On October 6, 2015, Governor Brown signed SB 358, the California Fair Pay Act, which will strengthen existing equal pay laws – specifically the California Equal Pay Act. The Fair Pay Act will be effective January 1, 2016 for employers with California-based employees.

While both state and federal laws currently prohibit gender-based pay discrimination, the Fair Pay Act expands upon existing laws in several significant ways:

  • Provides wage protections beyond employees working in the same establishment. This means that the pay of employees of the opposite sex may be compared even if they do not work at the same office or even in the same city.
  • Employers will be prohibited from paying any of their employees less than employees of the opposite sex for “substantially similar work,” when viewed as a composite of skill, effort, and responsibility.
  • The employer must demonstrate that a wage differential is based upon one or more factors, including 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 such as education, training or experience.

Specifically, the employer must show that the wage differential is not based on sex, is job related, and is consistent with a business necessity. “Business necessity” means that the factor relied upon for the pay differential fulfills an overriding legitimate business purpose. For example, if a male chef was being paid more 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 to account for the difference in wages. In addition, the employer would have to prove that the weekend shift position was open to all chefs, and that the employer hired the male chef because he was the most qualified or willing to work the shifts.

Employees may overcome the employer’s claimed justification for the wage differential if the employee demonstrates an alternative business practice that would serve the same business purpose without the difference in pay.

Additionally, the bill contains an anti-retaliation provision expressly forbidding an employer from discharging, discriminating, or otherwise retaliating against any employee for attempting to enforce the new law. Employers who engage in such prohibited conduct could face a civil suit for reinstatement and reimbursement for lost wages, work benefits, applicable interest, equitable relief, and other legal damages. Successful plaintiffs would also be entitled to attorneys’ fees and costs.

The new law also states that an employer may not prohibit 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 these provisions. The bill will also increase the duration of employer recordkeeping requirements from 2 years to 3 years.

Employees subjected to unfair pay would have up to two years after the violation occurs to file a civil action. The two years is increased to three years if the employee can establish a willful violation. Further, any willful violation triggers Labor Code section 1199.5, which carries with it a fine of not more than $10,000 and/or imprisonment for not more than six months for whoever violates the above provisions or reduces the wages of any employee in order to comply with Labor Code section 1197.5.

How Employers Can Prepare for the Fair Pay Act

Prior to January 1, 2016, we recommend that employers check their current payroll practices to determine if any wage differentials exists. If they do, employers should be able to justify those wage differentials based on legitimate business factors. It is important to note, that the Fair Pay Act expressly forbids lowering the wage rates of employees to comply with the new law. In addition, employers should ensure that none of their handbooks or policies forbid employees from discussing wages.