California’s new Fair Pay Act (“Act”) was signed into law by Governor Jerry Brown on October 6, 2015.  Many believe the Act is the most aggressive equal pay law in the United States.  The Act becomes effective January 1, 2016.

Prior to Act, California Labor Code section 1197.5 prohibited discrimination in pay based on gender since 1949.  The old law required equal pay for “equal work,” except under four situations: a seniority system; a merit system; a system measuring earnings by quantity or quality of production; or a “bona fide” factor other than gender. 

Section 1197.5 was amended under the Act.  Instead of showing “equal work,” employees need only show “substantially similar work when viewed as a composite of skill, effort and responsibility.”  This provides employees the opportunity to compare their wages to similar work, even if the job title is different.  Employees are also no longer limited to the “same establishment,” but may instead compare pay practices at any of the employer’s locations.  The amendments also clarify that the employer, not the employee, carries the burden of showing whether a wage differential falls within one of the four exceptions.  If there is any difference in pay at all, the employer bears the burden to show that the entire difference in pay (not just a portion of it) falls into one of the four exceptions.  Employees can nullify the “bona fide factor” defense by showing an alternate business practice that would serve the same purpose without a difference in wages.

The new law provides employees with the right to disclose their own wages, openly discuss wages, ask other employees about their wages, or assist other employees in their rights, and employers may not prohibit these rights.  Employers must also retain employment records under the new law for three years, instead of only two, and may not discriminate or retaliate against employees who enforce their rights.

The new law is expected to increase litigation against employers.  Plaintiffs’ attorneys will test the new law, including what is meant by “substantially similar,” and how broadly the courts will interpret the provision allowing introduction of the alternative business practice to overcome the “bona fide factor” defense of employers.

Employers should ensure employee pay is based on objective factors that can be justified, not just the job title of the individual, but for all employees doing similar work at all locations.  Employers should also ensure anti-discrimination policies are updated to reflect the new law effective January 1, 2016, and provide appropriate training to supervisors and others who determine compensation of employees.  Internal record retention policy should also be increased to three years.

Given the new equal pay requirements and risks, employers should not delay in taking preventative measures, which should include auditing pay data and pay practices.