New salary history law raises new questions

Assembly Bill 168, recently approved by Gov. Jerry Brown, prohibits an employer from asking a job applicant about salary his or her history. The new law puts more teeth into the California Fair Pay Act of 2015, which is intended to eliminate gender-based pay inequities. The legislation is another step in paring down the job application itself, as Gov. Brown also approved a law that bans the job application box and pre-employment inquiries into prior criminal history.

The bill creates Labor Code Section 432.2, which will have serious consequences for employers. Effective Jan. 1, 2018, an employer may not directly or through an agent seek information about an applicant's past wages. Staffing and employee leasing companies as well as temporary employment agencies that obtain applicant information in person or online will also have to eliminate the column in the application that asks for the "highest wage/salary paid" or "final rate of pay" when an applicant identifies prior employers. And individual background checks, whether done internally or through an outside service, will no longer be able to obtain and communicate that information. Moreover, to minimize entanglement in claimed violations of the new law, employers and their human resources managers may refuse to provide prior salary history without written consent from the former employee.

While the new law permits a job applicant to voluntarily disclose prior pay history without prompting, recent statistical sources report that upwards of 40 percent of job applicants exaggerate their prior salary. When this occurs in the future, the employer will have no way of assessing the truth of a distorted disclosure. Terminating an employee for falsification of prior salary on a job application will not be possible because the application will not contain the information. An employer who obtains the correct information and rejects the job applicant or terminates an employee because the volunteered salary history was falsified will be at risk if compelled to explain how the correct information was obtained.

At first reading, the new law appears focused on information obtained from a candidate in the time period before an offer of employment is extended. What if the information is obtained later, for example, when a former employee who has sued and is deposed? May defense counsel to ask about prior salary history? If the testimony discloses that during the job interview the deponent falsified prior salary, does that cut off damages? In Salas v. Sierra Chem. Co., 59 Cal. 4th 407 (2014), the Supreme Court reasoned that an employee should only be able to recover damages for the time period from when he or she was originally terminated until the time that the employer discovered evidence of wrongdoing. At the deposition, may the plaintiff's counsel object to the question based on Labor Code Section 432.3? May the employer invoke the Fifth Amendment if asked to state under oath if the company knew that the plaintiff had exaggerated his or her prior salary history, even if only civil penalties are at issue?

The new law follows on the heels of and supports the California Fair Pay Act, effective Jan. 1, 2016, which is designed to help women achieve pay equity with men when performing the same or similar duties. In 2013, according to the legislative history when that Act was under consideration, the average woman in California working full time earned a median of 84 cents to every dollar earned by a male, resulting in a statewide annual gender pay gap of $33 billion. The act allows female employees to compare their work with that done by males at the same or comparable locations, while extending to employers the opportunity to defend against pay inequity challenges by showing that pay differences result from seniority, quantity or differences in productivity, and other specific bona fide factors other than gender that are compelled by business necessity. Many employers have undertaken audits of their compensation practices to ensure that they are not vulnerable, particularly to class action claims of pay inequity.

AB 168 allows an employer to rely on salary history that is voluntarily disclosed, but states that it is not intended to allow such disclosed prior history, by itself, to justify any pay disparity in compensation addressed by the California Fair Pay Act.

In the view of Gov. Brown and the Legislature, nondisclosure of prior pay promotes pay equity. Taken together, AB 168 and the Fair Pay Act suggest that employer best practices are to post job openings at a stated pay range, and to make offers within that range based only on experience and other subjective, non-discriminatory considerations. If an applicant volunteers salary history, that information should be documented and, under AB 168, the employer may consider or rely on the information in determining the salary for that applicant. While it may undermine the intent of the Fair Pay Act, AB 168 invites any applicant who is eager to get back into the workforce to voluntarily disclose prior salary that is below the posted range in order to get the job offer. Both males and females, however, may take advantage of voluntary disclosure of prior pay below the employer's posted range, so that, if male and female applicants make such disclosures at the same rate, the statistical result may be gender-neutral.

Finally, employers should not be deluded into thinking that not seeking or relying on prior salary and prohibiting employees from discussing their wages and prior salary histories will insulate it from claims of equal pay violations. The National Labor Relations Board, which enforces the right of employees to engage in protected, concerted activities, has long held that even in the absence of a union and union organizing activity, an employer commits an unfair labor practice by maintaining a policy or practice prohibiting employees from discussing their wages. Automatic Screw Prods. Co., 306 NLRB 1072 (1992). California Labor Code 232 also prohibits an employer from requiring any employee, as a condition of employment, to refrain from disclosing the amount that he or she earns, to waive the right to disclose wages, or to discharge or discriminate against an employee for such disclosure. The section also prohibits an employer from requiring employees to sign a waiver or document denying their right to discuss compensation with others, including co-workers. Finally, Labor Code 1197.5(j)(1) reiterates the right of employees to discuss their wages and to inquire about another employee's wages, and prohibits an employer from discharging or discriminating or retaliating against an employee who exercises these rights.

Employers should assume that employees often discuss wages with co-workers. Employees are reminded regularly what they are paid. Labor Code 2810.5, the Wage Theft Protection Act, requires every California employer to notify new hires of the details of how and when they are paid. Labor Code 226(a) requires that pay statements which must accompany pay checks state, among other line items, the regular rate of hourly pay or salary. So when co-workers discuss their pay, it is readily apparent to a female performing the same work as a male that she is the victim of pay discrimination. In those circumstances, challenges to pay practices that evidence inequities based on gender are difficult to defend and, typically, are mediated, and the settlements amounts are often substantial.

AB 168 is an invitation to employers to compare the pay scales of its current work force to the pay ranges being offered in open positions to ensure that any pay discrepancies fall within bona fide exceptions and are not based on gender. The new law also provides another opportunity to improve the gender balance in applicant pools so that statistical gender disparities are minimized and ultimately eliminated in all positions.