California’s new Fair Pay Act, which became law on Tuesday, October 6, is posed to be a litigation game-changer for companies that do business in California. Signed into law by Governor Jerry Brown, the Act is intended to “strengthen” the state’s existing equal-pay law by forbidding employers from paying employees less than their opposite-sex counterparts for “substantially similar work”. This subjective standard, which differs from the previous “equal work” standard, may leave room for ongoing debate between an employee and her employer. The Act also prohibits employers from retaliating against those who seek to raise their pay under the law.
Last year, the National Partnership for Women & Families announced that California women make 84 cents for every dollar earned by men. The law attempts to fix this by enabling female employees to sue if they are paid less than male counterparts who perform “substantially similar work,” instead of strictly equal work.
The law, which also broadens the reach of potential claims, is said by many to be the strictest in the country targeting gender-based wage disparities. Additionally, as the following scenario suggests, it may make it more challenging for employers to prove they aren’t discriminating. How so? The burden of proof is shifted from the plaintiff employee to the defendant employer, and the employer is required to prove that any wage discrepancy is based on a legitimate factor (such as seniority, merit, or a “bona fide factor other than sex, such as education, training, or experience”).
California employers will likely face new lawsuits alleging that pay gaps are discriminatory. However, even if the employer shows that the gap was not discriminatory, there is nothing in the Act to stop the plaintiff from coming back and claiming that the employer could have run the business another way to prevent the pay discrepancy altogether. At present, there is no requirement for the plaintiff to prove such alternative business practices would be equally effective, or that they could be implemented without a burdensome cost to the employer, leaving judges and juries to second-guess business decisions.
While the short and long term effects of this Act are to be determined, it is important for California employers to be overly cautious about record-keeping. Employers should document every reason an employee is hired at a lower page range (including market conditions, competition, etc…) and every factor that leads to raises down the line.
For more information on how the California Fair Pay Act may affect your business, contact experienced business attorney Drew E. Pomerance today.
