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In 2017, the City of Philadelphia took action to address a proven and substantial pay gap for women and minorities. The ordinance targets a known cause of pay inequitysalaries set based on prior salary. In order to prevent discriminatory pay from begetting more discriminatory pay, the ordinance prohibits an employer from asking about a prospective employees wage history (the inquiry provision) and prohibits an employer from relying on wage history at any point in the negotiation over starting pay (the reliance provision). Does this violate the First Amendment?

The Chamber of Commerce filed a lawsuit, Greater Philadelphia Chamber of Commerce v. City of Philadelphia, alleging that the new law infringes on the free speech rights of the Chamber and its members. The federal district court agreed with the Chamber about the inquiry provision and invalidated it, but disagreed about the reliance provision on the grounds that it did not infringe speech. On appeal, however, the Third Circuit held that both provisions are constitutionally valid.

In this column, Ill discuss the ruling, as well as the broader landscape of equal pay law and the efforts some states have made to address longstanding and seemingly intractable inequities.

Before enacting the ordinance, the City of Philadelphia analyzed pay data for women in Pennsylvania. According to the 2015 census, women earned only 79 cents for every dollar earned by similarly situated men. The wage gap is much larger for non-white women68 cents on the dollar for Black women, and 56 cents on the dollar for Latina women. The gap is measurable from the moment women enter the workforce and grows as the years pass.

The data relied on by the City of Philadelphia is consistent with nationwide trends. The wage gap is real, and regression studies prove that some portion of it is attributable to discrimination. There are regional variations, and young women in large cities fare better than all other sub-groups of women. But, on average, women earn only 80 cents for every dollar earned by their male counterparts. The gap occurs at all levels of the occupational spectrum, across all jobs, and grows throughout the life cycle, as percentage-based raises, lateral pay matching, and other factors work to exacerbate existing inequalities. As it does in Pennsylvania, the pay inequity falls most harshly on African American and Latina women.

As one remedy for the disparities the City identified, it passed an ordinance that provides as follows:

It is an unlawful employment practice for an employer

(i) To inquire about a prospective employees wage history, require disclosure of wage history, or condition employment or consideration for an interview or employment on disclosure of wage history, or retaliate against a prospective employee for failing to comply with any wage history inquiry.

(ii) To rely on the wage history of a prospective employee from any current or former employer of the individual in determining the wages for such individual at any stage in the employment process, including the negotiation or drafting of any employment contract, unless such applicant knowingly and willingly disclosed his or her wage history to the employer, employment agency, employee or agent thereof.

(c) For purposes of this Section 9-1131, to inquire shall mean to ask a job applicant in writing or otherwise.

The ordinance imposes civil and criminal penalties for each violation.

Why target prior salary information? It plays a role in perpetuating and exacerbating pay inequities that already exist in the labor force. Existing laws designed to guarantee equal pay have done nothing to minimize the effects of prior salary matching on the wage gap.

At the federal level, the primary tool for combating pay inequity is the Equal Pay Act (EPA) of 1963. The law is simple: It guarantees equal pay for equal work for men and women who do the same job for the same employer. The Equal Pay Act is an important source of protection against pay discrimination, but has some serious limitations. The one relevant here is that an employer can defend against proof of a gender-based pay disparity with any of several affirmative defenses that were written into the law when it was passed.

The most troubling affirmative defense is based on an employers claim that the proven pay disparity is due to a factor other than sex. The idea behind this defense is that even if a man is paid more than a woman for doing the same job, the employer should not be penalized if it can prove that the disparity isnt based on the sex of the employees. This defense has been used to allow pay disparities that cant be justified by any legitimate business reason. One court held, for example, that if a sex-based pay disparity was created through a mistake, it can stand because it can be justified by a factor other than sex (the mistake). That careless employer could conceivably continue paying his female employee less, even after discovering the mistake, because her sex did not create the unjustifiable disparity.

But the bigger problem is the use of this defense to grandfather in pay disparities just because they might have started with another employer. Reliance on prior salary is the chief offender in this regard. The City of Philadelphia was smart to tackle this head on.

Given the existence and persistence of the wage gap, the role of prior salary in setting wages should be minimized if not eliminated entirely. At the federal level, several bills have been introduced that would address and other loopholes in the Equal Pay Act, but none has been passed into law. Some states have begun to fill in the gaps, with bold new equal pay laws. Massachusetts, for example, passed a law that gives employers a list of specific factors thatcanbe taken into account when setting salaries such as education, training, and experience; it also requires that employers bear the burden of showing that such factors are reasonably related to the particular job in question and consistent with business necessity. New York and California have taken similar steps. This approach makes sense because it guides the employer towards relevant criteria that are less likely to perpetuate discriminationand imposes the burden on them to defend any resulting pay disparity.

Massachusetts was the first to target prior salary reliance. A law passed in 2016 does not allow an employer to ask an applicant about salary history (or seek the information directly from a prior employer) until after any offer of employment with compensation has been made to the prospective employee. Several other states have followed suit; about one-third of states currently have some type of ban on requesting or using salary history information from job applicants. Roughly twenty localities also have bans, including the City of Philadelphia, which passed the one challenged in this case.

This case reached the Third Circuit after the district court granted a preliminary injunction on the inquiry provisionpreventing it from taking effect before a trial on the meritsbut denying one on the reliance provision. In this case, the split ruling resulted from different conclusions about the constitutionality of each provision. The District Court concluded that the plaintiff was likely to succeed at trial in showing that the inquiry provision violates the First Amendments protection for free speech, but that the plaintiff was unlikely to prevail on the challenge to the reliance provision.

The Third Circuit dispensed quickly with the appeal on the reliance provision, concluding that the district court was right in its determination that the clause does not infringe on speech. The plaintiff argued that when a prospective employer formulates a proposed salary, it is communicating a message about how much that applicants labor is worth to the employer. But the court was not fooled by this argument. The rule is no different from most employment discrimination laws that prevent employers from making decisions based on an applicants or employees protected traits such as race or sex. No First Amendment analysis was warranted on this claim.

With respect to the inquiry provision, the Third Circuit conducted a First Amendment analysis. The court agreed with the plaintiff that this provision implicates speech because it prevents employers from asking potential applicants specific questions. But the type of speech it regulates is deemed commercial speech, which is granted less protection under the First Amendment. A law that infringes on commercial speechexpression related solely to the economic interests of the speaker and its audienceis reviewed under the intermediate scrutiny standard, which is less exacting than the scrutiny given to laws that infringe on non-commercial speech.

Under intermediate scrutiny, the law can survive only if the means chosen are substantially related to an important governmental interest. The Third Circuit concluded that the ordinance satisfied this standard. The Citys desire to remedy wage discrimination and close the wage gap is an important governmental interestnot even the plaintiff disputed that claim. The only question, then, is whether the means chosenthe ban on inquiring about prior salaryis closely enough related to the end goal. The court concluded that the ban on prior salary inquiries directly advances the Citys interest in pay equity. The city council relied on expert analysis and substantial evidence about the wage gap and its causes. It drew reasonable inferences about the causes of the wage gap and the role played by prior salary information. That body of evidence relied on by the city council was more than sufficient to justify the ban as a means of addressing the wage gap. The City of Philadelphia can thus proceed with enforcing both provisions of its prior salary law.

One frustrating aspect of the wage gap is that most of the improvement occurred in the 1980s, and almost nothing has changed since. Its thus important that governmental entities (and employers themselves) try new things. A ban like the one at issue in this case is a reasonable first step to closing the gap.

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A Win for Equal Pay: The Third Circuit Court of Appeals Upholds A Law Designed to Address Wage Gap - Justia Verdict