News & Updates: Landmark California Fair Pay Act Becomes Law

California has enacted a tough new equal pay law, and employers should take action now to either ensure that they are compliant with the law, or come into compliance.

The California Fair Pay Act seeks to close the persistent wage gap between men and women by broadening the scope of work that must be compensated equally.  California has prohibited unequal pay practices for decades.  However, the prior statute, Labor Code Section 1197.5, has been narrowly applied, such that female workers often had to establish that they had exactly the same jobs as their male counterparts in order to successfully challenge pay practices.  The new law broadens the prohibition on unequal wages by providing that employees must be paid equally for “substantially similar work.”  Under the new law, for example, an employer cannot evade paying equal wages simply on the basis that employees work at different locations or have different titles.  The law also prohibits retaliation against employees who ask about or discuss wages paid to co-workers.

The California Chamber of Commerce and many Republican lawmakers supported the legislation, which brings clarity to a previously ambiguous area of law.  The Act outlines exactly what an employer must be able to demonstrate to establish that a wage differential is not gender-based.  In order to successfully defend a wage difference for similar work, the employer must prove that:

1. The wage differential is based upon one or more for the following factors:  (a) a seniority system; (b) a merit system; (c) a system that measures earnings by quantity or quality of production; and/or (d) a bona fide factor other than sex, such as education, training, or experience.  (The last factor only applies if it is job-related to the position in question and is consistent with business necessity.  If the employee demonstrates that an alternative business practice exists that would serve the same business purpose without producing the wage differential, this factor does not apply.)
2. Each factor relied upon is applied reasonably.
3. The factors relied upon account for the entire wage differential.

The law also provides that employers must maintain records of wages and wage rates, job classifications, and other terms and conditions of employment of all employees for three years.

Employees who bring successful lawsuits under the Act can recover the balance of the discrepancy in wages as well as an equal amount in liquidated damages.  They can also recover their attorneys’ fees, litigation costs, and interest.

The law goes into effect January 1, 2016.  In the meantime, employers should move immediately to come into compliance, as legal observers anticipate a swift rise in pay equity litigation.  Steps employers should take include:

• Reviewing personnel file procedures to ensure all required records are gathered and kept for three years.
• Auditing job positions to determine which may be considered “substantially similar,” even though the positions may be based in different locations or have different titles.
• Examining “substantially similar” positions to assess  whether any gender-pay differences exist.
• Considering whether the differences are defensible, such as whether the pay differences are due to seniority and merit, and are reasonably applied.
• If gender-based pay differences emerge during this analysis, evaluate what steps should be taken to correct the inequity.

Employers should also review their existing handbooks, policies, and harassment trainings to ensure the new requirements are covered.  Policies and trainings must make clear that gender-based pay discrimination is prohibited and that employees are free to discuss their wages.  Retaliation against employees who discuss or challenge their wages must be strictly prohibited.

If you have any questions about the statute or pro-active steps, please feel free to contact one of the attorneys in our Labor Group.