California Governor Edmund G. Brown, Jr. recently signed into law the California Fair Pay Act (CFPA) (Senate Bill 358). The CFPA, which takes effect on January 1, 2016, is intended to increase wage transparency and will be one of the strongest equal-pay laws in the country.

The CFPA will modify California's existing equal-pay laws (Labor Code § 1197.5) in several important ways. It will make it easier for employees to establish unlawful wage differentials. Previously, the statute required that comparator employees perform the "same" job, with the "same" skill, effort and responsibility; the new standard requires only "substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions." Further, employees need not work in the "same establishment," but rather, employees of a company working in any California city can qualify as comparators.

Under current California law (and federal law), the employee bears the burden of showing that work is the "same" and that equal pay is required. The CFPA shifts the burden to employers. Now, where work is "substantially similar" and there is a wage differential between genders, the employer must "affirmatively demonstrate" that the disparity is based entirely on one or more valid factors: 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. The "bona fide factor other than sex" defense has been expanded to include several examples: education, training or experience. Regarding the bona fide factor, the employer must demonstrate that the factor is not 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 (i.e., a legitimate and effective business purpose). The swapping of burdens lowers the bar, effectively making it easier for employees to bring suit.

The CFPA also targets "pay secrecy." Employers may not prohibit employees from disclosing their own wages, discussing the wages of others, inquiring about another employee's wages, or aiding or encouraging another employee in exercising her rights under the CFPA. Currently, California Labor Code Section 232 contains a similar prohibition, but the CFPA goes further by allowing employees to inquire about the wages of other employees if the purpose of that inquiry is to exercise the right to equal pay for equal work. The CFPA also prohibits retaliating against or discharging employees who seek to enforce their rights under the CFPA.

The CFPA expands record-keeping requirements; employers now must keep records of wages, wage rates, job classifications, and other terms and conditions of employment for all employees for at least three years, instead of the current two-year standard or requirement. That being said, given the extended statute of limitations under California's unfair business practice statute, it is safest to maintain all such records for at least four years.

Aggrieved employees suing under the CFPA may be entitled to several remedies, including reinstatement, reimbursement for lost wages and benefits, and equitable relief. Employees may file a civil action to recover wages or they can go through the Department of Labor Standards and Enforcement’s administrative charge process.

With these significant changes coming to California's equal pay laws, employers will face greater burdens and potential liability related to employee compensation. Accordingly, employers are advised to review their policies and procedures carefully to ensure compliance. The Labor and Employment group at Vedder Price is well versed in the new law and stands ready to assist.