Effective Oct. 31, 2017 the New York City Administrative Code has been amended to provide that

“it is an unlawful discriminatory practice for an employer, employment agency, or employee or agent thereof: 1. To inquire about the salary history of an applicant for employment; or 2. To rely on the salary history of an applicant in determining the salary, benefits or other compensation for such applicant during the hiring process, including the negotiation of a contract.”

N.Y.C. Admin. Code §8-107, Subdiv. 25(b).

The new rule defines “salary history” as including “the applicant's current or prior wage[s], benefits or other compensation.” Id. at Subdiv. 25(a). It excludes from salary history “any objective measure of the applicant's productivity such as revenue, sales, or other production reports.” Id. In Part III of its “Frequently Asked Questions” (FAQs), the New York City Commission on Human Rights states that “'[b]enefits' and 'other compensation' should be interpreted broadly and may include many factors, including, but not limited to, a car allowance, retirement plan, or bonuses.”

An exception to the new rule is made if the applicant “voluntarily and without prompting” provides the prospective employer with that salary history. Certain other exceptions to the new rule are described below. There is no exception based on level of pay or position.

Section 8-126 of the Code provides a penalty of up to $125,000 for “an unlawful discriminatory practice.” If the violation represents a “willful, wanton or malicious” act a penalty of up to $250,000 can be imposed.

Once an applicant is an employee the restrictions noted do not apply to the employer's subsequent inquiries about, or reliance on, the employee's salary history. Specifically, the rule states it does not apply to “[a]pplicants for internal transfer or promotion with their current employer … .” Id. at Subdiv. 25(e)(2).

Parties Subject to New Rule

In addition to the prospective employer, numerous parties to a transaction involving an “applicant for employment” may be subject to the new rule and the penalties for violating it. These parties include individual employees as well as agents of the prospective employers. Subdivision 25(b), as quoted at the outset, includes an “employment agency” and “an agent thereof.” (“Thereof” apparently refers both to an agent of the prospective employer and to an agent of an employment agency.) Agents of prospective employers may include executive search firms, compensation consultants and law firms. Neither Subdivision 25 nor the FAQs refers to a “director” of a prospective employer. Unless the New York City Commission on Human Rights rules otherwise, it should be assumed the Commission will treat such a director as subject to the new rule.

Meaning of Terms

Subdivision 25(a) provides that “to inquire” means (1) “to communicate any question or statement to an applicant, an applicant's current or prior employer, or a current or former employee or agent of the applicant's current or prior employer, in writing or otherwise, for the purpose of obtaining an applicant's salary history …” or (2) “to conduct a search of publicly available records or reports for the purpose of obtaining an applicant's salary history … .”

Subdivision 25(a) modifies this by providing that “informing the applicant in writing or otherwise about the position's proposed or anticipated salary or salary range” does not constitute an inquiry. Subdivision 25(c) provides that an employer (or other party subject to the limitation) “may, without inquiring about salary history, engage in discussion with the applicant about their [sic] expectations with respect to salary, benefits and other compensation, including but not limited to unvested equity or deferred compensation that an applicant would forfeit or have cancelled by virtue of the applicant's resignation from their [sic] current employer.”

Terms Undefined by New Rule. Subdivision 25 has left undefined a number of terms. For example, it does not define “applicant for employment.” It does not explain what it means by “to rely on … salary history” or what it means by “without prompting” in connection with an applicant's disclosing his or her salary history.

Ambiguities in Application of New Rule

In addition to uncertainties as to the meaning of terms used by Subdivision 25, as just noted, there are ambiguities as to circumstances to which the terms apply. For example, what if an employer or other person subject to the restrictions reads a proxy statement containing the salary history of a prospective employee who is a named executive officer of a public company? Is looking at a proxy statement an “inquiry”? Can a prospective employer “rely on” information as to salary history if acquired before the executive became an “applicant for employment”?

Even if a prospective employer has a carefully administered policy regarding salary histories, interviewers may pick up “bits and pieces” of that salary history during the interview process. How can the prospective employer establish that it has not relied in some way on those “bits and pieces” of the applicant's salary history in making (or deciding not to make) a job offer? The problem is avoided, of course, if the applicant voluntarily provides, without prompting, a full disclosure of his or her salary history. (In order to protect the prospective employer, any such volunteering, if given, should be in writing signed by the applicant.)

Other Jurisdictions Adopting the New Rule

A number of jurisdictions have adopted versions of the “don't inquire”/”don't rely” rule relating to a prospective employee's salary history. These include the cities of Philadelphia and San Francisco. Philadelphia suspended its version of the rule, which was scheduled to take effect in May 2017, due to a lawsuit brought by the Chamber of Commerce for Greater Philadelphia (see discussion in next section). The San Francisco ordinance is scheduled to take effect in July 2018.

Several states have adopted versions of the salary history rule. (Month and year of effectiveness are indicated in parentheses.) These include Delaware (December 2017), Massachusetts (July 2018), California (January 2018) and Oregon (October 2017).

Philadelphia Litigation

As noted, an ordinance including the “salary history” limitation was enacted by the Philadelphia City Council to take effect in May 2017. The Chamber of Commerce for Greater Philadelphia brought a suit for injunctive relief in a complaint filed April 6, 2017. The complaint was subsequently amended on June 13, 2017. The Chamber of Commerce for Greater Philadelphia v. City of Philadelphia and Philadelphia Commission on Human Relations, No. 2:17-cv-01548 (E.D. Pa. June 13, 2017). As a result, the City of Philadelphia has suspended the effectiveness of the ordinance.

In the amended complaint the Chamber of Commerce gives several reasons for its argument that the Philadelphia ordinance is invalid.

(1) It asserts that the Philadelphia ordinance violates the First Amendment right to free speech, including a statement that “there simply is no substantial basis for prohibiting wage-history inquiries and reliance when the applicant is, for example, a high-level executive who must be lured away from her current employer, or a partner in a law firm with a lock-step compensation structure.” Id. at p. 5.

(2) It asserts that the Philadelphia ordinance “also violates the Due Process Clause of the Fourteenth Amendment because it subjects employers to severe penalties … without ensuring that employers 'know what is required of them so they may act accordingly'” (citing an FCC decision). Ibid.

(3) The amended complaint argues that the Philadelphia ordinance “is invalid because it applies to the hiring of employees who work outside Philadelphia, or even outside Pennsylvania.” Id. at p. 6. (The answer to one of the New York City Commission on Human Rights FAQs states: “If an unlawful discriminatory practice, including an inquiry about salary history, occurs during an in-person conversation in New York City, there will likely be jurisdiction because the impact of the unlawful discriminatory practice is felt in New York City. If an unlawful discriminatory practice occurs outside of New York City, there could be jurisdiction if the impact of the unlawful discriminatory practice is felt in New York City. Entities should apply the same jurisdictional analysis in this context that they would involving other areas of the City Human Rights Law (e.g., in the employment context, residency in New York City alone, without more, is generally not enough to establish impact in New York City).”)

(4) Finally, the amended complaint asserts that the Philadelphia ordinance “is likely to have a crippling impact” on hiring processes. Ibid. The Chamber notes that “[e]mployment search firms, in particular, will be virtually unable to conduct their business because the Ordinance will prevent them from determining whether a potential candidate fits within a client's budget.” Id. at pp. 6-7. (Without commenting on whether the Chamber's amended complaint correctly states the impact of the Philadelphia ordinance, it is noted, again, that Subdivision 25(c) of the New York City ordinance permits discussion of the job applicant's compensation expectations.)

Conclusion

Prospective employers subject to N.Y.C. Admin. Code §8-107, Subdiv. 25 should take a number of steps to comply with the new rule. These include the following:

(1) Employees should be advised in writing of the provisions in Subdivision 25 and encouraged to discuss any questions they may have with appropriate personnel (such as those in the Human Resources and the Legal Departments). Personnel advising others on Subdivision 25 will need to have training in the requirements of the new ordinance. Complicating the problem for the prospective employer is the fact that employees are often selected at the last minute to participate in the interview process. “Unintended” inquiry into an applicant's “salary history” is not excepted from the new rule simply because an uninformed employee asked the wrong questions of the applicant.

(2) Employers should review all documentation used in the hiring process to be sure it complies with the new rule. This includes job application and background information forms to be sure they conform to the “don't inquire”/”don't rely” requirements. If a job applicant is willing to volunteer his or her “salary history” an appropriate form should be available, preferably before the disclosure occurs, for signing by the applicant.

(3) Employers should advise each “agent” in connection with its representation of the prospective employer not to “inquire into” or “rely on” the applicant's salary history unless the “agent” first has received a voluntary statement (without prompting) from the applicant (in a form satisfactory to the employer) saying that he or she is willing to have the salary history disclosed to the prospective employer. This statement should be provided to the applicant before the employer proceeds with the matter including any interview with the applicant.

(4) Employers should check jurisdictions outside of New York City that have “don't inquire”/”don't rely” rules to determine if they are subject to such rules in those jurisdictions.

Joseph E. Bachelder III is special counsel to McCarter & English. Andy Tsang, a senior financial analyst with the firm, assisted in the preparation of this column.