By eileenEileen Rice

California employees have been protected for decades by equal pay provisions under both state and federal legislation, yet a significant wage gap between male and female workers remains. California made history when the governor signed the California Fair Pay Act, Senate Bill 358, with the intention of eliminating that discrepancy and increasing transparency. The Fair Pay Act (FPA) amends California Labor Code section 1197.5, which relates to private employment, and it goes into effect on January 1, 2016.

California has prohibited gender-based wage discrimination since 1949. Section 1197.5 of the Labor Code was enacted to redress the segregation of women into historically undervalued occupations, but it has evolved over time so that it is now virtually identical to the federal Equal Pay Act of 1963 (EPA). The wage gap persists, however, and despite widespread public support for wage equality, amendments to the EPA which would ensure equal pay for women have been stuck in political purgatory. The California Act – passed with strong bipartisan support – thus has been lauded by equal rights advocates and employee groups as a strong step in the right direction toward fair pay for women.

Critics of California’s new law either deny the existence of wage disparity altogether, or they suggest that it will cause the detrimental impact of employers choosing to move out of the state rather than deal with compliance. These reactions seem both extreme and unlikely. Another perspective would be view the FPA’s passage as an excellent opportunity for employers who choose to approach the new requirements proactively.

First, let’s explore what the law provides for employees, and what those provisions mean for employers. Then, some suggestions for how employers can use the FPA to their benefit.

What Does the New Law Require?

  1. Substantially Similar Work Gets Equal Pay

There are essentially three significant changes in the equal pay statute for employers to note. First, the FPA prohibits employers from paying employees of the opposite sex lower wage rates for “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.” Although the law has yet to be tested, it’s easy to see how many jobs might be considered to be “substantially similar,” even though their titles are not the same. For example, a national retailer’s “cashier” position in a small store might require the same skill, effort, and responsibility as its “sales associate” in a different, higher volume location.

Before the FPA, the equal pay law was not as broad. It prohibited employers from paying disparate wages to employees of the opposite sex in the same establishment for equal work on jobs the performance of which required equal skill, effort, and responsibility, and which were performed under similar working conditions. The new requirements broaden the pay comparison to employees who perform similar job functions, and who may not work in the same location.

  1. Employer Must Justify Pay Discrepancies

Second, the burden of proving that a discrepancy in pay is justified has been shifted to the employer. Now, if faced with an unequal pay claim, it is up to the employer to show that the differential is legit. Greater pay for a man doing substantially similar work as a woman needs to be based on the reasonable application of one or more of the following:

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

The third significant change presented by the FPA stems from the legislature’s attempt to decrease pay secrecy. While employees were never prohibited from asking about other employee’s earnings or discussing their own, the FPA increases transparency by further prohibiting employers from enacting rules, policies, or otherwise engaging in conduct that stops employees from disclosing their own wages, discussing the wages of others, asking about other employees’ wages, or aiding and encouraging employees to exercise rights under the Act. All this being said, neither an employee nor his employer is required to disclose an employee’s wages.

  1. Recordkeeping Provisions

Also important to note, employers must now keep records of the wages, wage rates, job classifications, and other terms and conditions of employment for three years. The old version of the statute required only two years of employment recordkeeping.

Employers Should Take a Proactive Approach Early On

The FPA goes into effect on January 1, 2016, and it’s hard to tell at this point how the law will be interpreted once the claims start rolling in. Given the FPA’s broad support and the strong public interest in eliminating the wage gap, however, one can imagine the Department of Labor Standards and Enforcement will seek expansive interpretation of the “substantially similar” language, and it will look to find unequal pay wherever it can. On the other hand, although employers now bear the burden of justifying wage discrepancies if and when claims arise, the factors which do allow for a differential are reasonable and theoretically can be applied relatively simply. This could result in findings of permissible wage discrepancies under the new statute.

What we do know is that the law has been passed and it will go into effect on January 1, 2016. An employee who believes she is not receiving equal pay for substantially similar work may file a complaint with DLSE or file a lawsuit alleging violations of the FPA to recover the balance of wages, plus interest, an equal amount in liquidated damages, and attorney’s fees.

If the employee files a complaint with DLSE, keeping the employee’s identity confidential to the extent possible, DLSE will then investigate the complaint. In doing so, it will seek extensive information from the employer, including other employees’ job descriptions and wages. DLSE also – on its own initiative – may commence a civil action against an employer.

What all this means for employers is that if one employee opens the door for DLSE to look around, that door is open for a full investigation of a broad range of employee wage situations. Now is the time for smart employers to take action.

Suggested Action Items:

  1. Your company already complies. Good job. Broad public support for both the FPA and wage equality means that if an employer is already paying its employees equal wages for substantially similar work and it has no gender wage gap, that employer is already way ahead of the game. Pay equality is right for employees and good business for the employer. If this is your company’s situation, take this opportunity to announce and celebrate your compliance with equal rights initiatives.
  1. You know you’ve got problems. Now is the time to fix them. Taking proactive measures to remedy wage disparity not only brings your company into compliance with the new law, but arguably reduces the likelihood of a finding that the violation was “willful,” thus exposing the company to three, rather than two, years of unpaid wages (plus interest).
  1. Not sure? Spend the next couple of months evaluating your company’s positions: are any jobs “substantially similar” when viewed as a composite of skill, effort, and responsibility? Are men in those jobs paid more than women? If yes, why? Discrepancies could be fine if they’re based on a merit system, seniority system, or another factor other than sex, education, or experience, as long as that factor is not based on a sex-based differential, is job related, and is consistent with a business necessity. Consider rectifying potentially violative discrepancies.

Let us know if you have questions, or if you would like help reviewing your current positions and wages.