Legal Update: California’s New Equal Pay Law is a Game-ChangerNovember 2015
On January 1, 2016, California will attempt to narrow the pay gap between men and women by implementing a stringent wage equality law. This far-reaching legislation, known as the Fair Pay Act, was passed with the overwhelming support of the state legislature and impacts all private employers.
How this legislation came about: You may remember the impassioned plea of Oscar winner Patricia Arquette at the 2015 Academy Awards for wage equality in Hollywood. For some time, California law (Labor Code §1197.5) has prohibited employers from paying employees differently based on their gender. But that law was interpreted by courts to be of limited scope, applying only to female workers who hold exactly the same jobs as male workers at the same establishment, but receive less pay. The newly amended law gives the old law sharper teeth, and is likely to generate a significant number of lawsuits interpreting its meaning and reach.
What are the key features of the amended law? The amended law substantially relaxes the evidentiary burden of proof on the employee, eliminates the “same establishment” requirement, and requires that the employee show only that she is not being paid at the same rate for “substantially similar work.” “Substantially similar work” means a combination of skill, effort, and responsibility, performed under similar working conditions, even if the jobs are different. If the employee makes such a showing, the employer must demonstrate that any pay difference is tied to an “absolute business necessity.” An employee who successfully proves her case may recover the amount of wages the employee was not paid due to the differential, along with interest and an additional amount representing liquidated damages. The amended law also requires that employer retain records of wages and wage rates, job classifications and other terms and conditions of employment for at least three years.
What this means for you and your business: Once this law takes effect, employees will be free to file complaints with the California Division of Labor Standards Enforcement, and in court, challenge their pay and seek damages and attorneys’ fees. Employers are well advised to review their handbooks, compensation policies and procedures, job descriptions and current salary scales to ensure that there is a solid business justification for any pay differentials between jobs that require equal skill, effort and experience, even if the jobs carry different titles and duties. Managers who evaluate employees for compensation adjustments should be provided with training about the new law, and employers should ensure that they have open channels of communication through which employees can pursue questions or concerns about their compensation.