176 | 2023 Cal-Peculiarities ©2023 Seyfarth Shaw LLP www.seyfarth.com Ban on inquiries about applicant’s prior salary. In 2017 California joined several other U.S. jurisdictions, including San Francisco,235 in forbidding employer inquiries into applicants’ salary history information.236 The new law—Labor Code section 432.3—forbids employers to seek information about an applicant’s “compensation and benefits.”237 Under section 432.3, employers must not ask about salary history information and must not rely on it in deciding whether to offer a job or how much to pay. Nonetheless, the law also states that employers may consider this information in setting salary if an applicant volunteers that information.238 That said, because California precludes employers from relying on prior salary to justify any gender, ethnicity, or race-based disparity in pay, employers should proceed with caution in utilizing prior salary.239 Required pay scale disclosure. Legislation enacted in 2017 made California the nation’s first jurisdiction to require that employers provide applicants with pay scales: “An employer, upon reasonable request, shall provide the pay scale for a position to an applicant applying for employment.”240 This seemingly simple provision generated important compliance issues, as the key terms—"applicant,” “pay scale,” and “reasonable request”— were undefined. In 2018 the Legislature enacted clarifying amendments. First, the law applied only to external applicants for a position. The pay scale did not need to be provided to internal applicants seeking a promotion or lateral move. Second, “pay scale” meant the salary or hourly wage range and did not include bonuses or equity ranges. Third, a “reasonable request” is made after the applicant has completed an initial interview; the pay scale need not be provided until the applicant has completed the initial interview and requested the pay scale.241 Further clarifications. Legislation effective in 2019 provided as follows. First, prior salary cannot be used to justify a wage differential, whether on its own or in combination with a lawful factor. Second, prior salary is a permissible factor to consider in pay decisions for current employees, such as in awarding a bonus, so long as any wage differential from the decision is justified by a specified permissible factor, such as a merit system. Third, the ban on asking about prior salary does not forbid employers to ask applicants about “salary expectations” for the position sought.242 Annual pay reports. In 2020, the Legislature created an onerous filing requirement for California employers that requires them to report potentially incomplete and misleading pay data that the companies’ adversaries could use to falsely claim discriminatory wage disparities. The legislation follows the lead of an Obama Administration initiative to require certain gender, race, and ethnicity data on the federal annual Employer Information Report (EEO-1)—an initiative that the Trump Administration halted in 2017. California private employers with 100 or more employees that must file the federal report must also submit annual pay data reports to the DFEH that state the number of employees by race, ethnicity, and sex in the following categories: all levels of officials and managers, professionals, technicians, sales workers, administrative support workers, craft workers, operatives, laborers and helpers, and service workers.243 The pay data report must include employees who work in, live in, or report to a location in California. The reported earnings should be determined utilizing W-2 Box 5 wages, and hours worked must include paid time off, such as vacation, paid sick time, and paid holidays. On September 27, 2022, Governor Newsom signed into law another groundbreaking pay transparency law, SB 1162.244 SB 1162 expanded pay scale disclosure requirements and amended the pay data reporting requirements passed in 2020. Effective January 1, 2023, employers are required to provide pay ranges on job postings and to requesting employees. This signing of SB 1162 makes California the largest state that requires the affirmative disclosure of pay scale information. SB 1162 takes California’s pay data reports a step further by requiring that employers report mean and median pay data and pay data of employees supplied by labor contractors.
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