In 2017, with an express goal of closing the wage gap between men and women, as well as between Caucasians and minorities, Philadelphia passed the Philadelphia Wage Equity Ordinance, prohibiting employers from requesting salary and benefit history from prospective employees and from relying on such information at any point in the hiring process of setting the employee’s new compensation terms. While Philadelphia was the first city in the country to enact such a prohibition, many municipalities followed suit, sparking a visceral debate within the business and legal communities across the country. The Greater Philadelphia Chamber of Commerce – with the support of many large, locally-based corporations – opposed the Philadelphia Wage Equity Ordinance in Federal court.
In May 2018, the Eastern District of Pennsylvania issued a decision in Greater Philadelphia Chamber of Commerce v. City of Philadelphia, rejecting Ordinance’s prohibition on requesting an applicant’s salary history on the grounds that such request is within an employer’s constitutional right to free speech. While the Court found the Ordinance’s ban on using or relying on that information permissible, it enjoined the City from enforcing the portion of the Ordinance that limited employers’ rights to inquire as to past earnings. Both the City and the Chamber of Commerce appealed.
Just last week, the Third Circuit Court of Appeals reversed the District Court’s decision, affirming Philadelphia’s right to prohibit employers from requesting salary and benefit history from potential applicants and lifting the District Court’s injunction. The Third Circuit concluded that Philadelphia has a substantial interest in ensuring that the gender wage gap is closed – an interest so strong that it justifies any restrictions on employer free speech.
In a 67-page opinion, available here, the Third Circuit recognized the longstanding disparity in pay between men and women and people of color working in the City, observing that the City had put forth substantial proof of its interest in curing this issue. For example, if employers are barred from requesting a prospective employee’s salary history, employers would have no choice but to set compensation terms based on other factors, such as applicants’ prior job history, level of experience, or level of education.
City officials have confirmed that they will begin enforcing the Ordinance immediately. Should the City find an employer is unlawfully requesting an applicant’s salary history, or relying on salary history to determine the applicant’s wage rate, the employer could face fines and litigation.
Philadelphia now joins the 20 localities and 17 states that have restricted employers’ salary history inquiries as part of the hiring process, including Delaware, New Jersey and New York. With this new ruling, employers doing business in Philadelphia must re-assess their hiring practices to ensure they are complying with the Wage Equity Ordinance. No matter your size nor the nature of position for which you are hiring, you can no longer require prospective employees to disclose their prior earnings as part of the hiring process. And you certainly cannot rely on such information in setting compensation.
Should you need help navigating the already murky waters surrounding recruiting, hiring, and negotiating with prospective employees, or if you have any other employment or labor related questions, please contact Jennifer Snyder or the attorneys in our Labor and Employment Group.