Hunton Employment & Labor Perspectives

California was one of the leading states to tackle pay discrimination by banning inquiries into salary history.  California Labor Code Section 432.3, which went into effect on January 1, 2018, prohibits public and private employers from seeking or relying upon the salary history of applicants for employment.  But some of the law’s terms were undefined and some of the provisions were unclear, so after Section 432.3 went into effect, employers had questions about how to remain compliant with the law when hiring new employees.

Acknowledging the need for clarity, Governor Jerry Brown signed an amendment into law on July 18, 2018.  The amendment defines some key phrases and provides further guidance to California employers.  The bill also addresses another pivotal issue – whether prior salary can ever justify a disparity in compensation.

First, prior to the amendment, employers were unsure if the term “applicant” encompassed, in addition to external applicants, current employees applying for an internal position.

The answer:  the term “applicant” applies only to external applicants.  Thus, Section 432.3 does not apply to current employees.

Second, the law requires an employer to provide “pay scale information” for the position upon a “reasonable request” by an applicant. But exactly what information constitutes the “pay scale” and what is a “reasonable request”?

The answers:

• A “pay scale” is a salary or hourly wage range only for the position (employers do not need to furnish bonus or equity ranges);
• A “reasonable request” for pay scale information is a request made after the applicant has completed the initial interview. Thus, the pay scale does not need to be provided to every applicant who simply submits a resume.

Third, the amendment clarifies that although Section 432.3 prohibits employers from asking for an applicant’s salary history information, employers may ask about an applicant’s salary expectations for the position.

Finally, the amendment also addresses aspects of the California Equal Pay Act. It makes clear that prior salary cannot be used to justify a wage differential, whether used on its own or in combination with a lawful factor under the Equal Pay Act.  One important exception, however, allows an employer to consider the existing salary of a current employee for setting a new salary for that employee, so long as any wage differential resulting from that compensation decision is justified by one or more specified factors, including a seniority system, merit system, or other bona fide factor other than sex, race or ethnicity.