Equal pay claims just got a lotLucas Clary 02_web tougher to defend in California.  Last month, Governor Jerry Brown signed SB 358, a new law which aims to curb a statewide pay disparity between men and women.  The law, dubbed the California Fair Pay Act, goes into effect on January 1, 2016 and requires immediate, affirmative assessment by most California employers. 

Overview of the California Fair Pay Act. 

Current law already requires California employers to pay men and women the same wage for performing equal work in the same establishment.  The new law broadens that requirement.  It removes the term “equal work” and replaces it with “substantially similar work.”  This means work that is substantially similar when viewed as “a composite of skill, effort, and responsibility, and performed under similar working conditions.”  The new law also removes the “same establishment” requirement, meaning that employees can now bring equal pay claims by showing the employer paid an opposite sex employee at a different location higher wages for substantially similar work.

Once the employee makes the required showing, the new law now shifts the burden to the employer to demonstrate that the wage differential is based on valid reasons.  This means an employer can justify pay disparities only if they arise from:

  • a seniority system;
  • a merit system;
  • a system that measures earnings by quantity or quality of production; or
  • a bona fide factor other than sex, such as education, training, or experience.

While prior law already allowed employers to assert a bona fide factor defense to equal pay claims, the new law substantially limits that defense.  Now, employers can only rely on bona fide factors that are not based on sex, are job related, and are consistent with a business necessity.  In addition, the bona fide factor defense does not apply if the employee can show that an alternative business practice would serve the same purpose without resulting in a pay disparity.

Even where employers can show that a disparity results from one of the above factors, the law also requires that the relied-upon factor is “reasonably applied” and that one or more of the above factors accounts entirely for the wage disparity.

In addition to the new standard set forth above, the Fair Pay Act prevents employers from prohibiting employees from disclosing or discussing their own or each other’s wages.  And while employers may still refuse to disclose employees’ wages following an inquiry, they cannot prevent employees from inquiring in the first place.   Confusing enough?  The law also prohibits employers from discriminating or retaliating against employees who exercise their rights under the new law, or who encourage others to do so.  Finally, the law extends the record-keeping requirement from two years to three years for records relating to the terms and conditions of employment (including wage-related records).

What this all means for employers.

Well, for starters, expect a lot more litigation.  The new law is full of ambiguities that courts will need to sort out.  What constitutes substantially similar work?  How does an employer establish that a pay disparity arose from a bona fide factor other than sex?  Was the factor applied reasonably?  And does that factor account entirely for the pay disparity, rather than just partially?   Is there an alternative business practice that would serve the employer’s business purpose without resulting in a pay discrepancy?  Now that the “same establishment” is gone, can employers rely on cost-of-living as justification for paying different rates for similar work in different markets?  Courts will need to resolve the law’s ambiguities and carve out the standards and exceptions through fact-specific inquiries.  And given the statute’s teeth—attorney’s fees and double pay for successful employees—plaintiff’s lawyers will be looking to bring equal pay actions left and right.  While new laws frequently lead to predictions of increased litigation, those calls seem particularly warranted in this instance.

How should employers respond?

Employers have less than two months before the new Fair Pay Act goes into effect.  Employers should use that time to ensure their compensation policies and practices are in compliance with the law.  First, a survey should be conducted to determine categories of substantially similar work.  Employers should then identify any pay disparities within each category and, if possible, determine whether they can be explained via one of the conforming factors.  Employers should consult legal counsel to assist with the analysis, so that the resulting assessment may remain privileged.  Employers should also review confidentiality policies to make sure they are not prohibiting employees from engaging in the wage-based discussions that the law permits.  If necessary, employers should update their record retention policies to ensure wage-related records are retained for three years.  Finally, employers should train supervisors and appropriate personnel on which factors compensation decisions can be based on and what rights employees have to openly discuss wages.

Feel free to contact any one of the employment attorneys at Weintraub Tobin if you need assistance in evaluating your obligations under this new law or any other federal or state employment law.  We are happy to help.