Boo! It appears that fright-fest preparations for New York City employers will come early this year now that Mayor de Blasio has signed a New York City law that prohibits employers from inquiring into or relying on a job applicant’s compensation history to determine compensation in the hiring process. The new law is scheduled to go into effect on October 31.

As reported here, there is a growing trend at federal, state and local levels to keep employers from obtaining and using applicant salary history in the hiring process. Such laws purport to help eliminate gender pay gaps which may be perpetuated when a hiring employer uses potentially gender-disparate compensation history to set compensation for new hires. While the merits of these policy contentions are the subject of much debate, Philadelphia’s version of this law, which was supposed to go into effect on May 23, is now on indefinite hold after a successful court challenge by the local chamber of commerce. The Philadelphia chamber argued that the law was invalid because it unconstitutionally impinged employer free speech rights. Whether NYC employers can or will mount a similar challenge remains to be seen. In the meantime, employers will need to consider the new law’s requirements and take steps to prepare for its implementation.

As an amendment to the New York City Human Rights Law, the new law will make it an unlawful discriminatory practice for an employer to inquire about a job applicant’s salary, benefits or other compensation history or to rely on any such history in determining the applicant’s salary, benefits or other compensation in the hiring process, including in the negotiation of employment terms. In addition to barring direct inquiries of the applicant, the law also prohibits an employer from:

  • Putting questions or statements to a prior employer for purposes of obtaining the applicant’s compensation history
  • Searching publicly available records for such history
  • Using any such historical compensation information that may turn up in a background check

There are exceptions. Employers may rely on and use compensation history that is disclosed by the applicant voluntarily and without prompting. Additionally, employers are free to explore an applicant’s compensation expectations, objective measures of an applicant’s productivity (e.g., revenues or sales), and any unvested equity or deferred compensation that the applicant might forfeit upon leaving a current job. Background checks remain permissible under the new law, provided the employer does not rely on any compensation information obtained as part of the inquiry. The law also will not apply to public employees whose compensation is determined by a collective bargaining agreement or to situations where any applicable law permits or requires access to an applicant’s compensation history. Finally, the law applies only to new hires and not to current employees seeking internal transfers or promotion.

Employers violating the new law are subject to private lawsuits by aggrieved applicants, who may seek compensatory damages (front/back pay), punitive damages, and attorneys’ fees. The New York City Commission on Human Rights also may enforce the law directly and may impose civil penalties of up to $125,000 for unintentional violations and up to $250,000 for willful, wanton or malicious acts.

In advance of October 31, employers should prepare for the new law and carefully review and alter current practices, which may include:

  • Revising job application and background check materials to eliminate requests for prior salary, benefits, or other compensation history
  • Revising company policies to ensure that an applicant’s compensation history is not sought or obtained during the hiring process, including during reference check or job verification inquiries
  • Training all employees involved in the recruiting process, including hiring managers, on the various aspects of the new law and ensuring that all such personnel are prepared to document any voluntary disclosure of compensation history made by an applicant

Given the range of personnel who will be expected to understand and comply with the law’s requirements, and the attendant legal risk, advance planning by employers will be critical. It is only summer, but Halloween will be here before you know it.