Effective October 2017 (180 days after Mayor de Blasio signs the bill), the law will amend the NYC Human Rights Law to make it “an unlawful discriminatory practice for an employer, employment agency, or employee or agent thereof: (1) to inquire about the salary history of an applicant for employment; or (2) to rely on the salary history of an applicant in determining the salary, benefits or other compensation for such applicant during the hiring process, including the negotiation of a contract.” The term “inquire” is defined to include questions directed at the applicant, requests made to other employers about the applicant and searches of public records for the applicant’s salary history. The term “salary history” is actually much broader than it sounds, and includes “wage[s], benefits, or other compensation,” but not any “objective measure of the applicant’s productivity such as revenue, sales or other production reports.”

As lawmakers and commentators have noted in relation to this and similar laws recently enacted in Massachusetts and Philadelphia, the intent of this broad prohibition is to help to prevent the propagation of any historical gender-based pay disparities. However, the law may drastically limit employers’ ability to engage in meaningful “price discovery” in the labor market in many circumstances far removed from the law’s ostensible purpose. As a consequence, many employers will find salary negotiations challenging and may increasingly rely on third-party compensation surveys focused on their particular industry or their own internal salary structures.

Will the Rule Be Swallowed by Its Exceptions?

Notably, the law contains several exceptions, not present in the original bill when it was introduced last year, which may markedly alter recruiting dynamics and lead to unintended consequences.

Chief among the exceptions is a provision allowing employers to consider and verify compensation information if the applicant “voluntarily and without prompting discloses” such information. Thus, applicants may gain a competitive advantage by being forthcoming about their salary history, and those who fail to voluntarily disclose such history may generate less interest from potential employers. Indeed, the new law could eventually create the perception that applicants who do not tout their own salary history have omitted that information due to a weak bargaining position.

The law also contains an important exception clarifying that employers may discuss compensation “expectations” with applicants, although the law is arguably unclear on whether those expectations are those of the employer, the applicant or both (presumably both). The law also appears to provide some leeway for employers and applicants to discuss “unvested equity or deferred compensation that an applicant would forfeit or have cancelled by virtue of the applicant’s resignation from their current employer.” However, this phrase was appended to the exception for discussions of compensation “expectations,” so it is unclear whether an employer could affirmatively and directly ask an applicant to disclose those potential forfeitures or the amount at stake. The NYC Commission on Human Rights is expected to issue guidance on the new law at some point before its effective date.

Another exception applies where some other law “specifically authorizes the disclosure or verification of salary history for employment purposes” or “specifically requires knowledge of salary history to determine an employee’s compensation.” These exceptions are likely to be narrowly construed but will hopefully offer some relief for employers whose employees are subject to regulatory constraints on their compensation.

Interestingly, the new law also excepts “applicants for internal transfer or promotion with their current employer” from the coverage of the law, and, more generally, since the prohibitions only apply to applicants, employers are technically free to glean salary histories from their existing employees. What use employers might make of this exception remains to be seen.

Remedies Are Uncertain

Perhaps one of the biggest unanswered questions about this NYC law (as well as similar laws passed elsewhere) pertains to an injured applicant’s remedy. Because the law amends the NYC Human Rights Law, the remedies available for a violation are presumably the same as those available for “run-of-the-mill” employment discrimination claims, including back pay, compensatory damages, front pay, attorneys’ fees and punitive damages — all of which are available on a more liberal basis under the NYC Human Rights Law than under its state and federal counterparts. But what damages has an applicant suffered, particularly if they are hired? Is it the difference between what the applicant requested and what they ultimately received? Some portion of that difference? How is that line drawn? What if the employer has a record that they will not exceed a particular budget for the position? What if an applicant is not hired at all after the employer asks about salary history, and the employee discloses the information without resistance? These and similar questions seem likely to bedevil litigants in the future.

While much remains to be seen about the future course of hiring practices in NYC after this watershed legislation, one thing is immediately clear: employers need to start educating their recruiters and hiring managers about this new taboo subject and they need to start now. Employers will also need to revise any application materials that ask for salary information well before the effective date of the law in October 2017. By outlawing common recruiting behavior, the NYC law has set a major trap for the unwary. Employers should take care that they don’t step in it.