The New California Fair Pay Act
Published November 3, 2015
What Employers Should Know
The California Fair Pay Act has received widespread media attention, causing many California employers to ask what measures they should take to ensure full compliance with the new law slated to take effect on January 1, 2016.
Overview of the California Fair Pay Act
California law already prohibits paying employees at different rates due to their gender. However, the Fair Pay Act seeks to add more teeth by extending the prohibition to employees engaged in “substantially similar work” when viewed “as a composite of” skill, effort, and responsibility. As a result, even employees with different job titles may pursue claims under the Act.
The Act removes the requirement that an employee compare their wages to other employees “in the same establishment.” This change allows employees to pursue claims under the Act for pay differentials despite working in different offices or locations of the same company.
This new law also strengthens employees’ rights to discuss their wages with other employees, or ask other employees about their wages. Employees who exercise these rights, and face retaliation or discrimination from their employer as a result, may file a complaint with the Division of Labor Standards Enforcement for reinstatement, reimbursement of lost wages and work benefits, and equitable relief.
The California Fair Pay Act places the burden on employers to prove that differences in pay stem from “bona fide factor[s] other than sex,” including seniority, merit, quality or quantity of production, education, training, or experience. In other words, when an employee makes a claim under the Act, the employer must justify differences in pay based on legitimate business reasons.
Because employers will be responsible for defending and explaining any differences in pay between employees of the opposite sex, it is imperative for employers to take steps now to evaluate pay practices throughout their organization.
Takeaways for Employers
The law does not take effect until January 1, 2016. Employers may take advantage of the months prior to enactment to begin review of their pay practices to ensure compliance.
Ensure Managers and Supervisors Know the Law
Frequently, employment law violations stem from unintentional actions by supervisors and managers who are unfamiliar with or have a misunderstanding of California employment law. For purposes of the Fair Pay Act, this may manifest itself when a manager discourages an employee from asking co-workers about their wages. Employers may avoid these violations by ensuring that supervisors and managers receive regular training regarding current California employment law.
Create Fair Pay Act-Compliant Systems and Policies
The new law prohibits employers from “pay[ing] any of its employees at wage rates less than the rates paid to employees of the opposite sex.” The burden for justifying differences in pay is on the employer. But, the law allows differences in pay for the following reasons:
(A) A seniority system.
(B) A merit system.
(C) A system that measures earnings by quantity or quality of production.
(D) A bona fide factor other than sex, such as education, training, or experience. This factor shall apply only if the employer demonstrates that the factor is not based on or derived from a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity.
In order to ensure compliance with the new law, employers should audit their current pay practices and consider adopting formal written policies addressing criteria for position descriptions, starting salaries, and raises. Employers should tailor these policies to seniority, merit, education, training, experience or other bona fide factors.