Court Ruling Casts Constitutional Doubt on State and City Salary-Inquiry Bans

FirstAmendmentBy Marc Dib, a 2018 Judge K.K. Legett Fellow at Washington Legal Foundation who will be entering his third year at Texas Tech University School of Law in the fall.

What did you make at your last job? If you have ever had a job interview, then you’ve likely encountered that question. Employers use this common interview question to gauge an applicant’s quality and to determine a fair salary.  A growing number of state and local governments, however, have forbidden employers from asking prospective employees about their past earnings in the name of wage equality.

The basic premise of their argument is that allowing employers to determine job offers based on prior salaries that are historically lower for women and minorities will perpetuate the wage inequity problem. Based on this unsupported assertion, state and local governments have begun passing legislation that bars employer inquiries about past wages. These laws, however, are constitutionally suspect.

On December 8, 2016, the Philadelphia City Council passed a bill that amended title 9 of the Philadelphia Code to include provisions on wage equity. The Ordinance contains two parts. First, it prohibits employers from inquiring about a prospective employee’s wage history (“the Inquiry Provision”). Second, it makes it illegal for employers to rely on wage history “at any stage in the employment process” to determine an employee’s salary (“the Reliance Provision”). Employers who violate the Ordinance are subject to civil and criminal penalties.

On June 13, 2017, the Chamber of Commerce for Greater Philadelphia filed a complaint and a motion for a preliminary injunction against the City of Philadelphia and the Philadelphia Commission on Human Relations, alleging the Ordinance violates the First Amendment rights of employers. WLF filed a brief in support of the Chamber arguing that the Ordinance “prohibits truthful, nonmisleading speech on the basis of its content and the identity of the speaker.” Relying on the Supreme Court’s decision in Sorrell v. IMS Health, Inc., WLF argued that since the Ordinance is a content-based and viewpoint-based speech restriction it should be subject to strict scrutiny. In the alternative, the Inquiry Provision could not survive the intermediate level of scrutiny applied to content-neutral commercial speech.

On April 30, 2018, the U.S. District Court for the Eastern District of Pennsylvania held in Chamber of Commerce for Greater Philadelphia v. City of Philadelphia that the Inquiry Provision of the Ordinance violates the First Amendment’s free speech clause. Judge Mitchell Goldberg decided that wage inquiries constitute commercial speech, and thus intermediate scrutiny should apply. Judge Goldberg applied the so-called Central Hudson test to the Inquiry Provision.

The Supreme Court laid out the four-part Central Hudson test to determine when restrictions on commercial speech violate the First Amendment. First, the commercial speech must concern lawful activity and not be misleading. Second, the asserted governmental interest must be substantial. If the government can meet both inquires, the court must determine whether the regulation directly advances the governmental interest asserted, and whether or not it is more extensive than necessary to serve that interest.

The court found that the Inquiry Provision did not regulate unlawful activity or misleading information, so Judge Goldberg went on to determine if the city was trying to advance a substantial interest. Both parties agreed that the City “has a substantial interest in promoting wage equity and reducing discriminatory wage disparities.” The Inquiry Provision did not, however, pass the third part of the Central Hudson test.  The City relied primarily on the testimony of five professionals who concluded the Inquiry Provision would help narrow the wage gap. Judge Goldberg stated that the testimony was “riddled with conclusory statements, amounting to ‘various tidbits’ and ‘educated guesses.’” Judge Goldberg, therefore, concluded that the Inquiry Provision does not directly advance the substantial governmental interests of reducing discriminatory wage disparities and promoting wage equity. Thus, the Inquiry Provision violated the First Amendment.

In light of this recent decision, similar laws around the country are vulnerable to legal challenge. State and local governments such as Massachusetts, California, and New York City have passed laws that are nearly indistinguishable from the Philadelphia Ordinance. As with the Philadelphia Inquiry Provision, without substantial proof that employer inquiries about past wages perpetuates wage inequity, these laws are unconstitutional restrictions of commercial speech.

In 2016, the Massachusetts legislature proposed a pay equity bill intending to ensure equal pay for comparable work. Senate Bill 2119 attempts to prevent pay discrimination based on gender. The Bill contains provisions that allow employees to discuss their salaries with coworkers and prohibits employers from inquiring about prior wages or salary history. The Bill passed through both houses unanimously and Governor Charlie Baker signed it into law on August 1, 2016. The law will go into effect on July 1, 2018 for all Massachusetts employers and employees.

In 2017, California Governor, Jerry Brown signed into law Assembly Bill No. 168, which prohibits California employers from asking job applicants about their prior salary, compensation, and benefits. Similar to the Philadelphia Ordinance, AB 168 forbids employers from both inquiring about salary history and relying on salary history in making employment decisions.

In the bill analysis, the California Assembly Committee on Labor and Employment stated “[c]losing the wage gap starts with barring employers from asking questions about salary history so that previous salary discrimination is not perpetuated.” Opponents to AB 168 argued that the bill would not actually close the wage gap for applicants because “most employers offer positions with a salary range in which new hires typically start at the bottom of the range.” Further, opponents to AB 168 were concerned that the bill may eliminate the employer’s ability to negotiate wages.

Lastly, in 2017, New York City passed legislation that makes it an “unlawful discriminatory practice” for employers to inquire about a prospective employee’s prior salary. Similar to the Philadelphia Ordinance, this legislation also makes it unlawful to rely on salary history of the applicant in determining the salary, benefits, or other compensation during the hiring process. Further, under the new law, New York City forbids employers from searching public records to obtain an applicant’s salary history. Violating the salary inquiry ban carries hefty fines of $125,000 for unintentional violations and $250,000 for intentional violations.

The constitutionality of these three laws is in question given the ruling on the Philadelphia Ordinance. The laws are suspect under either strict or intermediate scrutiny.

First, the laws seek to regulate commercial speech that is neither unlawful nor misleading. As Judge Goldberg explained, “[s]imply because wage history could be relied upon in fashioning a salary in violation of the Reliance Provision does not render all other legal activity related to wage history illegal.” There are reasons employers use wage history other than determining prospective employees’ compensation. For example, an employer could use wage history for gathering market information or identifying potential employees whom they cannot afford. A possible “illegal” use of speech does not make the speech itself unlawful or misleading.

Second, the governments have the burden to prove their asserted interest is substantial. All three laws attempt to enforce pay equity, which will likely meet the substantial interest requirement. But the laws do not directly advance that governmental interest.  Similar to Philadelphia with its ordinance, California, Massachusetts, and New York City fail to provide sufficient evidence of a connection between employees’ past-wage inquiries and the wage-inequity problem. California, for example, points to the fact that women make roughly .80¢ for every dollar earned by their male counterparts, and based on that evidence alone it concludes that past wage inquiries are perpetuating the problem.

Proponents of wage-inquiry laws argue that there is a bias built into a woman or minority person’s first wage, so asking them about that wage will continue the trend. As Judge Goldberg reasoned, however, it is a “very large step to conclude that the prohibition of questions regarding wage history will prevent this bias from carrying over to future wages.” Chamber of Com. v. City of Philadelphia, at 31. Much like the Philadelphia ordinance, these laws rely on insufficient evidence, which makes it impossible to know if they are directly advancing the substantial governmental interests of reducing discriminatory wage disparities and promoting wage equity. As such, these laws will likely fail the third prong of the Central Hudson test.

Even if a court held that the laws directly advance the government’s interest, the speech restrictions are broader than necessary to serve its interests. Massachusetts, California, and New York City can achieve wage equity in another manner that does not restrict speech. For example, employers can conduct audits to evaluate gender-based pay differences within their own workforce, which has proven to have a positive effect in reducing gender-based pay disparities. Further, these laws are over-inclusive since employers cannot ask anyone about their wage history, not just those at risk of discrimination. These laws cannot survive First Amendment scrutiny under the fourth prong of the Central Hudson test.

Courtrooms around the country will likely hear cases on wage inquiry laws in the near future. The Eastern District of Pennsylvania decision looms large. However worthy of a goal ensuring equal pay for comparable work may be, sacrificing the First Amendment rights of employers is not the answer. Laws such as those in the jurisdictions described above will only infringe upon the rights of employers and make the hiring process more difficult.

 

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