Representing what media observers call the nation’s most aggressive attempt yet to close the salary gap between men and women, SB 358 would substantially broaden California gender pay differential law. Since the bill landed on his desk September 1, all eyes have been on Governor Jerry Brown. Though aide Nancy McFadden tweeted on Women’s Equality Day (August 26) that “@JerryBrownGov will sign CA “Fair Pay Act” when it reaches his desk,” he has not yet done so.

The Equal Pay Act (29 U.S.C. § 206(d)) has been on the books since 1963. And California has its own gender pay equality law—Labor Code section 1197.5. But California lawmakers think these laws are not enough. According to the legislative intent section of SB 358, the current law contains “loopholes” that make it difficult to prove a claim. And many employees, unaware of existing California law that prohibits employers from banning wage disclosures and retaliating against employees for doing so, are still afraid to speak up about wage inequity.

What difference would SB 358 make?

Current law, Labor Code section 1197.5, prohibits an employer from paying an employee less than employees of the opposite sex who perform the same job, requiring the same skill, effort, and responsibility, in the same establishment, under similar working conditions. Exempt from this prohibition are payments made pursuant to systems based on seniority, merit, or that measure earnings by quantity or quality of production; or differentials based on any bona fide factor other than sex.

SB 358, which its supporters call the “Fair Pay Act,” would become effective January 1, 2016. The “Fair Pay Act” would expand pay equity claims by removing the requirement that the pay differential be within the same “establishment,” and would modify the “equal” and “same” job, skill, effort, and responsibility standard. The new standard would require only a showing of “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.” These changes would dramatically lower the bar for an equal pay suit, permitting the plaintiff to compare herself with men working at any location for the same employer, and in any similar—and not the necessarily the same—job.

The “Fair Pay Act” would also require employers to affirmatively demonstrate that the wage differential is based entirely and reasonably upon one or more factors. The “Fair Pay Act” would add to the three existing system-based factors (seniority, merit, or production-based) a “bona fide factor”: a factor that is not based on or derived from a sex-based differential in compensation, that is related to the position in question, and that 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”). The “bona fide factor” defense expressly does not apply if the plaintiff demonstrates that an alternative business practice exists that would serve the same business purpose without producing the wage differential.

The “Fair Pay Act” would also extend—from two years to three—the employers’ obligation to maintain records of wages and wage rates, job classifications, and other terms of employment.

Talk Is Cheap?

The “Fair Pay Act” also would remind employers that they are not to forbid employees to disclose their own wages, discuss others’ wages, ask about others’ wages, or aid or encourage other employees to exercise their rights under Labor Code section 1197.5. Labor Code section 232 already contains a similar prohibition, but does not specifically prohibit inquiring about the wages of other employees if the purpose of that inquiry is to exercise the right to equal pay for equal work. In a small nod to employers, the “Fair Pay Act” would not require them to disclose wages.

The “Fair Pay Act” would expressly prohibit employers from discharging, discriminating against, or retaliating against employees who invoke or assist in the enforcement of Labor Code section 1197.5.

New Methods of Enforcement, Too…

Current law vests enforcement authority in the Department of Labor Standards Enforcement, which it can exercise through the administrative process or through a civil action brought on an individual or class basis. Current law does not require employees to exhaust this administrative process before suing, unless the employee consents to the DLSE’s bringing an action. Current law authorizes an employee who chooses to sue directly in court—provided the employee does so within two years, or three if the violation is “willful”—to recover the balance of wages, interest, liquidated damages, costs, and reasonable attorney’s fees.

The “Fair Pay Act” would create another private right of action—this one with a one-year statute of limitations—by employees who have been discharged, discriminated against, or retaliated against for engaging in any conduct protected by the statute. These employees could seek reinstatement and reimbursement for lost wages and benefits, interest, and “appropriate equitable relief.” The “Fair Pay Act” bill would also give these employees an alternative: they could file complaints with the DLSE alleging employer violations of the new prohibitions on discrimination, retaliation, and restricting employee wage-information discussions.

What’s the Word on The Street?

The list of the bill’s supporters is long. Conspicuously dissenting is the California National Organization for Women, which opposes this bill because it lacks protections for wage discrimination with respect to such categories as race, ethnicity, LGBTQ status, and disability status. The bill’s author, Hannah-Beth Jackson, has said she expects to see across-the-board changes for all employees after the bill is signed into law.

And even the California Chamber of Commerce has supported the bill, stating it “provides a great balance between making sure there is no gender inequity in pay, but also leaving flexibility for an employer to reward employees for education, skill, training experience with regard to compensation as well.” Cal Chamber cites the inclusion of a defined “bona fide factor” test as a clarification that would help employers “navigate their pay structure” and “avoid unnecessary litigation” about what business purposes would qualify as a legitimate factor.

Workplace Solution (what to do now?)

How can employers fortify pay structures against scrutiny under the new standards? Employers that want to understand and mitigate their risks can consider conducting an attorney-client privileged analysis of employee pay. Using a multiple regression analysis, for example, an employer may determine how well permissible considerations of skills, effort, responsibility, seniority, merit, quality or quantity of production, education, training, experience, and other factors explain existing pay differentials. While we find that employers don’t intentionally pay women any less, pay differentials may appear to be superficially correlated with sex as a result of inconsistent processes for setting pay, especially starting salaries. Seyfarth has an experienced group of attorneys and analysts who specialize in conducting pay analysis. If you consult anyone to conduct an analysis, consider establishing an attorney-client privilege protocol to maintain confidentiality and create protections from disclosure in litigation.

In Related News…

Two other bills addressing the same issue are still alive: AB 1017 and AB 1354. AB 1017 would add section 432.3 to the Labor Code, to prohibit an employer from seeking salary history information about an applicant for employment. AB 1354 would amend Government Code section 12990 to require, of each employer with over 100 employees that is or wishes to be a state contractor or subcontractor, a nondiscrimination program that includes policies and procedures designed to ensure equal employment opportunities for all applicants and employees, an analysis of employment selection procedures, and a workforce analysis that contains the total number of workers, the total wages, and the total hours worked annually, with a specific job category identified by worker race, ethnicity, and sex. AB 1354 would require that this information be submitted to the DFEH. AB 1354 cites the OFCCP’s August 2014 Notice of Proposed Rulemaking, which required federal contractors with greater than 100 employees to submit an annual equal pay report on employee compensation.