United States: California Adopts Stronger Equal Pay Protections For Employees Under The New Fair Pay Act

On October 6, 2015, Governor Jerry Brown signed into law the California Fair Pay Act ("FPA"), which extends further protections to employees and imposes stricter burdens on employers in defending against unequal pay claims.

Effective January 1, 2016, the new law will impact unequal pay claims brought by employees in four significant ways:

1) The new FPA eliminates the requirement that comparable employees work at the same establishment.

While the existing law under the California Equal Pay Act and federal law only allow employees to compare their wages to employees of the opposite sex who worked at their same offices/facilities, the new FPA now allows employees to compare their wages to employees of the opposite sex performing substantially similar work at any of the employer's offices/facilities. This amendment will increase the potential for new claims brought against employers, as it provides a larger pool of employees with whom plaintiffs can compare their wages.

The elimination of the requirement that comparable employees work at the same location will be challenging for California employers, as they will have the burden of justifying their reasons for the wage differentials throughout all of their locations. For example, an employee in Sacramento may earn less than an employee in San Francisco performing substantially similar work based primarily on the differences in the costs of living between the two regions. Even so, it will be the employer's burden to establish that the wage differentials are justified based on quantifiable data that account for the regional differences in cost of living.

2) The new FPA lowers the standard from "equal work" to "substantially similar work."

The new law prohibits an employer from paying any of its employees at wage rates less than the rates paid to employees of the opposite sex for "substantially similar work," when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.

This new law makes it easier for employees to demonstrate the existence of an unsubstantiated wage differential in the workplace by lowering the standard for comparing their wages to those of other employees. The "substantially similar work" standard is more subjective than the former "equal work" standard and will significantly ease the burden on employees to prove their unequal pay claims. This will increase the potential for new claims brought against employers, as it increases the pool of comparable employees that may be performing similar types of work and/or hold similar positions. For example, a female housekeeper who cleans hotel rooms may challenge higher wages paid to a male maintenance worker who cleans the employers' facilities, as housekeepers and maintenance workers arguably perform substantially similar work.

For these reasons, employers should audit their salary structure system-wide to ensure that no unsubstantiated wage differentials exist between employees performing substantially similar work.

3) The new FPA heightens the burden for employers to assert an affirmative defense against unequal pay claims.

The new FPA clarifies the employer's burden in establishing an affirmative defense to these types of claims, which had been seen by some as a loophole in the existing law.

Under the new law, employers must affirmatively demonstrate that wage differentials are based on seniority, merit, a system that measures earnings by quantity or quality of production, or a "bona fide" factor other than sex that is a legitimate business necessity. Any bona fide factors relied upon must not be derived from a sex-based differential in compensation. Rather, they must be job-related with respect to the position in question and be consistent with a business necessity by effectively fulfilling the business purpose it is supposed to serve. Further, the new law requires that the employer demonstrate that each factor relied upon is applied reasonably and accounts for the entire wage differential. Overall, this heightened burden on employers will make it more challenging to defeat unequal pay claims brought by employees, as it will require concrete evidence from the employer to establish their affirmative defenses.

If an employer can demonstrate that a wage differential is based on a bona fide factor other than sex, the employee may still overcome the employer's defense if he or she can demonstrate that an alternative business practice exists that would serve the same business purpose without producing the wage differential.

To ensure that a strong defense to an unequal pay claim may be maintained, employers should document any justifications for wage differentials between employees who perform substantially similar work, such as education, experience, merit, performance, productivity, and maintain written and up-to-date job descriptions. Furthermore, employers should also make sure that no alternative business practices exist that would serve the same business purpose without resulting in a wage differential. The new law also increases the duration of employers' recordkeeping obligations to three years, so employers should ensure that any records substantiating wage differentials are properly maintained in compliance with this amendment.

4) The new law includes an anti-retaliation measure that prohibits employers from retaliating or discriminating against employees who disclose, discuss, or inquire about their own or other coworkers' wages.

While the existing California and federal law prohibit retaliation against employees for disclosing their own wages, the new FPA provides further protections for employees who inquire about the wages of other employees. This will increase the potential for new claims brought against employers, as it expands the protections afforded to employees and permits lawsuits seeking reinstatement, reimbursement for lost wages and interest, lost benefits, and other equitable relief on the basis of retaliation and discrimination. In essence, any discussions between employees about wages or inquiries by employees about other employees' wages would likely be considered "protected activity" under the new law.

Recommendations

In response to the FPA, employers should be proactive in ensuring compliance with the new law by taking the following actions prior to January 1, 2016:

• Review employees' job descriptions and compensation plans system-wide to ensure that any wage differentials can be substantiated based on bona fide reasons other than sex and are well documented.
• Provide training to management and human resources personnel to ensure that employees are not retaliated or discriminated against for disclosing, discussing, or inquiring about wage issues.
• Audit company policies, procedures, and handbooks to eliminate any prohibitions against disclosing, discussing, or inquiring about wages.
• Update internal record retention requirements to comply with the three-year retention period for records relating to wages, job classifications, and other terms of employment for all employees.

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.