California bolsters women with fair pay act

Publication October 2015

California, always a leader in employee-friendly laws and regulations, has enacted a bill to fortify  the state's existing equal pay laws, adding strong anti-retaliation protections that allow employees to more freely discuss pay equity in the workplace.  The law, the California Fair Pay Act of 2015, signed by Gov. Jerry Brown on October 6th, goes into effect on January 1, 2016.  With women making approximately $.84 for every $1.00 earned by a man, this law has broad consequences for employers and employees alike. The Legislature reported that women working in California collectively lose $33.6 billion each year due to the gender wage gap. The intent of the new law is to recoup that loss, an expensive proposition for employers who until now have not paid close attention to gender-based differentials in their pay practices.

The new Fair Pay Act amends the existing California Equal Pay Act, Labor Code §1197.5 which was enacted in 1949 and amended in 1985.  The new law closes many loopholes that critics of the original law contend has effectively prevented enforcement of the law's provisions.  One example of such a loophole in the old law is the "same establishment" provision, which required that any comparison between salaries of males and females doing the same work be limited to the same work location.  Under that provision, a female employee of a company working in Los Angeles could not compare her salary to a male employee who works for the same company in the same position in San Diego.  The new law requires equal pay for work "of comparable character," which allows for comparison across locations and even official job titles, as long as the job duties are similar.

Another key change is the old law's broad employer defense to an Equal Pay Act complaint, which allowed employers to assert that a salary differential between male and female employees was due to "any bona fide factor other than sex."  This allowed an employer to fish for just about any reason to justify the pay gap, including evidence that was acquired after-the-fact.  Now, however, the law requires that any legitimate, non-gender related reason for a pay differential must be applied reasonably and must account for the entire difference in pay, making it far more difficult for employers to compensate males and females performing similar duties at different rates.

The law continues to incorporate defenses available to an employer that mirror those found in the federal Equal Pay Act:  an employer may demonstrate that gender-based pay differentials result from seniority, 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.  These are, however, objective measures and an employer that relies on any one or more of these factors to justify gender pay differences must be ready to explain how each factor contributes to the outcomes.  This is particularly true in assessing compensation of middle and senior management in glass ceiling investigations, audits by the Office of Federal Contract Compliance Programs of affirmative action plans, and in equal pay litigation.

Under the current law, employers are required to retain records of wages and wage rates, job classifications and other conditions of employment of its employees for a period of three years.  Periodic internal reviews of these records may help an employer flag any possible non-compliance pay practices and correct them to minimize the risk of litigation.

The new law also protects the ability of employees to disclose their salaries to co-workers as a way to determine if there is wage discrimination.  Under the old law, an employee could disclose their own salary, but could be disciplined for asking about others' salaries, even if the purpose was to determine whether wage discrimination occurred.  In effect, this eliminated an employee's ability to investigate pay differences without risking retaliation or termination.  The new law, by contrast, explicitly prohibits retaliation or discrimination against employees who disclose, discuss, or inquire about their own or their co-worker's wages for the purpose of enforcing their rights under the Act.

The California Fair Pay Act will be one of the strongest protections for gender equity in wages in the country.  The latest federal law, the Lily Ledbetter Fair Pay Act of 2009, increased an employee's ability to file a Title IX claim for sex discrimination, but did little else in terms of providing a specific cause of action for wage discrimination.  The California Fair Pay Act, on the other hand, lowers hurdles for employees who want to bring a claim under the existing state law, which provides a specific cause of action for wage discrimination.  In the face of a valid complaint brought to an employer's attention, acceptance of full back pay by the employee will constitute a waiver of the employee's cause of action.    

Wage litigation is rampant in California.  Plaintiffs file numerous class action and individual cases in Superior Courts throughout the State each week.  While cases that have merit can be resolved in early mediation, wage settlements have run into the tens of millions of dollars for larger companies. Employers should scrutinize their pay records before the end of 2015 and correct any problems that are identified.

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