California’s Equal Pay Act (the “Act”), Cal. Lab. Code section 1197.5, is widely recognized as one of the most aggressive and pro-employee wage discrimination laws in the nation. The Act was intended to combat systemic wage discrimination by making it easier for employees to prevail on wage discrimination claims and by offering claimants greater protection from retaliation for bringing such claims. Recent amendments to the Act have left many employers uncertain of how to evaluate and justify wage anomalies and ensure compliance with the Act. Employers and practitioners hoped to receive additional guidance from the court in Coates v. Farmers Group Inc. et al., Case No. 15-CV-01913-LVK (“Coates”), one of the first high-profile cases addressing wage discrimination under the revised Act. As discussed below, however, the case settled before trial late last year, leaving employers still in need of judicial guidance.

In Coates, a putative class of nearly three hundred female attorneys challenged Farmers’ compensation and promotion practices. The plaintiffs alleged that the company systemically “groomed and promoted” male attorneys while female attorneys were not promoted as readily, resulting in lower pay grades and unequal promotions for female attorneys throughout the company. The lead plaintiff in Coates brought suit after discovering that her male litigation counterpart, who graduated law school a year after she had, earned nearly double her salary. The lead plaintiff further alleged that she was effectively demoted (by being assigned menial administrative tasks) after bringing the wage discrepancy to the attention of her supervisors.

The case settled for $5 million and the settlement was approved by Judge Lucy Koh of the United States District Court for the Northern District of California late last year. The settlement came on the heels of Judge Koh’s determination that, consistent with recent amendments to the Act, the putative class members could compare their wages to those of all Farmers attorneys nationwide, rather than restricting the plaintiffs’ salary comparison to Farmers’ San Jose office where the lead plaintiff was employed. Allowing broad comparisons was a significant departure from federal law and pre-amendment state law, which permitted comparisons only between employees performing the same job, at the same location. In Coates, the nationwide salary data was crucial to the plaintiffs establishing a gender-based wage gap within the organization – a gap which was mildly apparent in the San Jose office, but nearly quadrupled when the plaintiffs were permitted to compare their salaries to those of male attorneys nationwide.

2. Where to From Here? Achieving Compliance with California’s Amended Equal Pay Act.

As described above, significant changes to California’s Equal Pay Act took effect in 2016 and 2017. While plaintiffs and their counsel begin to test new theories and their wage discrimination claims make their way through California’s courts, employers will gradually receive additional judicial guidance regarding compliance with the amended Act.

In the meantime, employers can work to minimize risk by conducting privileged compensation audits and analyzing wage disparities across a wide range of comparable positions. Specifically, positions which have similar job descriptions, or which require comparable skill, effort, or responsibility should be closely analyzed for any wage disparities between employee of different genders, races or ethnicities. When wage disparities are detected, each such disparity should be individually addressed and accounted for by the employer based on at least one of the following factors: (1) a seniority system; (2) a merit system; (3) a system that measures earning by quantity or quality of production; (4) a bona fide factor other than sex.

Additionally, when instances of disparate compensation are identified, employers should conduct an unbiased analysis of whether the factor(s) relied upon may reasonably account for the entire wage differential. When relying on a “bona fide factor other than sex” to justify a differential, employers should consider whether the factor may stem from an applicant’s prior salary history alone which by itself no longer qualifies as “bona fide factors other than sex.” Finally, whenever wage disparities are identified, employers should consider whether another business practice might be identified which could serve the same business purpose without producing the inequitable wage differential.