California Fair Pay Act and How it Will Impact Employers

Earlier this month, Senate Bill 358, the California Fair Pay Act, was signed by Governor Jerry Brown.

The bill amends Section 1197.5 of the Labor Code in an attempt to ensure equal pay for men and women for “substantially similar work” not just the exact same job, unless the pay differences are based on productivity, merit and/or seniority.

The bill also imposes a ban on any retaliation against employees who discuss their pay, or ask about the salaries of colleagues, while on the job. More significantly, it allows employees to challenge wage gaps that exist at an employer’s different locations.

The bill also increases the duration of employer recordkeeping requirements from 2 years to 3 years. A full summary of the bill found in the Legislative Counsel’s Digest states:

Existing law regulates the payment of compensation to employees by employers and prohibits an employer from conditioning employment on requiring an employee to refrain from disclosing the amount of his or her wages, signing a waiver of the right to disclose the amount of those wages, or discriminating against an employee for making such a disclosure.

Existing law generally prohibits an employer from paying an employee at wage rates less than the rates paid to employees of the opposite sex in the same establishment for equal work on jobs the perfomance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions. Existing law established exceptions to that prohibition where the payment is made pursuant to a seniority system, a merit system, a system which measures earnings by quantity or quality of production, or a differential based on any bona fide factor other than sex. Existing law makes it a misdemeanor for an employer or other person acting either individually or as an officer, agent, or employee of another person to pay or cause to be paid to any employee a wage less than the rate paid to an employee of the opposite sex as required by these provisions, or who reduces the wages of any employee in order to comply with these provisions.

The bill would revise that prohibition to eliminate the requirement that the wage differential be within the same establishment, and instead would prohibit an employer from paying any of its employees at wage rates less than those paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility, as specified. The bill would revise and recast the exceptions to require the employer to affirmatively demostrate that a wage differentially is based upon one or more specified factors, including 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, as specified. The bill would also required the employer to demostrate that each factor relied upon is applied reasonably, and that the one or more factors relied upon account for the entire differential. The bill would prohibit an employer from discharging, or in any matter discriminating or retaliating against, any employee by reason of any action taken by the employee to invoke or assist in any matter the enforcement of these provisions. The bill would authorize an employee who has been discharged or discriminated or retaliated against, in the terms and conditions of his or her employment because the employee engaged in any conduct delineated in these provisions, to recover in a civil action reinstatement and reimbursement for lost wages and work benefits caused by the acts of the employer, including interest thereon, as well as appropriate equitable relief. The bill would prohibit an employer from prohibiting an employee from disclosing the employee’s own wages, discussing the wages of others, inquiring about another employee’s wages, or aiding or encouraging any other employee to exercise his or her right under these provisions. The bill would increase the duration of employer recordkeeping requirements from 2 years to 3 years. By changing the definition of a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school district for certain costs mandate by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a specified reason.

Although the bill has noble intentions, certain sections may pose logistical nightmares for employers. In particular, the section that allows employees to challenge wage gaps that exist for the same job at an employer’s different locations. Many employers have offices/locations spread throughout the state of California. In some instances, employers compensate employees differently based on the cost of living at their various office locations. The new law may give rise to lawsuits arising from such pay gaps at different locations even though the reason for the pay gap has nothing to do with discriminatory purposes. Accordingly, employers should be very careful when providing different levels of compensation for similar jobs at different locations.

If you have any questions about the California Fair Pay Act or other employment law related questions, contact the author Robert B. Forouzandeh who counsels numerous small and medium sized businesses on how navigate the legal landmines found in California’s labor laws and represents employers in litigation arising from such.

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