New York City Law Reignites Debate Over Salary Histories

New York City Law Reignites Debate Over Salary Histories

Last week, the New York City Council passed a law barring employers in the city from inquiring about the salary histories of job candidates. The measure is meant to help curb gender- and race-based pay gaps, drawing on the argument that using a candidate’s salary history to help determine their compensation perpetuates these gaps by making it more difficult for those who are underpaid early in their careers to catch up with their peers. Even if a hiring manager does not deliberately offer a candidate lower pay based on their salary history, Kristin Wong argues at Science of Us, finding out what the candidate currently earns can warp the manager’s perceptions of what they are worth:

When potential employers use your salary history as a reference point, it can work against you due to a cognitive bias called “anchoring.” With anchoring, people rely too heavily on one piece of information to come to a conclusion or a decision. For example, one of the first studies on anchoring, published in 1974, asked subjects to estimate how many African countries were members of the United Nations. Before answering, subjects spun a wheel with numbers on it. Behind the scenes, the study’s researchers controlled where the wheel landed so that it would either hit the number ten or the number 65. When the wheel landed on ten, people estimated that 25 percent of African nations were U.N. members. When it landed on 65, the estimate increased to 45 percent.

Without realizing it, the subjects latched onto the arbitrary number before making their guesses. This is the anchoring bias in action, and when a potential employer asks you about salary history, that number similarly serves as an anchor in the negotiation process. If you earned next to nothing in a past job, a low anchor could limit your chance to earn more in the new job. Plus, raises, bonuses, and pay increases are often based on a percentage of an employee’s salary, too.

Critics of these bans have countered that they could backfire on women by forcing employers to guess at candidates’ past compensation—which they might assume to be lower for female employees. As Bloomberg View points out in an editorial making the case against salary history bans, there is little evidence that they will have the intended effect of closing gender pay gaps. Instead, the editors call them “policymaking by anecdote, driven by politicians eager to say they have taken action”:

By restricting what company representatives can say, the laws also raise free-speech issues. It’s not clear that they would violate the First Amendment, but the Philadelphia Chamber of Commerce aims to have that question answered in court. And it’s all too clear that too many restrictions on what employers can ask job applicants would be counterproductive.

Perhaps a better question is, why impose on employers a new requirement without showing that it would narrow the wage gap? Federal law already prohibits gender-based pay discrimination, and employers cannot get around that by calculating workers’ salaries according to what they used to earn. Another better question, if the issue is making the workplace more equal, is how to provide women more opportunity — which may be an even bigger problem than the narrowing (if stubborn) pay gap.

On the other hand, some proponents of salary history bans have argued that they will actually help employers by compelling them to adopt more market-based approaches to compensation. Employers are already facing more pressure to be transparent and rational about their pay practices from candidates who know (or think they know) more about what they are worth than previous generations of employees did thanks to pay transparency sites like Glassdoor and PayScale.

Another objection employers have raised to these bans, however, is that they create considerable uncertainty about what is and is not legal. The law passed last week in New York, for instance, leaves a number of questions unanswered, employment attorney Laurent Drogin notes at ERE, such as:

  • Can a former employer be liable under this or any other law for disclosing salary history that results in the applicant not being hired for a new position, or being offered less than they otherwise might have received?
  • What are “benefits” within the meaning of the law? Does this mean employers cannot ask about current medical contribution rates, retirement plans, paid time off or eligibility for bonuses? If so, how can an employer make a competitive offer, or entice an employee with better benefits? What is “other compensation?” Would this include things like a car allowance or employee discounts?
  • What can or can’t an employer ask or say before it is considered to be unlawfully “prompting” the applicant to divulge information?

Jason Habinsky, another New York-based employment lawyer, tells Business Insider’s Áine Cain that New York’s ban could have some dramatic consequences:

Habinsky broke down a hypothetical scenario involving an employer that breaks the law by leaving a question about salary information on their job applications. He says that the nature of the rule could leave such an organization open for a major lawsuit. “That’s not just a violation against one person, but against every employee they’ve hired during that period of time,” he says. “It does open up the door for group actions or collective actions.”

It could also have repercussions outside New York, he adds, considering how many national and global businesses have a presence in the city:

“One easy way to make sure you’re in compliance with employment laws nationwide or state-wide, depending on how vast your business is, is to pick the strictest law and then comply with that across the board,” Habinsky says. “In other words, even if other states or cities don’t have a requirement or a ban on requesting salary information, you apply it universally or uniformly, outside of New York City as well. It’s a lot easier to administer and there are also good reasons for doing it. The purpose of the law is to not perpetuate discrepancies or gaps in pay and equity. There’s a good reason behind it and you can accomplish that beyond the state or city where it’s required.”