Is the City of Brotherly Love Setting a Bad Example for its Sister Cities?

Date: July 14, 2017

Over the past week, the NFIB Small Business Legal Center has joined with other industry groups in voicing serious legal concerns over two separate enactments adopted by the City of Philadelphia. In a broad sense both cases fall under the ambit of our on-going amicus efforts to reign-in municipal authorities, who all too often seek to impose an added layer of regulation or tax on already over-burdened small businesses. As we’ve argued elsewhere municipal-level regulation almost inevitably complicates business for entrepreneurs. For that matter, municipal balkanization of regulatory standards is an especially concerning problem, as it allows dominant municipalities to set regional standards, and hampers the overall business climate while—in many cases—undermining policies set at the state level.

What has Philadelphia done that is so controversial here?

Double Taxation

Today the Legal Center filed an amicus brief urging the Pennsylvania Supreme Court to take-up a case—Williams v. City of Philadelphia—challenging the City’s soda tax. Much like the controversial, and highly publicized, New York City ban on large soft drinks, this represents a municipal effort to discourage consumers from buying a perfectly legal product that local lawmakers happen to disfavor. But instead of affirmatively regulating the sale of sugary drinks, the City has chosen to impose a sort of sin tax.

As we argue, this is wholly inappropriate for two reasons. First, in imposing taxes on the sale of products for which consumers already pay sales tax, the City is upsetting tax policies established at the state level. Second, even if Philadelphia forces distributors to pay, the tax is ultimately passed on to consumers who are therein subject to double-taxation—which violates essential precepts of Pennsylvania law as well as sound principles of tax policy. Accordingly, Philadelphia’s soda tax experiment paves the road not only for municipalities to add taxes onto the sale price of disfavored products, but to duplicate state sales tax on conceivably any product sold in commerce to bring in added revenues—which means greater strain on small business and consumers alike.

Banning Wage and Salary History Inquiries

Perhaps even more controversially, Philadelphia also recently enacted an ordinance prohibiting employers from making any inquiry into a job applicant’s wage or salary history. While this is framed as an effort to eliminate the wage gap between men and women in the workforce, the reality is that there are other (more direct) ways to promote wage equality that would prove much less burdensome to the small business community. For example, some jurisdictions have encouraged employers to perform occasional audits to assess whether they are paying their employees fairly for equal work.

But in outright prohibiting employers from asking employees about their wage or salary history the City is greatly impeding the ability of small businesses to efficiently fill vacancies. In many cases employers will need to ask job applicants about their pay history to get a sense as to what will constitute a competitive offer. As NFIB Legal Center argues in Chamber of Commerce of Greater Philadelphia v. City of Philadelphia, searching-out competent candidates to fill vacancies can prove difficult and costly, and it would be all the more if employers are unable to quickly determine what may constitute a competitive wage or salary.

Will Other Municipalities Follow-Suit?

There is little doubt that if Philadelphia’s novel distributor-level soda tax is allowed to stand, other Pennsylvania municipalities will follow-suit. For example, Pittsburgh might impose a distributor level tax on non-electric motor vehicles to discourage consumers from buying traditional gasoline powered cars or trucks. And even more concerning Philadelphia’s distributor-level tax regime will likely prove an attractive model for cash-strapped cities, which means legislators in other communities may seek to push the envelop further by imposing taxes on a broader range of consumer products going forward.

But at least Philadelphia’s soda tax regime is unlikely to spread as a model into other states. The same cannot be said for the City’s recent ordinance banning employers from making inquiries into wage or salary history. On that issue there is good reason to fear that other cities throughout the country will begin modeling their own employment law restrictions on Philadelphia’s bad policies. So while we are hopeful that the Pennsylvania Supreme Court will ultimately invalidate Philadelphia’s soda tax case, the City’s ban on inquiries into pay history is of even greater significance nationwide.

And unlike in other cases where we’ve recently challenged municipal regulation of employment law practices (i.e., minimum wage or paid sick leave), our arguments in this case will have implication in other jurisdictions. This is because we argue restrictions on what an employer may ask a job candidate implicate the First Amendment. To be sure, the Supreme Court holds that content-based restrictions on free speech are subject to strict scrutiny. Accordingly, our goal here is not only to encourage the courts to invalidate Philadelphia’s ban on pay history inquiries, but to secure a precedent that will send a strong message to other cities that may be contemplating similar enactments.

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