California’s New Fair Pay Act: Practical Recommendations for Employers

Posted Jan 14 2016 by Michael Warren and Matthew Schechter

As of January 1, 2016, employers need to adapt to California’s new Fair Pay Act (SB 358).  Previously, the law prohibited employers from paying lower wages to employees of opposite gender when they performed equal work that required equal skill, effort and responsibility, under equal conditions at the same establishment.  However, the new Fair Pay Act is more employee-friendly because it relaxes the burden needed to show that they are receiving unequal pay and narrows employers’ defenses. 

In particular, the new law eliminates the “same establishment” and “equal work” standards and, instead, requires equal pay be given to male and female employees who perform “substantially similar work, when viewed as a composite of skill, effort and responsibility, and performed under similar working conditions [.]” 

The Act also identifies defenses an employer may rely on to explain any wage differential:

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

The employer bears the burden of not only showing that one of the factors applies, but also that the factor(s) relied upon is “applied reasonably” and accounts for the entire wage differential.  

Finally, and to assist employees in bringing cases, the law states employers cannot prohibit employees from disclosing salaries, discussing other employees’ pay rates, or inquiring about other employees’ wages.  However, employers have no obligation under the new law to disclose information concerning other employees’ wages.

Given these significant changes made by the Fair Pay Act, the question for employers is what steps should be considered for compliance with the law.  Here are a few practical recommendations:
 

Conduct a wage audit.

Conducting an audit of your company’s wage data can be a proactive way of identifying potential wage differentials.  Unlike the prior law, conducting an effective audit that is responsive to the new law requires the collection of more comparative data.  For example, comparative data is no longer limited to the “same establishment” and must now include data within a broader geographic region.  Along with relevant criteria such as gender, compensation, job title, seniority, and experience, other factors unrelated to gender may now be relevant under the new law.  It is important to consult with an attorney before developing and applying criteria for a wage audit. 
 

Review (and update) employee handbooks and compensation policies or practices. 

Employers should update employee handbook language to comply with the new law and remove any reference to the law’s prior “equal work” standard.  It should also be ensured that there are no policies preventing employees from discussing or asking about other employees’ compensation.  Compensation policies and practices should also be reviewed to ensure that compensation decisions are based on non-gender factors.  
 

Review (and update) job descriptions. 

Vague or incomplete job descriptions make it easier for a court to conclude the standards haven’t been met.  To better position a defense of different wage rates, employers should identify and set out distinct job duties or working conditions.
 

Keep good records. 

Employers now need to keep at least three years’ worth of records, up from the previous two year requirement.  Also, those records should clearly identify each employee’s job classification, duties, and wages over the entire course of employment.  If individuals of the opposite sex are paid different wages, the reasoning should be applied reasonably and consistently.  Records also must be maintained pro-actively to identify and explain the factor(s) applied to account for the pay difference.
 

Training. 

Make sure your HR personnel, senior management, and anyone involved in hiring, promotion, and wage increases are well-versed on the specifics of what is and isn’t allowed under the Act.  Having everyone on the same page will help ensure that there is consistency.

While the suggestions above are some steps employers can take, they do not make up an exhaustive list.  Moreover, other recommended steps are not identifiable until the courts begin to interpret the Act.  While this leads to uncertainty and will not prevent employees from bringing suit, consulting with an attorney about what can be done to comply with the law is a good place to start.

For more information regarding the new Fair Pay Act, we invite you to read the Law360 article “Calif.’s Fair Pay Act: Practice Advice for Employers.”

 

Michael Warren is a partner at McManis Faulkner, where he heads the firm’s labor and employment practice.

Matthew Schechter is a partner at McManis Faulkner. He has a varied civil litigation practice with a particular emphasis in employment law.