Emtrain Blog

California Fair Pay Act: 5 Steps to Employer Compliance

Posted by Phyllis Cheng

November 2, 2015

How to comply with the California Fair Pay Act

With the signing of the California Fair Pay Act (SB 358) on October 6, 2015, many employers question how the new law will impact workplace compensation effective January 1, 2016.


Background and existing protections

California has prohibited gender-based wage discrimination since 1949. The California Equal Pay Act (Labor Code section 1197.5) enacted to redress the segregation of women into historically undervalued occupations, has evolved such that it is now virtually identical to the federal Equal Pay Act of 1963.

Current law protects the right to “equal pay for equal work” for women and men performing work that require equal skill, effort, responsibility, and working conditions within the same establishment. 

However, according to legislative findings, the state provisions are rarely utilized because successful claims to bridge California’s 16-percent gender-based wage gap are hard to prove under the law’s current language.

The new law converts equal pay to pay equity, opening Pandora’s box to compare jobs that are not identical. Employers should proactively plan for significant changes in 2016.

How does the new Fair Pay Act expand current protection? The new law replaces “equal” with “substantially similar” work, allowing apples and oranges to be compared (i.e., female-dominated secretary jobs against male-dominated IT technician jobs).

“Same establishment” is eliminated, broadening salary review across the organization rather than limiting it to an office or worksite. In addition, employers have an affirmative duty to show any gender-based wage differences are due to a system of seniority, merit, quantity or quality of production, or a bona fide factor other than sex (i.e., education, training, or experience).

Further, employers must demonstrate that bona fide factors are applied reasonably and that they account for the entire differential.

Employers must also maintain these records for at least three years. Although already protected under the National Labor Relations Act, employees have the explicit right to disclose, inquire, discuss and organize around wages.

As provided under current law, but rarely litigated at this time, the California Fair Pay Act authorizes an employee who has been discharged, discriminated or retaliated against for exercising these rights to file civil lawsuits. Potential remedies include reinstatement, reimbursement for lost wages and work benefits, interest, equitable relief, attorneys’ fees and costs.

In addition, an employer or agent who violates the law can also be charged with a misdemeanor.


What the California Fair Pay Act means for your workplace

How will this change the workplace? Recall the heavily litigated definition of disability under the Fair Employment and Housing Act (FEHA) versus the Americans with Disabilities Act (ADA). While the FEHA has always defined disability as a condition that “limits” a major activity, the ADA continues to use the more restrictive terms “substantially limits” and at one time considered mitigating measures. Following much litigation in the 1990s, the Legislature ultimately clarified and the California Supreme Court held that the definition of disability under the FEHA has always been broader than that under the ADA.

The California Fair Pay Act may likewise spur litigation on what constitutes “substantially similar” work, when viewed as a composite of skill, effort, and responsibility. Because all the gender-based wage difference between substantially similar jobs within a given workplace must be explained by bona fide factors, a battle of the experts employing different multiple regression analyses may very well be an essential part of each lawsuit. In addition, employees may be motivated to inquire about their own and discuss colleagues’ compensation, impacting both wage-and-hour as well as FEHA causes of action.


5 Steps to take for California Fair Pay Act compliance in 2016

What can you and your organization do to prepare for increased scrutiny on pay equity? Here are some immediate steps to take before 2016:  


1. Review all jobs to identify ‘substantially similar’ skill, effort, and responsibility throughout the organization

Proactively identify job classifications that are “substantially similar” as to skill, effort, responsibility, working conditions, and other bona fide factors. Because employees have the right to inquire about and discuss gender-based wage disparity, devising a transparent and defensible wage setting system demonstrates good faith. Transparency and evenhandedness can avoid pay equity claims and/or resolve them.


2. Document each and every reason for wage disparity

If wage discrepancies exist between male and female-dominated occupations in substantially similar jobs, employers must document bona fide reasons for the wage gap, including:

  • skill

  • effort

  • responsibility

  • working conditions

  • merit

  • seniority

  • quantity or quality of production

  • higher cost of living due to geography

  • education

  • training

  • experience

  • other business reason not based on sex

Documenting these legitimate reasons for wage gaps can protect employers from a discrimination claim.


3. Update your employee handbook to include reference to Fair Pay Act

Update policies, procedures, and handbooks to include all the new provisions of the Fair Pay Act, including employees’ right to inquire about their own and discuss colleagues’ compensation without discrimination, harassment and retaliation.


4. Maintain your employee records

Ensure your organization maintains all employee records, including job descriptions, wage analyses and compensation records for at least three years.  


5. Train employees on pay equity compliance

Train managers, recruiters, and human resources professionals on compliance with the California Fair Pay Act.


Conclusion

California’s Fair Pay Act offers the strongest pay equity protection for workers in the United States. Like Pandora’s box, the phrase “substantially similar” is likely to usher in a period of confusion when finer points of the law may need to be resolved in court.  

Invest the time and resources now to prepare for the increased scrutiny on pay disparity in 2016.

 

Want to learn more about how to prepare for California's Fair Pay Act?

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Do you have a question for Phyllis Cheng? Leave a comment or email her at experts@emtrain.com.

 

Phyllis_Cheng  Phyllis Cheng            

Phyllis is an employment law expert and a partner at DLA Piper, the largest global law firm. Before joining DLA Piper, Phyllis was the Director of the California Department of Fair Employment and Housing, the largest state civil rights agency in the United States. During her nearly seven-year tenure at DFEH, the agency took in 140,000 complaints and prosecuted between 400-500 cases, including several class complaints. 

 

Do you have a question for Phyllis Cheng? Leave a comment or email her at experts@emtrain.com.

Topics: HR Compliance, Legal, Preventing Harassment