The United States Court of Appeal for the Third Circuit has issued its decision upholding the Philadelphia Wage Equity Ordinance, one of the so-called “salary history ban” laws.¹  Now that the Third Circuit has issued its decision, employers that have not already done so must begin to prepare for compliance.  

The Ordinance prohibits employers from asking prospective employees about past wages, with the stated goal of disrupting the flow of information that might otherwise be used to set pay and possibly perpetuate the gender pay gap.²  From conversations with city representatives, we are advised that a new effective date for the Ordinance will be set by the city after consultation with the business community. 

Reminder Regarding Key Requirements

The Ordinance was originally passed in 2017, but was stayed pending court challenge.  The Ordinance makes it unlawful for an employer or employment agency (or their employees or agents) to do any of the following when hiring for a position located within the City of Philadelphia:

• Ask in writing or otherwise about a prospective employee’s wage history or include a wage history question in a paper or electronic application;³ 

• Require disclosure of wage history to be considered for an interview, to be considered for employment, or as a condition of employment;⁴ 

• Rely on a prospective employee’s wage history in setting wages for such individual at any stage in the employment process, including the negotiation or drafting of any employment contract, unless the prospective employee knowingly and willingly disclosed it;⁵
• Retaliate against a prospective employee for failing to comply with any inquiry or other act made unlawful by the Ordinance;⁶ or 

• Fail to prominently display any fair practices notice issued by the Philadelphia Commission on Human Relations (PCHR).⁷

Employers can still ask prospective employees about salary requirements or expectations, skill level and experience.⁸  The Ordinance does not supersede any federal, state or local law that specifically authorizes the disclosure or verification of wage history for employment purposes.⁹  

Covered Employers

The Ordinance’s prohibitions apply to employers and employment agencies engaged in the process of interviewing a prospective employee with the intention of considering the individual for a position located within the city.¹⁰  The Ordinance is part of the city’s Fair Practices Ordinance, which defines “employer” and “employment agency” broadly:

• “Employer” includes any individual or entity doing business in the city through employees or employing one or more employees (excluding family members), as well as public agencies and authorities.¹¹ 

• “Employment agency” includes any individual or entity “regularly undertaking with or without compensation to procure opportunities to work or to procure, recruit, refer or place employees.”¹² 

Covered Prospective Employees

“Prospective employee” is defined as an individual who is seeking a position with a new employer, and whom the employer is considering hiring for a position located within the city.¹³ Further regulations or FAQs may clarify coverage for field employees whose territory includes Philadelphia.  Because New Jersey also now has a salary history ban, it is possible that employers may have to comply with both laws with respect to an employee whose position is located in both Philadelphia and New Jersey.

The regulations clarify that “prospective employee” includes existing employees seeking a new position with the employer that is within the city, and the Ordinance’s protections extend to the individual’s wage history from any previous employer.¹⁴ This differs from other salary history bans that exclude current employees, for example, laws in place in New Jersey, New York City, Massachusetts, Illinois and California.   

Wage History

The scope of protected wage history is broad, as “wages” is defined as “all earnings of an employee, regardless of whether determined on time, task, piece, commission or other method of calculation and including fringe benefits, wage supplements, or other compensation whether payable by the employer from employer funds or from amounts withheld from the employee’s pay by the employer.”¹⁵ Employers can ask about a candidate’s expectations. 

It remains to be seen whether Philadelphia will further clarify the scope of what employers can ask through additional regulations or FAQs.  For example, the salary history ban laws in New York City, San Francisco, Cincinnati, Kansas City, and Toledo permit employers to inquire about unvested equity or deferred compensation that would be forfeited or cancelled due to resignation.  The New Jersey salary history ban permits asking about the terms and conditions of commission and incentive plans at current or prior employers and the prospective employee’s experience with them (but not earnings) if hiring into a position with similar plans. 

Scope of Prohibition on Inquiring About Wage History

The Ordinance prohibits inquiring about a prospective employee’s wage history.  Unless prospective employees make knowing and willing disclosures of their own wage histories, the Ordinance does not allow inquiries later in the hiring process, e.g., after an offer of employment with compensation has been made (as permitted in New Jersey and Oregon), after an offer of employment with compensation is negotiated and made (as permitted in Massachusetts, Puerto Rico, Maine, and Washington), or after an offer has been accepted (as permitted in Delaware). 

Knowingly and Willingly Disclosed

The Ordinance prohibits relying on a prospective employee’s wage history in setting wages unless the prospective employee knowingly and willingly disclosed it.¹⁶ “Knowingly and willingly” is defined as “an action taken voluntarily, with an understanding of the nature and quality of the act.”¹⁷ In the context of an interview, “knowing and willingly” is defined as “the prospective employee voluntarily, and not in response to a question from the interviewer, makes the disclosure while knowing or having been informed that such disclosure may be used in determining any offered salary.”¹⁸ Care must be taken to ask questions that are limited to the candidate’s expectations and that are not perceived to be asking for wage history.

If a prospective employee voluntarily and willingly discloses wage history, the Ordinance permits the employer to use the information disclosed in setting pay.  However, the Ordinance does not address whether the employer may then take steps to verify the information disclosed.  Further regulations or FAQs may clarify this point. 

Effective Date to be Set

The Wage Equity Ordinance was signed into law on January 23, 2017, and was to take effect 120 days later on May 23, 2017.  However, the Greater Philadelphia Chamber of Commerce filed a lawsuit in federal court challenging the Ordinance on constitutional grounds, and the city agreed to stay enforcement of it until the lawsuit was resolved.  On April 30, 2018, the federal court issued its decision, which enjoined the Ordinance’s ban on asking about wage history, but upheld the ban on relying on wage history in setting wages.¹⁹  Both sides appealed, and on February 6, 2020, the Third Circuit upheld the Ordinance in its entirety.²  The city will set a new effective date with input from the business community.  While 120 days from Third Circuit’s order would be June 5, 2020, the city could set an earlier date, so employers should begin preparing now.  

Enforcement

The Wage Equity Ordinance will be administered and enforced as part of the Fair Practices Ordinance by the Philadelphia Commission on Human Relations (PCHR). Complaints may be initiated with the PCHR within 300 days of the alleged violation.  If the dispute is not resolved through mediation, the PCHR will investigate and come to a conclusion, either dismissing the complaint or finding probable cause.  If probable cause is found, there is an opportunity for conciliation and if that fails, a public hearing will follow, with a decision and order, which is then subject to appeal in court.  A private right of action may be filed following exhaustion of remedies either after the complaint has been pending with the PCHR for one year, or within two years from the date on which the PCHR closes the case. 

The remedies for violations of the Wage Equity Ordinance are those that are available for violation of the Fair Practices Ordinance, including compensatory damages, punitive damages, injunctive relief, reasonable attorney’s fees, and payment of hearing costs.  Penalties for repeat and/or willful violations include a fine of up to $2,000 per violation and in extreme cases, imprisonment of up to 90 days. 

Multi-State Compliance

As noted in the chart below, Philadelphia was the second jurisdiction to pass a salary history ban, after Massachusetts.  Since then, salary history bans have been enacted in 13 states (Alabama-limited, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, New Jersey, New York, Oregon, Vermont, and Washington); in Puerto Rico; and in at least eight cities or counties (San Francisco, New York City and Albany, Westchester and Suffolk Counties (NY); Cincinnati and Toledo, Ohio; and Kansas City, Missouri). 

Many of these salary history bans were part of (or supplemented) recent overhauls of state pay equity laws intended to make it more difficult for employers to justify pay disparities between male and female employees performing the same work (e.g., in California, Colorado, Connecticut, Illinois, Massachusetts, New Jersey, New York, Oregon and Washington). 

While all of these laws (except Alabama) prohibit asking candidates about their salary history, their details differ in significant ways, including:

• Whether the salary history ban is complete or whether the employer can ask about and verify salary history later in the hiring process, e.g., after an offer with compensation is made;

• Whether salary history ban extends to prohibiting questions about deferred compensation or unvested equity that may be forfeited were the candidate to resign;

• In the event of a voluntary disclosure of salary history, whether the employer can screen candidates based on it, set their pay based on it, and/or verify it with their current or prior employers; 

• Whether the employer has to provide a pay scale if requested; and

• Whether the ban applies to the prior wage history of current employees seeking a new position.

As a result, these salary history bans present a significant compliance challenge for employers operating in multiple jurisdictions. 

Compliance Steps if Hiring for Jobs Located in Philadelphia

Employers hiring for positions located in Philadelphia should begin to plan for compliance, as follows:

1. Revise hard copy and on-line applications to delete questions asking for wage history, and consider asking about salary expectations in the application or later in the hiring process.   

2. Develop talking points or script and forms to document screening calls and interviews that provide guidance on what can and cannot be asked, and how to document any knowing and willing disclosure of wage history. 

3. Revise other processes and documentation, and train all those involved in recruiting, screening, interviewing, background and reference checks, selection, making offers, and setting and negotiating compensation and benefits to ensure that (a) no inquiries are made directly or indirectly about a prospective employee’s wage history, (b) that disclosure of wage history is not required to advance in the hiring process, and (c) that wage history is not used to set pay unless it is voluntarily and willingly disclosed. 

4. Ensure that prohibited wage history is not being requested or relied on by the employer by virtue of third parties that may be involved in the employer’s hiring process (for example, recruiters, staffing agency, background check providers).

5. Consider steps that need to be taken to ensure that when internal candidates apply for positions located in Philadelphia, their wage history from previous employers is not used in setting pay.

6. Once it is available, download the fair practices notice from the PCHR’s website and post it in a conspicuous place.

Meanwhile, we will be monitoring the PCHR’s website for the new effective date.²⁴