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Delaware: The First State to Prohibit Questions About Compensation History

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In Labor & Employment Law | On June 19, 2017

On June 14, 2017, Delaware legislation (HB 1) was signed into law that prohibits questions about compensation history. See here. We blogged about this several times while this law was still a bill – including discussing significant changes made to the initial legislation. See here.

Even more changes to the bill followed our last post. Perhaps most notably, the revised bill (now law) imposes individual liability for an “employer’s agent,” which makes such agent liable for up to $5,000 each first violation and up to $10,000 for each subsequent violation. Therefore, those involved in hiring might want to take particular note of this new law – and employers generally should, of course, beware.

Before delving deeper into this law, readers should note that this law takes effect 6 months from June 14, 2017. Therefore, now is the time to learn this new law and to plan for its implementation – regardless of whether you like it.

The provision getting primary attention makes it unlawful for an employer (“or an employer’s agent”) to screen applicants (both male and female) based on their historic monetary wages or benefits or other forms of compensation. The stated reasoning for this (and the entire law in fact) is to correct actual or perceived pay disparity – where the premise is that women make less than similarly-situated men (presumably because they are women) thus warranting law that prohibits the problem-perpetuating practice of screening applicants based on compensation histories.

The new law also prohibits seeking the history of an applicant’s monetary wages or benefits or other forms of compensation “from the applicant or a current or former employer.” Notably, the prohibited inquiry thus appears to include information about the number of vacation days, the arrangement of employer-paid health insurance premiums, and perhaps history of commission amount (e.g., if in sales).

Notably, this new law is a strict liability law. It does NOT matter your motive in screening or seeking information. Many critics of the bill (now law) argued that there are a multitude of good reasons for at least inquiring (and perhaps even screening) regarding compensation issues, which have nothing to do with sex discrimination or unequal pay. Alas, it does not matter now. Doing so is illegal in Delaware.

While employers cannot draft their way to protection from this strict liability law as it pertains to their own employees (e.g., by making a company policy prohibiting the unlawful practices), employers should take note that they can do so for non-employee agents (e.g., an outside recruiter). For non-employee agents, employers should consider drafting into agreements that the recruiter must comply with Delaware’s new law – making sure that they are specifically “informed of the requirements.” In such cases, as a matter of law, the employer “is not liable for actions taken by the agent” as it pertains to this new law.

So what can an employer ask a candidate? Employers (and their agents) still can discuss and negotiate “compensation expectations.” But the employer (and agent) must “not request or require the applicant’s compensation history (again, including not just wages but also benefits and other forms of compensation). Also, after an offer of employment is made (that includes the “terms of compensation”) and accepted, an employer (and agent) can still seek the applicant’s compensation history – but only if it is for the “sole purpose of confirming the applicant’s compensation history.”

So what type of liability (including personally liable) exists? Well, the new law is not as clear as one might like. Under the enforcement provision, there is no express private right of action. By contrast, the Delaware Department of Labor is expressly given the same powers as possessed under Delaware’s Wage Payment and Collection Act, which includes pursuing the statutory penalty. As briefly discussed above, the penalty is not less than $1,000 nor more than $5,000 for the first “offense” and not less than $5,000 nor more than $10,000 for each subsequent “violation.” Odds are an “offense” and a “violation” are the same thing. A “violation” means an event of improper screening or seeking of information as described above. I suppose the good news for employers is that when there are multiple events of interviewing and hiring for a single position, the improper screening or seeking of information is a single violation. Ultimately, a civil penalty claim may be filed in any court of competent jurisdiction. But by whom?

We understand that the legislators voting for this law disagreed on that point, but we admittedly do not have the record to confirm this information. Certainly when the bill was being discussed with a committee from the Delaware Chamber of Commerce, the bill sponsor represented that she intended for only the Department of Labor to have standing to bring a claim.

Perhaps notable is that this new law was originally proposed for inclusion in a different subchapter of Delaware  law – under which aggrieved individuals not only have a private right of action but also can and must exhaust administrative remedies by filing a charge of discrimination. As modified and passed into law, it is improper procedure to file a charge of discrimination for a “violation” of the new law. But who can sue? Odds are only the Department of Labor – but we are betting someone will test that at some point.

In any event, employers have until mid-December to figure this out. It is time to check your interview forms and applications. Delete that column that, next to positions held, seeks information for compensation amount; and don’t even think about asking candidates how many vacation days they had or what benefits they received.

While reasonable minds most certainly are likely to disagree about this new law, it is indisputably noteworthy. Indeed, we believe that while Delaware will not be the first state to pass such a law as this, we believe Delaware will be the first state to implement it. We are, after all, “The First State.”