On Sept. 1, California’s legislature sent Senate Bill No. 358 (the “Fair Pay Act”) to Governor Jerry Brown for signature. The Fair Pay Act amends California’s existing Equal Pay Act (Labor Code section 1197.5) in several significant ways and has been called by some the “nation’s most aggressive attempt yet” to close the salary gap between men and women. If signed by the governor by the Oct. 11 deadline, the new law would be effective on Jan. 1, 2016.

Current California law requires employers to pay employees of the opposite sex in the same establishment equally for “equal” skill, effort and responsibility and for the same work performed under “similar working conditions.” The Fair Pay Act expands the current law by removing the “same establishment” requirement, and modifying the “equal” skill requirement to prohibit unequal pay for “substantially similar work,” when viewed as a composite of skill, effort, and responsibility.

The new law would provide broader coverage than its federal counterpart, the Equal Pay Act (29 USC § 206(d)). Unlike the Equal Pay Act, the Fair Pay Act provides employees an ability to challenge their pay based on wages paid to employees at other work locations of the same employer. Thus, under the new California law, a female call center employee in Bakersfield could challenge the higher pay being paid to a male call center employee in San Francisco.

The federal Equal Pay Act also does not provide an ability to challenge pay discrimination based on wages paid to those doing “substantially similar work.” Instead, it uses the phrase “performed under similar working conditions,” which suggests a more narrow approach. As an example, under the Fair Pay Act, a female housekeeper who cleans the rooms in a hotel could challenge the higher pay being paid to a male janitor who cleans the lobby and restrooms downstairs.

The Fair Pay Act also places an affirmative burden on the employer to demonstrate that a pay difference is based upon one or more specified factors. Current law allows pay differences based on a seniority system, merit system, or system which measures earnings by quantity or quality of production, or a differential based on any bona fide factor other than sex. The Fair Pay Act further refines these criteria, and requires employers to demonstrate that any factors relied upon have been applied reasonably, and account for the entire pay difference. As an example, if a male chef in a restaurant receives higher pay than a female chef because he works weekend shifts, the employer would have to show that the weekend shifts are busier and require more work and therefore account for the difference in wages. In addition, the employer may also have to prove that the employer assigned the male chef to weekend work because he was the most qualified or willing to work the shifts.

The proposed law also sets forth a non-exclusive list of factors for consideration in establishing the existence of a bona fide factor other than gender. These include education, training and experience. An employer relying on a bona fide factor other than gender must also demonstrate the factor:

  • is not based on or derived from a sex-based differential in compensation;
  • is related to the job position; and
  • is consistent with a “business necessity” (defined as “an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve”).

If the employer satisfies its initial burden of establishing these criteria, the burden then shifts to the employee to demonstrate that an alternative business practice exists that would serve the same business purpose without producing the wage differential. If this burden is satisfied, the employee is entitled to the wage differential, an equal amount of liquidated damages, costs, interest and attorneys’ fees.

The Fair Pay Act expressly prohibits an employer from retaliating against an employee for disclosing his/her own wages, discussing wages of others, inquiring about wages of others, or aiding another employee to exercise his/her rights. The Fair Pay Act also would create an additional private right of action―with a one-year statute of limitations―by aggrieved employees who have been discharged, retaliated against, or discriminated against for engaging in any conduct protected by the statutes. Those employees could seek reinstatement and reimbursement for lost wages and work benefits, including interest, as well as “appropriate equitable relief.” The Fair Pay Act also increases duration of employer recordkeeping requirements related to wages, job classifications, and other conditions of employment, from two to three years.

If the Fair Pay Act is signed by the governor, employers are encouraged to consult with counsel to discuss review of current and future pay practices and compensation criteria, as well as job titles and descriptions, and wage bench marking practices. Employees may also desire to enlist statisticians or other consultants to review their practices, and should consider establishing a protocol for this review so that it may be conducted under the protection of the attorney-client privilege. Hiring, scheduling and internal job posting procedures should also be reviewed as part of any compliance initiative. Policies and procedures should also be reviewed to ensure compliance with the law’s anti-retaliation provisions, and some employer’s may also wish to consider training for persons involved in the hiring process to make sure they are aware of the new law’s requirements.