January 26, 2018

Due Diligence: California’s New ‘Comp History’ Law

Effective January 1st, Section 432.3 of California’s Labor Code was amended to prohibit employers from seeking salary & compensation history from applicants for employment, and to require employers to provide applicants with the pay scale that applies to the position they’re seeking.

This Orrick memo says that these amendments have some important implications for M&A transactions. Here’s an excerpt:

Buyers and sellers alike will need to think carefully about the potential application of these new requirements within the M&A context – where oftentimes employees of the target company may continue their positions, but as new employees of the buyer. In particular, buyers should consider evaluating their current approach to HR diligence.

If a buyer intends to inherit all employees of the seller, it may posit that none of these employees are “applicants” covered by the new statute. However, in almost all acquisitions, there is an element of uncertainty with respect to at least some positions. Accordingly, buyers should be mindful of the overall structure of the acquisition, particularly in situations where acquired employees may be regarded as job applicants.

The memo goes on to offer specific tips for addressing the issues raised by the new law during the due diligence process – and flags a couple of other recent changes in California employment law to keep in mind.

John Jenkins