Question:

I have seen references in the news to a new equal pay law in California. Doesn’t California law already prohibit different pay rates based on gender? What does this new law do, and what do employers need to know about it?

Answer:

The California legislature recently passed Senate Bill 358 which is known as the California Fair Pay Act (the “Act”). According to the Act, despite existing state and federal laws prohibiting gender-based pay differentials, women continue to earn less money than men. In 2014, a woman working full time year round earned an average of 84 cents to every dollar a man earned. The Act is intended to address this gender gap by eliminating loopholes in the state’s existing equal pay laws and by empowering employees to discuss their pay without fear of retaliation. The Act takes effect on January 1, 2016.
California has prohibited gender-based wage discrimination since 1949, and has provided protections that are very similar to the Federal Equal Pay Act of 1963. The new California Fair Pay Act clarifies and expands upon California’s existing protections in the following ways:

  • The Act requires equal pay between genders for “substantially similar work,” whether or not the work is performed in identical positions or in the same facility (California law previously used the term “equal” instead of “substantially similar” and limited the requirement of equal pay for equal work to work performed at the same establishment);
  • The Act places the burden on employers to establish that any pay differentials between genders for substantially similar work are based on specified gender neutral factors, such as a seniority or merit based compensation structure (California law previously allowed employers to justify gender pay differentials based on based on any bona fide factor other than sex);
  • The Act prohibits retaliation against employees who assert rights under the Act or assist in enforcement of the Act;
  • The Act affirms that employees may disclose their own wages and expressly states that employees may inquire about other employees’ wages. However, there is no obligation on the part of employers or employees to disclose wages, which are confidential; and
  • The Act requires employers to maintain records of wages, wage rates, job classifications and other terms and conditions of employment for three years (California law previously required the records be retained for two years).

Employers should take the following steps prior to January 1, 2016 to prepare for implementation of the new law:

  • Ensure that your existing employment policies prohibit gender-based pay discrimination;
  • Understand the factors that employers can legitimately rely on to justify pay differentials under the new law (these factors include education, training, experience, and compensation systems based on seniority, merit, and production);
  • Review your compensation system to make sure that any pay differentials for substantially similar work are based on legitimate factors, and be prepared to show that the factors were applied reasonably and that they account for the entire wage differential;
  • Train your employees who are making compensation decisions so that they understand their legal obligations and what pay differential factors are nondiscriminatory; and
  • Don’t prohibit employees from discussing compensation.

More information about California’s Fair Pay Act is available at www.legislature.ca.gov.