New Mass. Law Prohibits Employers from Asking Salary History: The Effects on Employers and Employees
By: Carol E. Crawford, Managing Director, SPHR, SHRM-SCP
Equal pay legislation was signed into law in Massachusetts earlier this month. The bill, which had bipartisan support, may pave the way for other states to follow suit with similar legislation. Despite the fact that “equal pay for equal work” has been a matter of federal law since 1964 (Federal Equal Pay Act and Title VII of the Civil Rights Act of 1964), statistics across industries and geographies still report that women, on average, earn 80% of what men earn for the same or similar work. Will this latest legislation have greater impact than previous attempts?
This ground-breaking law in Massachusetts, set to go into effect in January of 2018, seeks to reverse gender-based pay differences by banning employers from asking potential employees about their salary history or seeking that information from a former employer until after an offer of employment has been extended. Without previous salary history on candidates, employers will be forced to determine the value of the job and accurately assess the skills and experiences of candidates to perform that job without the benefit of knowing what the individual earned in a previous role. In theory, this evens the playing field for anyone who may have been subjected to past discrimination or been paid less for other non-discriminatory reasons. Again, theoretically, this should benefit not only women, but anyone earning less than the prevailing wage for a particular job.
Let’s consider this issue from both the employer and employee perspective within the law firm environment. A number of questions are posed here to provoke further thought and conversation around this topic.
The Employer Perspective
Employers often require prior salary history as part of the application and interview process. Because candidates often come from other law firms with similar compensation structures, employers utilize past salary information to assess the value another firm placed on the work performed by an individual. This is one factor a prospective employer may use to validate that the individual has historically performed at a high (or low) level due to the monetary value a prior firm assigned to the individual.
Law firms typically have a range they will pay for any given job based on the prevailing local law firm market. Where an individual falls within that range may depend on factors including experience level, credentials, tenure and merit or past performance. An individual’s previous salary may also impact where within the range a firm makes an offer. Some firms currently maintain internal guidelines limiting the offer to a certain percentage above a candidate’s previous salary. Law firms are businesses with compensation budgets. In light of that, many firms may be asking themselves the following questions:
- Why would a firm pay more than they have to for a job, as long as the compensation is within an established range?
- Also, why would they take the risk of paying someone a “high performer” salary only to find out later they perform at a lower level? Will this new law force firms to offer lower salaries as a base line for a bargaining and negotiation process?
- If this is the case, how will this negotiation process impact the level of trust and relationship between the firm and its new employee?
- Will employers increasingly look to bona fide merit programs with forms of variable pay such as performance bonuses, to differentiate between average and high performers?
- What types of new regulations will arise around these pay practices?
- Do these potential resulting scenarios impact the intent of the equal pay legislation?
The Employee Perspective
The employee who has been historically underpaid for their work will no longer be held back from earning a fair wage because of their salary history. For individuals who have been underpaid, sometimes for years, there is an opportunity to make a significant jump in earnings – substantially impacting their standard of living. While law firms aren’t generally known for underpaying their people, there could be opportunities for individuals coming from different geographical markets, industries or firm sizes to immediately bridge the earnings gap. Expectations and accountability for living up to a higher salary are incumbent upon the newly hired individual. For those individuals with a salary history that accurately reflects the high value previous employers placed upon them, they are free under the new law to voluntarily disclose this information to a potential employer as part of salary discussions. As they weigh their options, they should consider the following:
- How does this option to disclose salary history versus the choice to not disclose impact candidates?
- Will employers offer higher, more consistent salaries to qualified candidates?
- If an employer makes a job offer substantially higher than the individual previously earned, is there a greater chance the individual will not be able to meet the expectations in the new role, resulting in job loss?
Like other employment-related legislation, there is usually a positive benefit as well as unintended consequences. Will we merely see more lawsuits and regulation or will the impact of this legislation result in a real shift in gender pay inequality? Only time will tell, but if the results are positive, we should expect to see more of this type legislation across the U.S. We plan to explore this subject more with our clients, candidates and colleagues in the coming months as this legislation unfolds.