Last year California enacted one of the toughest equal pay laws in the nation. And on Friday, September 30, Governor Jerry Brown expanded California’s Fair Pay Act by signing AB 1676 and SB 1063 into law.

California’s Fair Pay Act prohibits employers from paying any of its employees at wage rates less than the rates paid to employees of the opposite sex for substantially similar work. The Act requires employers to prove that differences in wages are entirely and reasonably based on a seniority system, merit system, a system that measures earnings by quantity or quality of production, education, training, experience, or a bona fide factor other than sex.

AB 1676 specifies that prior salary cannot, by itself, justify any disparity in compensation under the bona fide factor exception. This amendment aims to prevent employers from perpetuating wage disparity and discrimination embedded in the prospective employee’s salary history.

SB 1063 expands the protections of the Fair Pay Act to race and ethnicity, prohibiting employers from paying any of its employees wage rates less than the rates paid to employees of another race or ethnicity for substantially similar work. AB 1676’s prior salary limitations also apply to justifications of pay disparities based on race or ethnicity.

What Does this Mean for Employers?

Salary negotiations must be based on objective criteria, like education and experience. Relying on a prospective employee’s prior salary alone to set the employee’s initial pay will not justify a pay disparity. Employers should negotiate pay based on what the position is worth to the company. To that end, employers should consider establishing base rates of pay and objective legitimate criteria for departures from the base rate with monetary values assigned to each criteria.

Employers should audit their pay systems, even if they did so earlier this year. The audit should aim to identify and evaluate pay disparities among men and women and across races and ethnicities, if any exist. Where prior audits revealed that pay disparities may have been based on the employee’s salary history, the company should re-evaluate the justifications for the disparity and adjust compensation if warranted.

In addition to auditing the company’s pay systems, employers should also consider taking the following steps, which are further described in our December 31, 2015, article on the Fair Pay Act, to limit exposure to liability and minimize the risk of legal compliance.

  • Revise record retention policies.
  • Allow employees to discuss their pay.
  • Update company policies.
  • Update written job descriptions.
  • Provide training to supervisors and other decision makers.