November 1, 2016

California Expands State Equal Pay Law

Last year, Governor Jerry Brown signed the California Fair Pay Act (SB 358) into law, which took effect on January 1, 2016.  Legal pundits called it one of the most aggressive gender pay equity laws in the country.

One year later, on September 30, 2016, Governor Brown signed the Wage and Equality Act of 2016 (SB 1063) into law, which prohibits employers from paying lower wages for substantially similar work because of an employee’s race or ethnicity.  The new law will go into effect on January 1, 2017.

Governor Brown also signed a bill limiting the employers’ use of a new employee’s prior salary history to justify pay differentials.


Fair Pay for Women

To review, the Fair Pay Act amended the state’s prior Equal Pay Act of 1949 in several important ways.  The old law required employers to pay men and women working in the same establishment the same pay for “equal” skill, effort and responsibility and for the same work performed under “similar working conditions.”  The Fair Pay Act significantly expanded the law by broadening the requirement to “substantially similar work.”  It also prohibits unequal pay when viewed as a composite of skill, effort, and responsibility as opposed to looking at “equal” skills.

The Fair Pay Act is also more expansive than the federal Equal Pay Act (29 USC § 206(d)).  For example, under the state law an employee may allege pay discrimination based on wages paid to employees doing “substantially similar work.”  This standard is broader than the federal standard which limits pay equity challenges to work “performed under similar working conditions.”  Under this more permissive state standard, a female sorter could allege that it is a violation to pay a male grader more if he is performing “substantially similar work.”  The Fair Pay Act does not define “substantially similar work,” so it will be left to the courts to decide how broadly this concept should be applied.

The state law also allows employees to challenge their pay based on wages paid to employees at other work locations of the same employer.  Thus, under the California law, a female berry picker working in Salinas could challenge the higher pay being paid to a male picker in Santa Maria.  The federal law limits such comparisons to the same establishment.

The law does allow employers to have pay differences if it is based on a reasonably applied factor that is based on (1) a seniority system; (2) a merit system; (3) a system that measures earning by quantity or quality of production; or (4) a bona fide factor other than gender.  If the employer wishes to rely on a bona fide factor other than gender (for example, training, education, or experience), then the employer must demonstrate that the factor is not based on or derived from a difference in compensation that is based on gender, is job related, and is consistent with a business necessity.  However, if the employee can show that there is an alternative business practice that would serve the same business purpose without producing the pay differential, the “bona fide factor other than sex” defense will not succeed.  An employee who prevails under the equal pay law is entitled to the wage disparity, liquidated damages, costs, interest and attorneys’ fees.

Under the Fair Pay Act, employers are prohibited from discharging, discriminating or retaliating against an employee for invoking the equal pay law.  Also, an employer may not prohibit an employee from disclosing the employee’s own compensation, discussing the compensation of other employees, asking about another employee’s compensation, or assisting another employee to exercise his or her rights under the law.  Employers must retain records on wages, job classifications, and other conditions of employment for three years.


Race or Ethnicity Now Included

Virtually identical to the Fair Pay Act, SB 1063 amends Labor Code section 1197.5 by adding a provision that prohibits employers from paying employees of one race or ethnicity a lower wage than employees of a different race or ethnicity if those employees perform substantially similar work.  The same factors that may permit a pay disparity between workers of different genders will now apply to different races or ethnicities, except that one would substitute bona fide factor other than race or ethnicity, for gender.  The factor or factors that the employer chooses to rely on under the equal pay laws must account for the entire wage differential.  The same enforcement mechanisms and penalties applicable to gender pay equity claims apply to the race and ethnicity claims.


Salary History Can’t Justify Wage Differential

Governor Brown also signed into law AB 1676, which provides that under Labor Code sec. 1197.5, prior salary, by itself, cannot justify any disparity in compensation between workers of the opposite sex, race, or ethnicity.  Notably, it does not prohibit inquiries into prior salary history.  Last year, Governor Brown vetoed AB 1017 which would have prohibited employers from seeking a job applicant’s prior salary history, but the legislative compromise of AB 1676 garnered bipartisan support and the support of the governor.  The new law goes into effect on January 1, 2017.


What Employers Should Do Now

Employers should consider undertaking audits of their pay rates for the same or similar positions to determine whether any disparities exist between genders or between race and ethnicity.  Employers may also want to consider removing salary history questions from applications and interviews, as basing a new employee’s salary on that information may unwittingly result in an unjustified pay disparity.  It is strongly recommended that such audit and analysis be undertaken with the advice and assistance of experienced employment and labor counsel to ensure that the work-product is protected by the attorney-client privilege.