As we discussed in this post, Governor Brown recently signed into law California’s Fair Pay Act, which amends Labor Code section 1197.5. The Act, which becomes effective on January 1, 2016, is intended to strengthen the state’s existing equal pay laws by eliminating loopholes that prevent effective enforcement and by empowering employees to discuss their pay without fear of retaliation. For many business owners, the Act also creates uncertainty and the fear of increased litigation.
When taken on its face, the Act principally undertakes three tasks:
(i) it requires employers to provide equal pay to employees of opposite sexes for work that is “substantially similar”;
(ii) it strengthens employee protection from retaliation for discussing or seeking wage information; and
(iii) it extends certain recordkeeping requirements from two years to three years.
Broader Classification of Comparable Jobs
Not surprisingly, an area of concern for many California employers surrounds the issue of “substantially similar” work between male and female employees. Although not a clearly defined concept, it replaces the idea of “equal” work, even with the delineation provided by the Act, which prohibits paying employees of the opposite sex a lower wage or salary for “substantially similar work, when viewed as a composite of skill, effort, and responsibility.” Furthermore, this assessment must now be made under the deliberation of work performed in “similar working conditions” (i.e. different offices across the state). The prior rule was that wages be compared only within the “same establishment”. As such, employers must to be able to thoroughly account for differences in compensation for work performed in different locations, if such work could possibly be considered “similar working conditions.”
Finally, the law shifts the burden to the employer to show that any wage differences between sexes are due to a seniority system, merit system, a system that measures the quantity or quality of production, or a “bona fide factor other than sex, such as education, training, or experience.” These factors must be ‘applied reasonably’. Of course, this other factor must be job related and must be consistent with a “business necessity”. However, a disgruntled employee may rebut an employer’s justification of “business necessity” simply by demonstrating that an alternative business practice exists that would serve the same business purpose without producing the wage disparity, regardless of the cost to implement.
For many California business owners, California’s Fair Pay Act will require a close look at business practices and a re-vamp of existing employment policies. To discuss how to keep your business out of related wage disparity litigation, contact experienced business lawyer Drew E. Pomerance today.
