The Third Circuit Rules That Philadelphia’s Salary History Ban Is Constitutional

On February 6, 2020, the Third Circuit Court of Appeals ruled that a Philadelphia law that prohibits employers from asking job applicants about their salary history is constitutional, lifting the injunction the United States District Court for the Eastern District of Pennsylvania (“District Court”) imposed on certain provisions of the law. The legislation at issue, the Wage Equity Ordinance (“Ordinance” or “law”) aims to address the historic wage gaps that affect women and minorities by encouraging employers to base salary offers on prospective job responsibilities rather than an applicant’s prior wages.

The Ordinance was signed into law by Philadelphia Mayor Jim Kenney in January 2017, and was set to take effect in May 2017. The law contains two key provisions: (1) the “inquiry provision,” which makes it unlawful for Philadelphia employers and employment agencies (collectively “employers”) to inquire into an applicant’s wage and benefit history; and (2) the “reliance provision,” which makes it unlawful for employers to rely on an applicant’s wage history to determine future wages. The law also prevents employers from retaliating against any candidate who does not respond to a wage inquiry. The law does not prohibit a prospective employee from voluntarily disclosing compensation history; nor, are employers prohibited from inquiring with respect to compensation expectations.

In April 2017, before the law took effect, the Philadelphia Chamber of Commerce (“the Chamber”) filed suit, challenging the legislation as an unconstitutional intrusion on the First Amendment free speech rights of Philadelphia employers. In 2018, the District Court agreed with the Chamber. Although recognizing the law’s admirable goals, the District Court found that the City of Philadelphia (“City”) did not provide sufficient evidence to support its contention that harm to affected employees would be perpetuated by disclosure of those wages to his or her next employer. Because of the lack of evidence, the District Court found that the City had not met its constitutional burden with respect to the inquiry provision, and enjoined that provision of the law. The District Court determined, however, that the reliance provision did not implicate free speech rights and declined to enjoin it.

Last week, the Third Circuit Court of Appeals reversed the District Court’s determination that the City had not met its burden of demonstrating the constitutionality of the inquiry provision, and vacated the injunction issued by the District Court with respect to that provision. A copy of the decision can be found here. The Third Circuit found that the standard the District Court applied was too stringent, recognizing that the United States Supreme Court has recently upheld restrictions on speech relying on far less evidence than that presented by the City to the District Court to support the inquiry provision. Such evidence included the testimony of a well-respected labor economist, and a number of peer-reviewed research studies (some summarizing the findings of hundreds of other studies). The Third Circuit agreed with the City that the evidence submitted showed significant and substantial wage differentials with respect to gender and race (and which could not be explained by credentials or qualifications) exist, and further that gender and racial salary differences largely arise from differences in salary set at hire. The Third Circuit affirmed the District Court’s ruling that the reliance provision did not implicate speech.

Philadelphia is just one of several cities and states that have enacted legislation prohibiting inquiry into salary history in an attempt to address the wage gaps that overwhelmingly affect women and minorities. In its decision, the Third Circuit noted that some of the other recently-adopted bans on salary history inquiries are much broader than Philadelphia’s law – possibly suggesting that other similar laws may be susceptible to legal challenge. Nevertheless, employers both within and outside of Philadelphia should be mindful of the status of salary history ban legislation (in states and cities in which they conduct business) so that their hiring policies and practices (including those involving questions concerning an applicant’s compensation history) can be reviewed and revised as needed.

If you have any questions regarding this blog, please feel free to contact an attorney in the Gibbons Employment & Labor Law Department.

Print