United States: What You Need To Know About California's Amended Fair Pay Act That Takes Effect January 1, 2016

Executive Summary:  California's amended Fair Pay Act goes into effect on January 1, 2016, and is considered the most stringent law in the nation.  The new law received broad support from both Republicans and Democrats in the Legislature.  It arises out of their finding that "in 2014, the gender wage gap in California stood at 16 cents on the dollar.  A woman working full time year round earned an average of 84 cents to every dollar a man earned. This wage gap extends across almost all occupations reporting in California. This gap is far worse for women of color; Latina women in California make only 44 cents for every dollar a white male makes, the biggest gap for Latina women in the nation."  California's equal pay law has been on the books since 1949, and prohibited employers from paying a woman less than a man when they are both doing "equal work" at the same establishment. The amended law requires equal pay for "substantially similar work." (The law specifically prohibits discrimination based on sex, but in light of the Legislature's focus on the gender wage gap, this article addresses pay discrimination allegations made by women.)

Changes Under the New Law

The new law expands employers' exposure in the following ways:

  • "Equal Work" versus "Substantially Similar Work."  Under the old law, employers could avoid liability by demonstrating that female employees and male comparators did not perform "equal work."  However, the new statute changes the standard from "equal work" to "substantially similar work." The statute does not define the term "substantially similar work," except to state that it should be viewed as a composite of skill, effort, and responsibility.  This expansive definition permits a female employee to compare her position to a male employee in the same company with a different job title who is performing substantially similar duties. 
  • Elimination of the "Same Establishment" Requirement.  Employees will no longer be required to demonstrate that they were paid less than an employee of the opposite sex who works in the same establishment.  Instead, an employee can state a claim by showing that she is paid less than a male employee who works for the same company even if it is at a different work site.
  • Additional Burdens on the Employer to Defend Against Unequal Pay Claims.  Under the old statute, employers could avoid liability by demonstrating that the alleged pay disparity was the result of a seniority system, a merit-based pay system, a piece-rate system, or "any bona fide factor other than sex" (e.g., education, training, years of experience in the profession).  The new law continues to allow pay disparities based on these factors, but only if the employer can prove that the factor(s) is/are "applied reasonably" and "account for the entire wage differential." 
  • Recordkeeping.  Under the old law, employers were required to maintain records of the "wages and wage rates, job classifications, and other terms and conditions of employment" of its employees for two years.  The new law extends the length of time these records must be kept to three years
  • Transparency.  Under the new law, employees are entitled to disclose their own wages, discuss the wages of others, and inquire about another employee's wages.  Even so, there is no obligation under the new statute for employers to respond to employees' inquiries about the wages of others.
  • Retaliation Claims.  The new law prohibits employers from discharging, discriminating against, or retaliating against employees who invoke their rights under the new law and those employees who aid or encourage other employees to do so. 
  • Remedies. 
    • An employee receiving less than the wage to which she is entitled is entitled to recover the balance of wages (including interest), an equal amount as liquidated damages, and attorneys' fees and costs. 
    • An employee who has been discharged or discriminated or retaliated against because the employee engaged in protected conduct is entitled to reinstatement, reimbursement of all lost wages, work benefits (including interest), and equitable relief.

Bottom Line for Employers:

Employers should take the following steps to prepare for the new requirements: 

  1. Conduct a wage audit to determine if there are pay discrepancies in your company that are not justified by differences in training or education.  It is important to include all job sites in California and to look beyond job titles so that actual job responsibilities are included in the analysis. 
  2. Draft updated job descriptions to accurately reflect the actual duties of a particular position.
  3. Update existing policies, handbooks and training programs to communicate the employer's commitment to prohibiting gender-based pay discrimination for similar work, and ensure that employees are not prohibited from discussing their wages.
  4. Train managers so that they do not inadvertently discipline employees for discussing or inquiring about wage rates and are not making decisions about employee compensation that could be considered discriminatory.
  5. Retain records that relate to employees' wages, past performance, and raises for at least three years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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