Analysis of Changes to Delaware Bill Prohibiting Questions About Compensation History

At the Connolly Gallagher blog, our friend and former colleague Tim Holly has an update regarding Delaware HB 1, and some detailed analysis regarding changes made in response to concerns raised by industry groups:

First, the bill was amended to move it from Subchapter 2 to Subchapter 1 of Chapter 7, Title 19 of the Delaware Code. Unlike Subchapter 2, Subchapter 1 does not provide for the filing of a charge of discrimination with the Delaware Department of Labor (with a subsequent right to sue). This means that an employer, who, as a matter of standardized interview questions, asks a prohibited question, should not face charges of discrimination premised on the question being prohibited. From an employer’s perspective, this is an extremely positive change.

Second, a new provision has been included, which states that, “interviewing and hiring for a single position shall constitute a single violation.” Thus, in the scenario of an employer using a standardized application that asks a prohibited question, used for a single position to which 100 applicants apply, there would be only one violation (not 100 violations). This reduces employer liability from what first was proposed, which is another positive change for employers.

Third, the bill now provides employers with an affirmative defense. As in the prior version, the revised bill contains a provision that states that it shall be an unlawful employment practice “for an employer or an employer’s agent” to engage in prohibited activity. Many employers were concerned about liability when using outside recruiters – especially when from outside of Delaware – because they often operate outside the direct control of the employer and may not be as aware of Delaware law as the employer. The bill now states that “if the employer can demonstrate that the employer’s agent was informed of the requirements of this section and instructed to comply, then the employer is not liable for actions taken by an agent in violation of this section.” If this becomes law, employers will be wise to include in contracts with recruiters (and “agents” more generally) information that informs the recruiter of such law (along with an instruction to comply, of course). When done, the employer would have an affirmative defense. Although this bill continues to present increased potential liability for employers (which is not good from an employer’s perspective), the revision provides a defense (which, of course, is better for employers than not having a defense).

Despite these improvements, this legislative initiative still has some issues that may cause concern for some – or at least warrant attention and perhaps discussion. As a threshold matter, readers must beware that this would be a strict liability law. Intent would be irrelevant to the question of liability. Laws already protect against sex discrimination including in pay (both under intent-based theories and theories where liability can exist regardless of intent, i.e., “adverse impact”). Some may question whether this bill is needed to cure (or will even be helpful in curing) the issue that the legislative synopsis states the bill is intended to rectify: to help close “the wage gap between men and women.” Others may argue that the bill should not become law because it fails to achieve, or there is no evidence that it would ever achieve its stated purpose, or because the identified issue itself is not sufficiently well established in terms of what accounts for any disparity. Furthermore, some simply do not like the idea of having seemingly never-ending law and regulation imposed on them, making it increasingly difficult and costly to navigate labor and employment law. Similarly, some may feel that creating yet another route to run afoul of law (even innocently, with no improper motive) creates a disincentive for people to start or expand businesses, which directly harms the economy; a result Delaware can ill afford. Philosophically, some simply do not like the State telling employers what they can and cannot ask when deciding who to hire, how to hire, or generally in determining what is “needed” to run a business effectively. Some even argue that doing so violates speech rights. See, for example, this complaint.

The following are some specific issues with the revised bill that might warrant continued discussion:

709B(a) – Should there be a definition of “employer,” what should it be, and how would enforcement work? The bill does not provide a definition of “employer.” “Employer” is defined in Subchapter II (where the bill was originally to be inserted); but not in Subchapter I. Subchapter II states that “for purposes of this subchapter” “employer” means “any person employing 4 or more employees within the State” and includes “the State or any political subdivision thereof.” Thus, when the bill was placed in Subchapter II, it was clear that the State would be impacted just as private employers would be impacted. This is not always the case. For example, the Wage Payment and Collection Act of the State of Delaware (the “Delaware Wage Act”) defines “employer” specifically to exclude “the State of Delaware or any political subdivision thereof.” As discussed more below, this revised HB1 adds a new enforcement provision that empowers the Delaware Department of Labor to sue an employer for a claimed violation and seek a civil penalty. Indeed, HB 1 gives the Department of Labor “the same powers under this section as given in § 1111” of the Delaware Wage Act (i.e. just as the Department of Labor has enforcement authority over civil penalties under the Delaware Wage Act, such authority would exist over civil penalties under the new law). But the State is not a proper defendant in a Delaware Wage Act claim, so there is no issue with the enforcement provision there. The same might not be true if the State of Delaware is an “employer” for purposes of this bill.  If the State of Delaware is not being placed in the same boat as private employers, some might feel that there should be candor about that. If the State of Delaware and political subdivisions thereof are intended to be employers covered by the bill, perhaps a definition of “employer” should be inserted (and thought given to the enforcement issue). Certainly members of the General Assembly, when voting on this bill, should know whether they intend for the law to apply to the State of Delaware and political subdivisions thereof.

709B (a)(1) – Should the definition of “applicant” include another sentence stating that existing employees of an employer shall not be deemed “prospective employees”? Many employers feel that, even if this becomes law, there should not be a violation when an existing employee applies for an internal position. Even as written, that might be true. But a better argument for that conclusion existed when the bill was placed in Subchapter II – because “prospective employee” could be contrasted with the definition of “Employee” under Subchapter 2. Subchapter 1 does not define “Employee.” But why leave resolution of this issue to time consuming and expensive litigation? This issue could be clarified simply by refining the definition of “Employee.”

709B(a)(2) – Should the definition of “compensation” be narrowed only to “wages” (perhaps as defined in the Delaware Wage Act)? As such, “wages” would not include “wage supplements.” As written, the law would likely make illegal asking a prospective employee if they received health insurance at their prior job. If that is intended, obviously no change is needed. If an unintended consequence, further amendment is warranted.

709B(g)(1) – Should the current increase in the civil penalty for each “subsequent violation” be eliminated? Existing Delaware law provides for bands of civil penalty (e.g., not less than X, nor more than Y). But few (if any) laws have an increase for a “subsequent violation” – as does this bill. It is likely that, at some point, an employer will be audited under this law, if it becomes law. An employer might be found innocently to have asked prohibited questions numerous times – simply ignorant of the law. In that case, it would not be a tremendous surprise to hear the Department of Labor demand payment of a minimum penalty. In such cases, it arguably is heavy-handed to impose increased, minimum penalties for violations where subsequent violations are no more intentional than any prior violation.

709B(g)(3) – Should the right of action provision be written in the active (rather than passive) voice or otherwise revised to make clear that it is the Delaware Department of Labor (not individuals) that has the exclusive authority to file a civil penalty claim in a court of competent jurisdiction? Interestingly, 709B states that “The Department of Labor has the same powers under this section as given in § 1111 of this title.” Section 1111 is part of the Delaware Wage Act. Under that provision, parties have already litigated whether individuals have a private right of action. They do not. But why leave it to the inevitable litigation to resolve that issue? A simple revision would save some future litigants a lot of time and money.

The piece, "Significant Changes Made to Delaware Bill Prohibiting Questions About Compensation History," can be found at the Connolly Gallagher blog, together with Tim's other posts. Among the most recent: