California Pay History Bill Would Hike Wage Discrimination Risk

Law360, New York (June 21, 2016, 11:59 AM ET) - This month the California State Assembly approved Assembly Bill 1676, continuing efforts to close the wage gap between men and women. Introduced by Assemblywoman Nora Campos, this bill is essentially a redux of AB 1017 that would have prohibited asking job applicants about their salary histories. The bill passed through both the state House and the Senate last year before being vetoed by Gov. Jerry Brown.

The governor’s veto message stated that we should wait to see if the recent updates to the Fair Pay Act would address the issue and that he was concerned AB 1017’s broad prohibition on employers obtaining relevant information would not have an effect on pay equity.

AB 1676, like the vetoed bill, would prohibit employers from seeking an applicant’s past salary history, however, it further raises the stakes by requiring employers to provide pay scale information to job applicants upon reasonable request. As the bill makes it to the Senate floor for consideration once again, it is unclear whether a new year will yield a different result from Brown.

Background

Fifty years since the enactment of the Equal Pay Act and seven years since President Barack Obama signed the Lilly Ledbetter Fair Pay Act, women still continue to make substantially less than men. Currently, women make an average of 78 cents for every dollar a man makes.[1] For black and Hispanic women the disparity is even greater, 64 and 44 cents respectively for every dollar a white man makes.[2]

Studies show that this gap begins early in a woman’s career. According to the American Association of University Women, college educated women working full-time were paid on average just 82 percent of what their male counterparts earned one year after graduating college.[3] Even when accounting for age, education and family responsibilities, there is still a significant wage gap among men and women.

Additionally, according to research by Linda Babcock, an economist at Carnegie Mellon University, 51.5 percent of men and only 12.5 percent of women negotiated for higher salaries when receiving job offers.[4] Babcock also found that when women did negotiate, they asked for 30 percent less than men requested.

Because starting salaries significantly affect raises and future salaries, studies show women who do not bargain lose as much as $750,000 for middle income jobs and $2 million for high income jobs over their careers.[5]

The Bill

To address the cycle of gender wage inequality, Campos introduced AB 1676 to prohibit employers from basing salary decisions on prior earnings.

AB 1676 addresses this issue by (1) prohibiting employers from seeking a job candidate’s salary history, and (2) requiring that employers provide a salary range to job applicants upon reasonable request.

Purpose

Upon initial review, it may not be overtly obvious why asking about an applicant’s prior salary perpetuates this wage gap. Campos explains, “One of the biggest hurdles we face in closing the gender wage gap is the fact that once a woman starts, or stays, in a job with discounted wages, it is extremely difficult for her to ever catch up in pay. This is because most workers are tied to their prior salaries and often can only make small incremental bumps in their pay when they move to a new employer.”[6]

By removing past salary history from the hiring determination and requiring employers to be more transparent, AB 1676 attempts to eliminate a history of low salaries as a factor contributing to underpayment of women.

AB 1676 also gives women more bargaining power when negotiating their salaries by removing a low salary history from the new salary determination. The Women’s Foundation of California explains, “By creating a less biased structure for negotiating pay during the hiring process, AB 1676 will be a proactive way to help empower women to negotiate a fair salary and hopefully get us closer to achieving pay equity in California.”[7]

Opposition

A coalition of employers, including the California Chamber of Commerce, opposes this bill. They argue that there are several legitimate, nondiscriminatory reasons why an employer seeks information regarding prior compensation of an applicant. They worry that this broad prohibition will open up more avenues for litigation against businesses and prohibit employers from fully vetting candidates and their expectations.[8]

The coalition explains that employers do not necessarily have accurate wage information on what the current market is for all potential job positions. Employers in competitive industries, for example, often do not advertise salaries in order to utilize their pay structure as a way in which to lure talented employees from their competition. Thus by requesting salary information, employers can adjust any unrealistic expectations or salary ranges to match the current market rate for the advertised job position. The coalition argues that disclosing salary history can actually be beneficial for job candidates and employers alike.[9]

Impact on Employers

Existing law already prohibits an employer from paying an employee less when performing substantially similar work. In fact, Sen. Hannah-Beth Jackson, D-Santa Barbara, strengthened these protections last year through SB 358, California’s Fair Pay Act, often referenced as “the toughest equal pay law in the nation.”

However, AB 1676 would make it easier for employees to bring wage discrimination lawsuits against their employers. Under this bill, a simple inquiry into an applicant’s salary history or prior compensation, even when there is no ultimate harm to the applicant/employee, creates potential liability for the employer and increased litigation.

Given the increased scrutiny on equal pay, whether or not Assembly Bill 1676 is signed into law, employers are well advised to focus wage and salary considerations on an objective pay scale and refrain from considerations of prior pay. Objective criteria include factors such as educational level and years of experience. Basing wage considerations on an established pay scale with objective criteria eliminates the risk of claims of unequal pay.

By David I. Kornbluh and Shima Vasseghi, Miller Morton Caillat & Nevis LLP

David Kornbluh is a managing partner and Shima Vasseghi is a summer associate at Miller Morton in San Jose, California. 

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] David M. Getz, Men's and Women's Earnings for States and Metropolitan Statistical Areas: 2009, U.S. Census Bureau, Sept. 2010, available at https://www.census.gov/prod/2010pubs/acsbr09-3.pdf.

[2] Id.

[3] Corbett, Christianne & Catherine Hill, Graduating to a Pay Gap: The Earnings of Women and Men One Year After College Graduation. AAUW (2012).

[4] The New York Times, How to Bridge that Stubborn Pay Gap, by Claire Cain Miller, Jan. 15, 2016. http://www.nytimes.com/2016/01/17/upshot/how-to-bridge-that-stubborn-pay-gap.html?_r=0

[5] Id.

[6] Smith, David. "California Law Could Prohibit Asking about Prior Salary Information." Siskiyou Daily News. 1 Feb. 2016. http://www.siskiyoudaily.com/article/20160201/NEWS/160209998.

[7] Assem. Com. on Labor and Employment, Analysis of Assemb. Bill No. 1676 (2015-2016 Reg. Sess.) April 20, 2016.

[8] Id.

[9] Id.