On October 12, 2017, Governor Jerry Brown signed AB 168, prohibiting all employers, public and private, from inquiring about or relying upon a job applicant’s prior salary history. This new law adds section 432.3 to the California Labor Code and will go into effect on January 1, 2018.

With the signing of this pay-inquiry ban, California now joins Massachusetts, Delaware, and Oregon, as well as several major cities including San Francisco, New York, Philadelphia and Pittsburgh in enacting ordinances prohibiting past compensation inquiries. At least four additional states and jurisdictions are actively considering enacting similar legislation, including New York, New Jersey, Pennsylvania, and Washington D.C.

The third time was the charm for AB 168. Governor Brown had vetoed similar bills, claiming they would prevent employers from obtaining relevant information despite little evidence these measures would assure more equitable wages.

Two years ago, California enacted Labor Code Section 1197.5, the California Fair Pay Act, which requires employers to pay men and women equal salaries for “substantially similar” work. The passage of the Fair Pay Act paved the way for the enactment of this new legislation.

The rationale behind the new pay inquiry ban is to prevent past pay inequality and discrimination from following employees from one job to the next by making it illegal to base compensation solely on an individual’s former salary.

The new law prohibits employers from asking about, or otherwise relying on, the salary history of a job applicant as a factor in determining whether to make an offer of employment to an applicant, and at what rate of pay. This is a considerable departure from the Fair Pay Act, which specifically provided that salary history cannot by itself be used to justify pay inequality; presumably salary history could still be a relevant factor. This new law appears to prevent an employer from relying on salary history as a factor at all.

However, Section 432.3 does not prevent an applicant from “voluntarily and without prompting” disclosing salary history information to a prospective employer. In that case, Section 432.3 will not prohibit the employer from relying upon the volunteered information in setting the applicant’s starting salary. Nonetheless, the California Fair Pay Act would still apply, forbidding employers from relying on prior salary, by itself, to justify any disparity in pay.

Importantly, Section 432.3 also makes California the first jurisdiction in the country to require that employers provide applicants with the pay scale for a position upon “reasonable request.” Currently there is little guidance as to what a “pay scale” actually means, so this remains an area where employers should tread lightly.

What Employers Need to Know

Employers can no longer seek salary history information, orally or in writing, personally or through an agent, about an applicant for employment. “Salary history information” includes compensation and benefits.

Employers cannot rely on the salary history information of an applicant as a factor in determining whether to offer employment to an applicant or what salary to offer an applicant.

If an applicant “voluntarily and without prompting” discloses salary history information to a prospective employer, the employer can consider that information as a factor in determining the salary for that applicant.

If an applicant inquires as to how much a specific position pays, the employer must provide the pay scale for that position. While the legislature has not provided guidance on what constitutes a pay scale, an audit of current employee salaries for each position is an appropriate place to start.

What Employers Need to Do

AB 168 goes into effect on January 1, 2018. To prepare, employers should carefully review their employment applications and hiring processes to ensure that they do not impermissibly inquire into, or rely upon, salary history information. Employers should also compile pay scale information on each position, and develop a plan to update and maintain that information. If an employer is hiring for a new position, market research may be necessary. In addition, any staff involved in the hiring process should be trained about the law’s new requirements, including how to address an applicant’s request for pay scale information and the types of inquiries and questions that are permissible and not permissible.

You can read the full text of AB 168 here.