California Governor Signs Significant New Equal Pay Law

equal-pay-84711244On October 6, 2015, California Governor Jerry Brown signed Senate Bill 358, amending California’s Equal Pay Act, which prohibits an employer from paying employees of one sex less than employees of the opposite sex for “substantially similar work.” This Bulletin briefly discusses this amendment and how it could impact California employers.

What is required for an employee to prove unequal pay?

Prior to the new law, an employee seeking to prove unequal pay had to demonstrate that he or she was not being paid at the same rate as someone of the opposite sex at the same establishment for “equal work.”

The new law, effective January 1, 2016, relaxes this standard, making it much easier for an employee to prove unequal pay. Under the new law, an employee need only show he or she is not being paid at the same rate for “substantially similar work” as measured by a composite of skill, effort and responsibility performed under similar working conditions. It is not necessary that the employees of opposite sexes perform the same or equal work.

What can an employee recover?

Employees have the option of pursuing a claim through the Labor Commissioner or filing a civil lawsuit. An employee who prevails through a claim with the Labor Commissioner may recover pay differential plus an equal amount as liquidated damages. An employee who successfully sues in court may recover pay differential damages, interest, litigation costs and attorneys’ fees.

How can an employer defend a claim or suit?

Even if there is a gender-based wage differential, an employer can escape liability if it can show that the differential is based on:

  • A seniority system;
  • A merit system;
  • A system that measures earnings by quality or quantity of production; or
  • Some other bona fide factor other than sex, such as education, training or experience.

These factors were included in the law, as it existed prior to the October 6th amendment. However, the fourth factor has been changed to require an employer to show with competent evidence that any difference in compensation is not sex-based, is related to the position in question and there exists a “business necessity” for the wage differential. A “business necessity” is an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is intended to serve.

Additional “Wage Transparency” requirement

As amended, the law makes it unlawful for employers to prohibit employees from disclosing their wages to others, discussing their wages or inquiring about the wages of another employee.

Extended record keeping period

The amendment extends the time period for employers to keep records pertaining to employees’ terms and conditions of employment (including wages and job classifications) from two to three years.

What Should Employers Do?

Commentators suggest this amendment may cause a significant uptick in claims and lawsuits alleging unequal pay–this remains to be seen. However, there are unquestionably steps employers should take to protect themselves against an unequal pay claim:

  • Review employee compensation to ensure that instances of gender-based pay differential are minimized and/or defensible under the criteria set forth above.
  • Ensure that individuals making compensation decisions are familiar with the amended law.
  • Review policies, in handbooks and elsewhere, to ensure they do not violate the “wage transparency” requirement.

If you have questions about this amendment, you should consult with experienced employment law counsel.

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