What's Happening and Why Does It Matter?
Broader pay transparency requirements came to California on January 1, 2023, for many employers. California's new pay transparency rules generally fall into three disclosure categories: job-posting requirements, pay scale requests and pay data disclosures.
For new hire job postings, employers with 15 or more employees must disclose the reasonably expected pay scale, both for salaried and hourly employees.
For current employees, employers now have a statutory obligation to provide pay scale information for the position in which an employee is currently employed, upon that employee's request.
For pay data disclosures, the new rules require certain employers (those with more than 100 employees, as well as those who utilize more than 100 workers from labor contractors) to provide pay, position and demographic disclosures to California's Civil Rights Department.
Because the new rules are effectively in beta phase, we anticipate several practical and technical challenges that companies will face.
What Should You Do About It?
Here are some practical thoughts on what your organization can (and should) do now.
Start Building a Reporting Process
California's new rules are part of a larger trend toward pay transparency. Try to build a process that can be applied or adapted to future laws in other states requiring similar disclosures. This trend is already playing out on a national scale (see, e.g., our Alert on similar laws in New York), and California is likely only one of many yet to come.
Remediate Potential Pay Issues Now
Consider a legal audit to identify and address pay differential issues in your workforce before they become a problem. This may also lead to better (quantity or quality) documentation for "good reason" pay gaps or developing the "clarifying remarks," an option contemplated by the new disclosure rules. Keep future discovery requests in mind and consider engaging counsel now to trigger attorney-client privilege protections. Also seek counsel for additional information on privilege issues in pay equity audits.
Be Ready for Harder Questions from Current Employees
Many employees will want to know why they are not at the top of the pay scale. Your organization is not required to pay everyone the same amount. There are legitimate business reasons for pay differentials, such as experience, education, skill set fit, geographic location and so on. Be prepared to have honest conversations with employees who are not at the top of the scale, reminding them that a scale is a range of potential compensation.
Start Collecting Pay Information Now
If your organization employed 100 or more employees in 2022 (including workers from labor contractors) you'll need to collect and sort pay data and demographic information about those workers. You'll also likely need internal manager-level input on job category "slot-in" reporting information. It isn't a simple task per se, and not everything will fit neatly, so start now.
Train and Be Proactive
The new rules will give would-be litigants and their counsel more information and leverage. Pay scale information may be used to support discrimination claims, and pay scale requests themselves may very well lead to retaliation or harassment claims. A well-trained workforce is your best first line of defense, and these new rules will lead to difficult conversations. But a "range" is just that-a top, bottom and space in the middle-and the new rules do not require "top only" compensation. Equip your managers to have those conversations in a productive, positive way.
Be Competitive, Not Anti-Competitive
Nothing in the new rules prevents "estimated total compensation" descriptions in addition to satisfactory pay scale disclosures. If the total compensation package is a selling point, consider how to make that clear. On the other hand, resist the urge to make decisions about compensation based on what other companies publicly share about their pay scales-there are potential antitrust implications to these new pay transparency laws!
For More Information
If you have any questions about this Alert, please contact Brian L. Johnsrud, Brandon Rainey, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.