Employers recruiting for positions located within Philadelphia now have clarity that any such inquiry will be unlawful under the Ordinance.

Following more than two years of litigation, on February 6, 2020, the United States Court of Appeals for the Third Circuit upheld the constitutionality of the Philadelphia Wage Equity Ordinance. The Ordinance makes it unlawful for employers in the City of Philadelphia to inquire about or rely on wage history, require disclosure of wage history, condition employment on the disclosure of wage history or retaliate against an applicant for failing to respond to an inquiry about wage history.

While the provision making it unlawful to rely on an applicant’s wage history in determining the applicant’s wages (the Reliance Provision) went into effect immediately when passed in 2017, a district court had enjoined the implementation of the provision that prohibits employers from inquiring as to an applicant’s wage history (the Inquiry Provision). The district court’s decision created a practical dilemma for employers: They could ask about an applicant’s wage history, but generally could not rely on that wage history to determine compensation.

Background

The Ordinance was signed into law on January 23, 2017, and was scheduled to take effect on May 23, 2017. The City’s stated interest in passing the Ordinance was to curb hiring discrimination and help diminish the gender wage gap. However, shortly after its adoption, the Chamber of Commerce for Greater Philadelphia filed suit in federal court challenging the constitutional validity of the Ordinance, and the Ordinance did not go into effect while that challenge was pending.

On April 30, 2018, the U.S. District Court for the Eastern District of Pennsylvania ruled that while the Reliance Provision was constitutional, the Inquiry Provision was unconstitutional. The Chamber of Commerce for Greater Philadelphia v. The City of Philadelphia Commission on Human Relations, No. 2:17-cv-01548 (E.D. Pa. April 30, 2018). [Note: Duane Morris represents the Chamber of Commerce of the United States of America, National Federation of Independent Business Small Business Legal Center, Pennsylvania Chamber of Business & Industry and Pennsylvania Manufacturers Association as amicus curiae in the case.]

The district court declined to apply a “strict scrutiny” standard of review when assessing the constitutionality of the Inquiry Provision, which would have raised the bar for the City to demonstrate its constitutionality. Instead, the district court determined that the Inquiry Provision implicated “commercial speech” and, accordingly, the district court applied a more lenient “intermediate scrutiny” standard of review. Nonetheless, the court held that the City failed to present sufficient evidence to support that banning wage history inquiries would achieve the intended purpose of reducing the wage gap and promoting wage equity, and thus the Inquiry Provision could not pass even intermediate scrutiny.

As a result, the district court enjoined implementation of the Inquiry Provision, while permitting the Reliance Provision to go into effect. Both parties appealed the district court’s decision. The Chamber of Commerce argued that the district court erred in refusing to enjoin the Reliance Provision and should have applied strict scrutiny to both provisions. The City argued that the district court erred in enjoining the Inquiry Provision.

The Third Circuit’s Decision

On appeal, the Third Circuit affirmed the district court’s denial of a preliminary injunction as to the Reliance Provision, concluding that it does not implicate speech. However, the Third Circuit vacated the district court’s grant of a preliminary injunction to the inquiry provision, concluding that the district court erred in holding that it was unconstitutional. While the Third Circuit agreed with the district court’s decision to subject the Ordinance to intermediate scrutiny, it disagreed with the district court’s analysis of whether the Inquiry Provision directly “advances the Government’s interest in a direct and material way.”

The “heart of the current dispute” was that the district court “did not believe that the City produced sufficient evidence to establish that the Inquiry Provision would advance its substantial interest in mitigating the racial and gender-based pay gap.” Indeed, as noted by the Third Circuit’s decision, the district court had “concluded that many of the studies cited by the City did not conclusively prove that discrimination is the sole cause of the wage gap.” However, the Third Circuit explained, “That level of certainty is not required” and “[t]he City made a well-reasoned judgment based on the testimony presented to it and the unrefuted existence of the wage gap that banning wage history inquiries would prevent further perpetuation of gender and race discrimination in this context.” The Third Circuit specifically noted that “the appropriate inquiry requires courts to determine whether the legislature ‘has drawn reasonable inferences based on substantial evidence.’”

The Third Circuit therefore remanded the case with instructions to the district court to deny the preliminary injunction as to the Inquiry Provision. The Ordinance will go into full effect pending further proceedings at the district court level.

What This Means for Employers

Employers recruiting for positions located within Philadelphia―many of whom likely refrained from inquiring about wage history since they generally could not rely on such information after the district court’s May 2018 decision―now have clarity that any such inquiry will be unlawful under the Ordinance. Accordingly, employers should review their hiring practices to ensure they are not asking applicants for positions in Philadelphia about their wage history.

Employers also should be mindful that Philadelphia is not alone in passing a so-called “salary history ban.” Numerous other jurisdictions (for example, Delaware, Massachusetts, California and New York City) have enacted laws prohibiting, to varying degrees, inquiries about, use of or reliance upon applicants’ wage history. To what extent such laws will be subject to First Amendment challenges remains to be seen, and the Third Circuit’s decision is only binding on courts in Pennsylvania, New Jersey and Delaware. Employers should carefully review their hiring practices and inquiries, including those of third-party recruiters, to ensure that they are complying with laws applicable to the jurisdictions in which they are hiring.