In 2016, women working full time earned on average nineteen percent less than men.1 For decades, policymakers have tried to narrow this “pay gap.”2 Between 1980 and 2016, the gap fell by one-half,3 but substantial differences in earnings remain. States and cities have begun to experiment with new equal pay laws to try to close the gap.4 Recently, Oregon enacted the Oregon Equal Pay Act of 2017,5 which bans employers from asking about or using prior salary in hiring decisions.6 The Oregon Equal Pay Act of 2017 goes further than the federal Equal Pay Act of 19637 (EPA) and other state and local laws in preventing employers from justifying an otherwise unlawful pay disparity on the basis of prior salary. However, the complete ban on asking about or using prior salary carries a risk — by limiting the information available to employers, it may encourage discrimination based on gender.
The gender pay gap in Oregon — at twenty-one percent8 — is slightly higher than the national average. To try to close the gap, Democrats in the Oregon House of Representatives introduced H.B. 2005,9 a bill to ban employers from asking about or using prior salary in hiring decisions.10 The ban aims to address the following concern: if a woman is initially paid less than a man for comparable work in her first job and subsequently transitions to a second job in which her new employer bases her pay on her previous salary, then her lower pay will persist. A floor letter introduced by Oregon State Representative Ann Lininger summarized this rationale: “[The ban] will help break the cycle of pay disparity that traps workers from aspiring to earn higher wages because they have previously worked at a lower wage.”11
Initially, the proposal was contentious. Republicans opposed the House bill because it interfered with otherwise innocent business practices and lacked adequate protection for employers.12 The bill passed the House along party lines, with only one Republican voting in favor.13 However, the Senate produced a separate version of the bill that attracted bipartisan support, in part because it included a partial safe harbor for employers that conduct an “equal pay analysis.”14 The Senate bill passed both chambers of the Oregon legislature unanimously.15 Its Republican cosponsor, Oregon State Senator Tim Knopp, opined that “the next generation of women . . . will earn more for their entire working career because of our efforts here today.”16 On June 1, 2017, Governor Kate Brown, a Democrat, signed the Act into law.17
The Act regulates employers’ acquisition and use of salary history information. Employers may not “seek the salary history of an applicant . . . from the applicant . . . or a current or former employer of the applicant”;18 they may not “[s]creen job applicants based on current or past compensation”;19 and they may not “[d]etermine compensation for a position based on current or past compensation.”20 An employer found to have violated these provisions is potentially liable for back pay and for compensatory and punitive damages.21 However, the Act contains a safe harbor provision. If an employer has completed an “equal-pay analysis” — an internal audit, essentially — within three years before the complaint, eliminates the pay differential for the plaintiff, and makes “substantial progress toward eliminating wage differentials for the protected class asserted by the plaintiff,” a court must grant a motion by the employer to limit an award to two years of back pay and reasonable attorney fees and cannot award further compensatory or punitive damages.22
The Act’s implementation is staggered. Most of its provisions, such as the ban on determining pay based on current or past pay, do not take effect until January 1, 2019.23 The ban on seeking information about salary history took effect on October 6, 2017,24 but civil actions for violating the ban may not begin until January 1, 2024.25 Until then, enforcement of the ban is up to the Commissioner of the Oregon Bureau of Labor and Industries.26
The Oregon Equal Pay Act of 2017 is not the first of its kind. It is part of a proliferation of equal pay laws that take aim at the use of prior salary in hiring decisions. In 2016, Massachusetts became the first state to enact such a law.27 Within one year, California, Delaware, Oregon, Puerto Rico, New York City, and Philadelphia followed.28 Salary history legislation is under consideration in at least twenty states and the District of Columbia,29 and on May 11, 2017, members of the U.S. House of Representatives introduced the Pay Equity for All Act of 2017,30 a bill to amend the Fair Labor Standards Act of 193831 to disallow employers to “request or require . . . that a prospective employee disclose previous wages or salary histories.”32
By preventing employers from raising a prior salary defense, the Oregon Equal Pay Act of 2017 strengthens the hands of discrimination claimants. The Act goes further than the EPA, as interpreted by the circuit courts of appeals, and other recent state and local equal pay laws in preventing employers from justifying an otherwise unlawful pay disparity on prior salary. However, the overall effect of the new ban on asking about or using prior salary is uncertain. Although similar bans have been described as a “sea change,”33 as a practical matter they may not alter the information available to or used by employers. Or worse, they may risk doing so in a way that encourages gender-based discrimination.
The EPA prohibits discrimination “on the basis of sex by paying wages to employees . . . at a rate less than the rate at which [the employer] pays wages to employees of the opposite sex . . . for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions.”34 An employer may assert as an affirmative defense to a claim under the EPA “(i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex.”35 Courts disagree about the extent to which prior salary is a permissible “factor other than sex.” In Kouba v. Allstate Insurance Co.,36 the Ninth Circuit held that “the Equal Pay Act does not impose a strict prohibition against the use of prior salary,”37 but an employer wanting to rely on it must assert “an acceptable business reason.”38 The Seventh and Eighth Circuits agreed that employers may use prior salary but declined to adopt the “‘acceptable business reason’ requirement.”39 The Tenth and Eleventh Circuits, meanwhile, have held that “[t]he EPA . . . precludes an employer from relying solely upon a prior salary to justify pay disparity,” whatever the reason.40 In 2017, the Ninth Circuit revisited the issue in Rizo v. Yovino,41 now vacated pending rehearing en banc, in which it endorsed its decision in Kouba and clarified that it “did not draw any distinction between using prior salary ‘alone’ and using it in combination with other factors.”42
By prohibiting employers from relying on prior salary at all, the Oregon Equal Pay Act of 2017 goes further to stop the prior salary defense than have the EPA, as interpreted by the circuit courts of appeals, and other recent state equal pay laws. Other states responded more narrowly or only in part. For example, California amended its equal pay law to specify that “[p]rior salary shall not, by itself, justify any disparity in compensation.”43 Delaware banned salary history inquiries but continues to allow employers to use salary history information if applicants volunteer it.44 But the Oregon Equal Pay Act of 2017 appears to bar wholesale any consideration of prior salary. The Act provides that an employer may not “[d]etermine compensation . . . based on current or past compensation”45 and does not make any explicit exception for voluntary disclosures or for consideration of prior salary in conjunction with other factors. Thus, the Act seems to wipe out the prior salary defense for employers facing claims of unlawful discrimination.
There are, however, reasons to be skeptical that the Act will alter hiring practices in a way that reduces gender differences in earnings. First, salary history bans may not alter the information available to employers or whether they use it. The ban directly affects only job applicants with a salary history. That is, for applicants looking for their first job, or for employees who never change jobs, the rule does not change the information available to employers.46 In addition, there may be a set of applicants for whom the employer knows their current salary regardless, such as government employees or employees in a firm, occupation, or industry about which the employer is knowledgeable. Finally, an applicant may volunteer the information. In that case, even though there is no specific exemption for applicant-volunteered salary history under the Oregon Equal Pay Act of 2017, it is hard to imagine that an employer would ignore it. Suppose an applicant says that he makes $50,000 per year, and an employer, based on that information, offers him $55,000. This consideration of prior salary would violate the Oregon statute, but the violation may be difficult to detect. The applicant has no incentive to complain,47 and the employer need only come up with a lawful justification, such as “merit” or some combination of education, training, and experience,48 to justify the offer.
Second, even if the Act alters the information available to employers, this may not help women. There is a risk that by limiting the information available to employers, the Act may encourage discrimination based on gender. At first, this may seem counterintuitive. But eliminating one input into employers’ hiring decisions, such as prior salary, may increase the informative value of other inputs, such as gender. Suppose an employer makes a wage offer based on what it believes a job applicant will accept. To infer the applicant’s reservation wage, that is, the lowest wage she will accept, the employer may rely on her education, her experience, and other information known about her — possibly her gender.49 To pay someone differently because of gender is, of course, illegal, but there is evidence that employers behave this way.50 Social scientists refer to this type of group-based inference as statistical discrimination.51 If the reservation wages employers infer without using wage history approximately equal what they infer using the information, the ban on asking about prior wages may have little effect on wage offers. If employers underestimate the gender difference in earnings, the ban could have its desired effect. But if employers overestimate this difference, the ban could result in lower wage offers to women.
Preliminary evidence suggests that the risk that salary history bans encourage harmful statistical discrimination is not insignificant. Recently, in an effort to improve employment outcomes for individuals with criminal records, particularly black men, several states have passed “ban the box” laws that prohibit employers from asking job applicants about their criminal history.52 Perversely, the policy was shown to encourage racial discrimination based on stereotypes about black criminality.53 In fact, the black-white gap in employer callback rates grew sixfold.54 Of course, there may be important differences between “ban the box” and salary history bans. First, racial stereotypes about criminality may be stronger than gender stereotypes about earnings. Second, wage determination may differ from decisions about whether to interview applicants. But the two policies share basic similarities: the underlying discrimination is illegal but difficult to detect, and the policies limit information available to employers but not information about race or gender. A concern that the “ban the box” result may extend to salary history bans should not be ruled out.55 According to a recent survey, women who refuse to disclose their prior salary receive slightly lower wage offers than women who disclose, while men who refuse receive slightly higher offers.56 This evidence is at least suggestive of the idea that employer inferences may make women worse off. It also highlights a separate concern, which is that, regardless of whether an employer may legally use the information, a man may be more likely to volunteer his prior salary.57 In that case, the employer may draw a negative inference about a woman applicant who does not disclose. Oregon, at least, makes no voluntary-disclosure exception to the ban on determining compensation based on current or past compensation if an employee files an otherwise successful complaint.58
The effect of the Oregon Equal Pay Act of 2017, then, may differ for discrimination claimants versus women who never bring a claim. The Act helps claimants by eliminating the prior salary defense, but its overall effect on wage setting is uncertain (and possibly undesirable). An unexplored possibility is that the current gender pay gap has more to do with factors, such as pay transparency59 and workplace flexibility,60 for which the salary history ban is not a remedy. Experimentation should inform whether other states follow the Oregon model or try something different.61