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CALIFORNIA’S SALARY HISTORY AND EQUAL PAY RULES CLARIFIED


California law prohibits employers from relying on a job applicant’s salary history information as a factor in determining whether to offer the applicant employment or what salary to offer.  It also requires employers to provide applicants the pay scale for a position if it is requested.

On July 18, 2018, Governor Brown signed legislation into law, AB 2282, that adopts clarifying changes to the existing rules regarding the use of an applicant’s prior salary information and the state’s equal pay rules.  The bill amends Labor Code Sections 432.3 and 1197.5, effective January 1, 2019.

1. Overview Of Changes

The clarifications to the salary history rules add definitions of the terms “pay scale,” “reasonable request” for the pay scale, and job “applicant.”  AB 2282 also states that the rules do not prohibit an employer from asking about an applicant’s salary expectations for the position sought.

The equal pay requirements in Labor Code Section 1197.5 prohibit employers from paying employees wage rates less than the rates paid to employees of the opposite sex or of another race or ethnicity for substantially similar work.  AB 2282 authorizes employers to make compensation decisions based on a current employee’s existing salary, so long as any wage differential resulting from that compensation decision is justified by one or more specified factors under Section 1197.5, including a seniority or merit system.

2. The Historical Context In Which AB 2282 Was Enacted

California’s equal pay provisions have been embodied in Labor Code Section 1197.5 for decades.  Over the last several years, the rules have been revised and augmented by several bills enacted between 2015 and 2017.  The key bills are reviewed below.

In 2015, SB 358 amended Section 1197.5, effective January 1, 2016, to prohibit employers from paying wage rates less than those paid to employees of the opposite sex for substantially similar work.  Significantly, the legislation revised the defenses available to employers paying such differentials.

The following year, the legislature passed two bills in 2016 that further amended Section 1197.5.  AB 1676 established a new rule providing that prior salary cannot, by itself, justify a sex-based pay differential for employees performing substantially similar work.  SB 1063 independently expanded the prohibitions in Section 1197.5 that previously were confined to gender discrimination to include discrimination based on race or ethnicity.  These new rules took effect in 2017.

Then, in 2017, the legislature passed two additional bills, AB 46 and AB 168, to further alter the landscape of legislation in the area.  AB 46 specified that the Equal Pay Act provisions prohibiting employers from paying lower wages to employees on the basis of gender, race, or ethnicity apply to both public and private employers.  AB 168 added a new Labor Code provision, Section 432.3, to prohibit employers from relying on salary history information as a factor in deciding whether to offer employment to a job applicant or what salary to offer.  It also directed employers to provide the pay scale for the position upon reasonable request.

3. The Salary History Provisions

AB 2282 was signed into law on July 18, 2018 in the context of these existing rules.  The clarifications and changes made are described below.

Labor Code Section 432.3 prohibits employers from relying on an applicant’s salary history in making a job offer to that applicant or in deciding what salary to offer.  It also prohibits employers from seeking salary history information, including compensation and benefits, about an applicant.  Section 432.3(c) requires employers to provide the pay scale for a position to an applicant upon reasonable request.

AB 2282 clarifies these rules by defining several important terms.  First, “pay scale” is clarified to mean “a salary or hourly wage range.”  And, the term “reasonable request” is defined to mean a request “made after an applicant has completed an initial interview with the employer.”  Section 432.3(k) defines the term “applicant” to mean “an individual who is seeking employment with the employer and is not currently employed with the employer in any capacity or position.”  This is described in the legislative history as a limited carve-out for using prior salary in a compensation decision in the case of a current employee, e.g., for purposes of giving raises or bonuses, so long as any wage differential from that compensation decision is justified by one or more specified factors under Labor Code Section 1197.5, including a seniority or merit system.

The legislation also provides another clarification in Section 432.3(i).  It states that nothing in Section 432.3 prohibits an employer from asking an applicant about his or her salary expectation for the position being applied for.

4. Amendments To Equal Pay Statute

Labor Code Section 1197.5(b)(4) states that “prior salary shall not justify any disparity in compensation” based on sex, race or ethnicity.  AB 2282 amends the statute to add:  “Nothing in this section shall be interpreted to mean that an employer may not make a compensation decision based on a current employee’s existing salary, so long as any wage differential resulting from that compensation decision is justified by one or more of the factors listed in this subdivision.”  This allows compensation decisions justified by a provision in 1197.5(b)(1), such as a seniority or merit system.

5. Practical Significance

The clarifications and carve-outs included in AB 2282 are significant.  The new definitions of pay scale and reasonable requests for pay scales make employer obligations more clear, as does the provision stating that employers are not precluded from asking applicants about their salary expectations for the position sought.  This clarification can be read in tandem with the rule in Sections 432.3(g)-(h) stating that (a) applicants are not prohibited from voluntarily disclosing salary history information without prompting to a prospective employer and (b) employers are not prohibited from considering such voluntarily disclosed information in determining the salary for that applicant.  It is also helpful that the legislation defines “applicants” to exclude individuals currently employed with the employer in any capacity or position.

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