California’s Stepped-Up Equal Pay Law Effective January 1, 2016

California employers will soon be subject to a new equal pay law that will create a much stricter standard for gender pay equity. Signed into law on October 6, 2015, the new law is considered the most aggressive equal pay law in the nation. Employers will want to begin preparing immediately for its impact – as well as high potential for future laws regarding pay equality based on race, disability, and other protected classes.

What Does the New Law Do?
The new law (SB 358) is actually an amendment to an existing gender pay equity law. There are already state and federal laws that require gender pay equity. The amendment is designed to make it easier to enforce the equal pay rules. The new law prohibits an employer from paying employees of one sex lower than employees of the opposite sex for “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.”

Before the amendment, an employee had to demonstrate that he or she was not being paid at the same rate as someone of the opposite sex at the same establishment for “equal work.” The “same establishment” has been deleted, and the employee need only show he or she is not being paid at the same rate for “substantially similar work.” In other words, the employees need not be in the same exact job or the same geographic location.

Exceptions Available To Employers
If a wage differential exists between employees of the opposite sex, the law will allow employers to demonstrate the purpose of any difference that is based on:
• a seniority system;
• a merit system;
• a system that measures earnings by quality or quantity of production; or
• some other bona fide factor other than sex such as education, training, or experience.

If an employer tries to justify a pay differential under this law as a “bona fide factor other than sex”, it must show that the factor is 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.

“Business necessity” is defined as an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve. This exception will not apply if the employee can show that an alternative practice exists that would serve the same business purpose without producing the wage differential.

Remedies and Enforcement
An employee may seek to enforce an unequal pay claim with California’s Labor Commissioner or through a civil lawsuit. An employee who is successful can recover the pay differential plus an additional equal amount as liquidated damages. Employees who file lawsuits can also recover interest, litigation costs, and attorneys’ fees.

An agreement by the employee to work at a lower rate of pay will not bar such a claim or lawsuit.

“Wage Transparency” Required
The new law also bars employers from prohibiting employees from disclosing their own wages to others, discussing their wages, or inquiring about the wages of another employee.

Many employers were already mindful about not limiting employees’ ability to discuss the “terms and conditions of employment,” but this is a good reminder.

The new law does not require that the employer disclose another employee’s wages or that an employee disclose his or her own wages in response to a co-worker’s inquiry.

Action Items
The first step is a salary/pay rate review. Employers should determine if any differences exist for pay rates for the same or similar jobs that are tied to gender. If disparities exist, check to see whether they can be justified within the new law. Whenever an employer is reviewing pay practices (read: potential exposure to wage and hour claims), we recommend that the analysis be conducted with the advice and assistance of an attorney (read:  attorney-client privilege).

Employers should also reassess hiring and compensation practices to ensure sufficient documentation. The reasons why an employee is hired at a different salary than another must be explained. For example, a new-hire’s wage could be dictated by the current job market, the financial status of the company, the outcome of salary negotiations, or competitive offers from other companies. The company’s personnel documents should confirm the reason, and document any / every factor that led to raises down the line.

Final Comment

This may be the issue that finally pushes me to bust out a separate blog for commentary! The aggressive comments I have seen about this law –ignoring the fact it doesn’t even go far enough when it comes to differentials in pay based on race and disability, to name a few—are shocking.For now, we can have coffee and discuss in more detail.

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