Solely based on Federal law…yes. A federal court ruled last week that it is legal to pay female employees less than men if it is based on past salary history. This decision by the 9th Circuit Court of Appeals overturns a previous ruling that stated that pay differences solely on past salary history were discriminatory, based on the Equal Pay Act.
The recent decision goes against a trend among states and cities of passing laws that actually ban the use of salary history such as Philadelphia and New York. By basing someone’s salary exclusively based on past history, it tends to continue the trend of unequal pay. Many times an organization will have a hiring policy of let’s say, 10% increase over previous pay. So if a woman was being underpaid by her past employer, she’ll will likely by underpaid by her current employer. Lisa Maatz, from the Association of American University Women, stated, “this disappointing outcome further shows the need for the passage of strong state and federal legislation that addresses pay discrimination, especially salary history’s part in perpetuating that discrimination for both women and people of color. As long as such discrimination continues, women and families—indeed our whole economy—are undermined.”
The focus should be based on the person’s qualifications and the demands of the job. Further, any hire should be compared to those currently in the position at the company with similar credentials, otherwise pay disparities will grow. Basing anyone’s salary, female or male, on past history makes no sense. Basing a salary offer on salary history will most likely not value the current job unless the two jobs are nearly identical. Typically people move from one job to another to advance themselves both professionally and financially. And with sites such as LinkedIn, Glassdoor, the Bureau of Labor Statists, etc. it is easier than ever to figure out one’s market value.
Several states have passed or have bills pending regarding the use of past salary history. One of the first to enact a law was Massachusetts. Job seekers in Massachusetts will no longer have to disclose their salary history to prospective employers in order to be considered for a job as of July 2018. The law makes it illegal for employers to ask job applicants what they've earned in the past. California has a similar law in effect with its Fair Pay Act. However, employers may still use prior salary as a factor justifying a gender, race, or ethnicity wage differential as long as the pay gap is also based on at least one other legitimate factor, such as a difference in applicants’ or employees’ experience. The California law prohibits an employer from justifying an otherwise unlawful difference in pay on prior salary alone.
With today’s talent market as tight as it is, it’s prudent to make competitive, market based offers. In addition, if your company spans across several states or even cities, know the laws regarding the usage of past salary history in pay decisions.
Source: Forbes.com, San Diego Union-Tribune, usnews.com