reasons for its pay policy. Thus, absent a statute or ordinance that bans asking an applicant about her pay history, an employer in the Ninth Circuit may be able to legally use pay history in setting salaries. The Ninth Circuit’s decision conflicts with the trend to ban asking applicants about their salary histories.

In the Tenth Circuit, which has jurisdiction over Oklahoma, an individual’s former salary can be considered in determining whether pay disparity is based on a factor other then sex. Riser v. QEP Energy, 2015 BL 19755 (10th Cir. 2015). However, the Tenth Circuit added that an employer may not rely solely upon a prior salary to justify a pay disparity. Id. If an employer in the Tenth Circuit relies, in part, on prior salary history to set employees’ pay rates, the employer must also use other factors to justify a pay disparity.

Best practices for employers

So, back to the question: Should an employer ask applicants about their compensation from a prior job? Clearly, such questions are banned in some states and cities. In those locations, an employer may not ask about prior pay history.

Outside of states or cities with bans on these questions, employers should analyze whether they can defend asking the question to a judge or jury. Courts have not found that prior salary history alone meets the fourth exception to the Equal Pay Act.

In Oklahoma, an employer may not rely solely on prior salary to justify pay. The employer would need other rationales to show that a pay disparity is based on factors other than sex. A better approach would be for the employer to have a compensation plan based on market factors without consideration of an applicant’s prior salary history.