Earlier this month, California Governor Jerry Brown signed the California Fair Pay Act, a bill making various changes to strengthen the California Equal Pay Act, which addresses gender wage inequality.

The bill, S.B. 358, was introduced by Senator Hannah-Beth Jackson, D-Santa Barbara, and was supported by labor and equal rights groups, in addition to the California Chamber of Commerce.

Existing law (Cal. Labor Code §1197.5(a)) 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 performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions.  Effective January 1, 2016, several changes will be made to this law.

Lowers standard from “equal work” to “substantially similar work”

Significantly, the bill lowers the equal work standard described above and specifically prohibits an employer from paying any of its employees at wage rates less than the rates paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions, subject to exceptions.

This modification will make it easier for employees to demonstrate unequal pay by lowering the standard for comparing their wages to the wage of another employee. This will effectively expand the pool of employees deemed doing the “same work” or holding the “same position.”  For example, a female housekeeper who cleans hotel rooms, may challenge higher wages paid to a male janitor who cleans the lobby and banquet halls.

Clarifies exceptions to the rule

Currently, the existing standard is subject to the following exceptions: 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.

This legislation clarifies that the exceptions are satisfied where the employer demonstrates the wage differential is based upon 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. With regard to the bona fide factor defense the revised statute provides:

This factor shall apply only if the employer demonstrates that the factor is not based on or derived from a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity. For purposes of this subparagraph, “business necessity” means an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve.  This defense shall not apply if the employee demonstrates that an alternative business practice exists that would serve the same business purpose without producing the wage differential.

With respect to these exceptions, the revised legislation also requires that “each factor relied upon [be] applied reasonably,” and that “one or more factors relied upon account for the entire wage differential.”

Extends employer’s record retention requirement

Currently, California Labor Code §1197.5(d) requires that employers maintain records of the wages and wage rates, job classifications, and other terms and conditions of employment of the persons employed by the employer for a two year period.  S.B. 358 extends this records retention requirement to three years.

Includes protections for employees inquiring about wages

The bill includes a provision to reduce “pay secrecy” by protecting employees inquiring about the wages of other employees. Specifically, it restricts employers 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 rights under this section.

Creates a new anti-retaliation cause of action

S.B. 358 expressly prohibits employers from discharging, discriminating or retaliating against any employee for invoking or assisting the enforcement of this section. The bill then creates a new private cause of action whereby an employee may bring a civil action seeking reinstatement and reimbursement for such discrimination or retaliation.  The legislation specifies a one-year statute of limitations period to bring such a claim.

Takeaway

The biggest takeaways from S.B. 358 are that it creates a new cause of action, eases the burden on employees to establish a prima facie case, and makes it more difficult for an employer to demonstrate that wage differences are justified.

In light of the above modifications, employers are encouraged to audit their salary structure and recordkeeping practices and policies to ensure compliance with the law. Employers are also encouraged to train managers not to restrict (or give the appearance of restricting ) employees from discussing wages.

To the extent employers discover pay differences between employees doing substantially similar work, employers are encouraged to analyze the basis for the differences and whether the differences are supported by adequate justification.  To the extent the differences are not supported by a seniority system, a merit system or a system which measures earnings by quantity or quality of production, employers are encouraged to analyze whether the difference in pay is based on a bona fide factor other than sex (i.e., what factors caused the wage differentials, are the factors job-related, and are they consistent with an “overriding legitimate business purpose”).  For example, to the extent such wage differentials are based on factors such as prior experience and education, employers are encouraged to re-evaluate these requirements to ensure that such prior experience and education are consistent with an “overriding legitimate business purpose.”

Employers should also ensure they are maintaining records of employee wages and wage rates, job classifications, and other terms and conditions of employment going back three years.  As a reminder, employers are already required to maintain copies of employee wage statements and payroll records going back three years under California Labor Code §§ 226(a) and 1174.  Given the new requirements, employers should also identify and consider which documents justify pay scale decisions and will assist in proving one or more of the defenses provided by the statute.  This is just one more reason why employers should strive to have written, accurate, and up to date job descriptions.  Such documents may be key for justifying differences in pay when necessary.