The California Fair Pay Act (SB 358, Jackson) – signed into law by Governor Jerry Brown – expands equal pay requirements for “substantially similar work” performed by men and women regardless of location. This expansion will have practical implications for all California employers.
The idea of equal pay for equal work is not a new one. The federal Equal Pay Act and the California Equal Pay Law, which has been in effect for over 65 years, already require employers to provide men and women equal pay for substantially equal work. But according to the legislative findings, despite these existing laws, the gender wage gap in California still stands at 16 cents on the dollar. In 2014, a woman working full time earned an average of 84 cents to every dollar a man earned and the wage gap existed across almost all occupations reporting in California.
The new California Fair Pay Act, therefore, amends Labor Code §1197.5 to require that men and women receive equal pay for “substantially similar work” (not the “same work” as previously required), regardless of whether they work at the same physical location. An employer can defend wage differentials via a “business justification defense” based on a recognized justification such as an established seniority or merit system, or bona fide factors other than sex, such as education, training, or experience. But an employer relying on one of the non-specified “bona fide” factors will bear the additional burden of affirmatively demonstrating that the factor was not based on or derived from a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity.
Employers must also demonstrate that each factor relied upon is applied reasonably and the factors relied upon account for the entire pay differential. Despite all of these justifications, an employee may still rebut the employer’s defense by demonstrating an alternative business practice exists that would serve the same business purpose without the difference in wages.
New Retaliation and Wage Inquiry Provisions
The Fair Pay Act adds a new right of action for any employee who believe s/he has been retaliated against, in the terms and conditions of his or her employment, because the employee engaged in any conduct delineated in the Act to recover reinstatement and reimbursement for lost wages and work benefits.
Employers are already prohibited from requiring an employee to refrain from disclosing the amount of his or her wages under Labor Code §232. But the Fair Pay Act expressly makes it unlawful for an employer to prohibit an employee from discussing or inquiring about the wages of others, if the purpose of the disclosure, discussion, or inquiry is to invoke or enforce the rights granted by the Act. The new statutory language provides that it does not create an “obligation to disclose wages,” which should protect employers from having to disclose company-wide wages to other employees.
Recommended Steps to Prevent Claims under the California Fair Pay Act
The full impact of the California Fair Pay Act on employers may not be known for some time, but employers can begin taking steps now to mitigate future claims.
- Audit current employee compensation. Review job titles, job descriptions and statewide compensation records and systems to identify positions where there is potential unequal pay for similar work and determine whether the entirety of that pay discrepancy is justified based on one of the recognized justifications. It is imperative that employers look beyond the job titles. Challenges for pay discrimination can be made if a colleague is performing “substantially similar” work even if done under a different job title or department.
- Consider non-base compensation. Since base salaries or wages often make up only part of the compensation package for employees, non-base compensation such as stock options, bonuses, commissions, overtime pay, fringe benefits and other payments made as remuneration for employment should be reviewed in assessing wage differentials. Investigators will examine the employer’s policy to identify those to whom the employer makes the benefit available to ensure the employer’s policy and eligibility criteria are non-discriminatory in design and application.
- Draft updated job descriptions. While job titles and descriptions are not controlling, it is important to review, update and draft comprehensive job descriptions that accurately reflect the actual duties of a particular position. Too often, employers rely on outdated job descriptions that fail to take address modern realities of a particular position. Also, possession of a skill not needed to meet the requirements of the job should not be considered in compensation determinations.
- Updateexisting policies, handbooks and trainings. All internal policies should clearly communicate the employer’s commitment to prohibit gender-based pay discrimination for similar work and ensure that employees are not prohibited from discussing their wages. Supervisors should be trained on these policies to ensure consistent application, especially in terms of hiring and promotion.
- Retain wage records. Review existing record retention policies to ensure that wage records are now retained for three years.
This article originally appeared in The California Employer’s Report. It is reprinted with permission from the California Employers Association.
