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Federal Contractors Updates

Philadelphia’s Salary History Inquiry Ban Violates the First Amendment, Federal Court Rules

06/06/18

Author: ADP Admin/Wednesday, June 6, 2018/Categories: State Compliance Update, Pennsylvania

A federal district court in Philadelphia has ruled in Chamber of Commerce of Greater Philadelphia v. City of Philadelphia, No. 17-1548 (E.D. Pa. Apr. 30, 2018) that Philadelphia’s ban on salary history inquiries violates the First Amendment. The court, however, did not strike down the other major portion of the law, which prohibits employers from relying on salary history to set compensation. That piece of the law remains intact. The decision will likely have national implications as Philadelphia's law is similar to others around the country, including laws in California and New York City.

The case arose from a City of Philadelphia wage equity ordinance. The ordinance has two parts: a prohibition against inquiring about pay history, and a prohibition against relying on pay history in setting pay. See Phila. Code §§ 9-1131.

The prohibitions are necessary, the City argued, because allowing employers to set starting pay based on prior salaries perpetuates the pay gap resulting from historically lower pay for women and minorities. See Phila. Code § 9-1131(1)(a) (citing United States Census Bureau Report 2015). Companies who violate the ordinance face civil and criminal penalties.

The Chamber of Commerce for Greater Philadelphia, on behalf of itself and several members, brought a civil action in federal court in the Eastern District of Philadelphia where the Chamber argued that the ordinance violates employers’ free speech rights.

U.S. District Judge Mitchell S. Goldberg of the Eastern District of Pennsylvania agreed that the salary history inquiry prohibition violates the First Amendment and enjoined implementation of that portion of the ordinance. He wrote, “I conclude that the city’s inquiry provision violates the First Amendment. Although the ordinance represents a significant positive attempt to address the wage gap, the First Amendment compels me to enjoin implementation of the inquiry provision.” The court noted that wage history information could be used for many lawful purposes, such as gathering market data, and not solely as a basis for determining future salaries.

However, the court ruled that the prohibition against relying on prior pay in setting starting salaries does not have First Amendment implications. The court rejected the argument that the reliance prohibition communicates a message about wage history and held that the prohibition does not regulate speech.

This decision is likely to prompt similar First Amendment challenges to other recently enacted pay history inquiry bans across the country.

Coverage: The law is currently written to apply to employers who do business in the City of Philadelphia through employees, and it makes no reference to whether such employers must employ any employees within the City’s limits.

Effective: Currently in effect (April 30, 2018)

Action Required: If you are an employer in Philadelphia, you should:
  • Become familiar with the new obligations and potential penalties under the law;
  • Review and revise existing applications, policies, and practices;
  • Review and revise, where necessary, the company’s processes for interviewing job applicants, negotiating and setting compensation, and verifying prior employment in order to ensure prohibited information is not relied upon in setting starting salaries.
As always, please be sure to contact your HR Business Partner if you have any questions.

* Produced in cooperation with Jackson Lewis P.C.

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