October 9, 2015 Legal Alert, we informed readers that
California Governor Jerry Brown signed into law the California Fair
Pay Act, which amended the existing California equal pay statute to
make it easier for employees to establish claims of unlawful
sex-based pay differentials, expanded existing employee rights to
discuss compensation, and created new protections against
retaliation for challenging equal pay violations. On September 30,
2016, Governor Brown strengthened California's pay equity rules
yet again by signing into law two new bills, one of which restricts
the use of prior pay to justify a pay disparity while the other
adopts pay equity standards for pay differences between races and
ethnicities similar to those that apply under the Fair Pay Act for
gender-based pay differentials. These new laws will take effect on
January 1, 2017.
The New Pay Equity Laws
Newly signed bill number SB1676 prohibits California employers
from basing compensation solely on a worker's prior wage if
that practice results in a pay disparity relating to sex, race, or
ethnicity. The new law states that prior salary cannot, by itself,
justify a disparity in compensation between employees doing
substantially similar work. Violations are criminally punishable as
a misdemeanor offense. The purpose of this law is to prevent the
perpetuation of unfair wage disparities, thereby helping to close
the wage gap between men and women and between different races and
The other newly signed bill, SB1063, expands the requirements
for equal pay beyond gender to reach pay disparities relating to
race or ethnicity. The new law builds on the existing 2015 gender
pay equity law by extending the same pay equity standards to pay
differences between different races and ethnicities. It
specifically bars employers from paying workers doing
"substantially similar" jobs different wages based on
their race or ethnicity. Just as the 2015 amendments did, this
change significantly broadens the scope of the potential
comparators in an equal pay claim, as the concept of
"substantially similar" jobs is not defined, and
potential comparators are not limited to workers employed by the
employer in the same location as the alleged victim of pay
discrimination. It will be up to the courts to determine how
broadly the concepts embodied in the new law are applied.
The California equal pay laws are already regarded as the
nation's toughest, and these new measures will likely result in
an increase in the number of equal pay claims that are filed in
that state. Employers with employees in California should be
cognizant of pay differentials that may be a result of an
employee's prior wages, as well as differentials throughout
their business operations for work that could arguably be
characterized as "substantially similar" to work
performed by their California employees. Employers should also
maintain documentation of the reasons, if any, for differing
compensation rates paid to employees performing comparable work to
be able to prove that they were reasonable and accounted for the
entire pay differential. In light of the new prohibition against
pay disparities resulting from basing compensation on an
individual's prior pay, employers with employees in California
should consider deleting from their employment applications and
other pre-employment screening processes inquiries about
applicants' current and past compensation.
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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Seyfarth Synopsis: Employers in California: be aware and prepare for new laws increasing minimum wages and mandating overtime pay for agricultural employees; expanding the California Fair Pay Act to race and ethnicity and to address prior salary consideration; imposing new restrictions on background checks and gig economy workers; and more. Small employers will be relieved the Governor vetoed expanded unpaid parental leave, but it will likely return in future sessions.
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