Thursday, October 29, 2015

The California Fair Pay Act

California’s Fair Pay Act, which takes effect on January 1, 2016, prohibits private employers from paying male and female employees at different wage rates for substantially similar work. This standard is both more stringent and more ambiguous than prior California law and any other federal or state law.

Whether work is “substantially similar” under the new law is determined based on an analysis of whether there is “a composite of skill, effort, and responsibility and [whether it is] performed under similar work conditions.”  The language of the Act suggests that the fact that jobs are in different departments, locations or classifications may be irrelevant.

If work appears to be substantially similar and there is a wage differential between genders, an employer must “affirmatively demonstrate” that the disparity is based on one or more specific  factors: a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a bona fide factor other than sex, such as education, training or experience.  Employers must demonstrate that factors are “applied reasonably” and that specific factors fully explain the difference. What constitutes a seniority system or a merit system under the law is unclear.

The most significant change that this new law creates for employers is the burden it places on them to apply the new analytical framework to their workplace and fully explain and justify any wage disparity between genders.  Under federal law and prior California law, the burden was on the employee to prove that the work was similar and that equal pay was legally required. Now, the burden has shifted.

Although the law is designed to address underpayment of women, it applies equally to workplaces where men are paid less than women for substantially similar work.

As of January 1, 2016, California employers will also be required to keep records of job classifications, wage rates, and other terms and conditions of employment for three (3) years rather than two years.

Additional provisions of the Fair Pay Act target “pay secrecy.” California law and NLRB decisions already prevent employers from requiring that employees keep their pay confidential.  This new law specifically prohibits California employers from discharging, discriminating against, or retaliating against employees who disclose their wages to others, inquire about other employees’ wages, or aid or encourage others in exercising rights under the law. Employers are not required to provide employees with information about co-workers’ wages. 

Violations of the Fair Pay Act can result in court-ordered reinstatement and the payment of damages. Employees may file a civil action to recover wages or can go through the Department of Labor Standards and Enforcement. The law recognizes the potential for collective or class actions. Potential damages include wages owed, interest, liquidated/double damages, costs of suit and reasonable attorneys’ fees. 

Before JANUARY 1, 2016, California employers should do the following:

(1)  Review job titles and classifications to see if employees are doing substantially similar work based on skills, effort and responsibility, even if they have different titles, classifications, departments or locations. Then review the employees’ pay rates for gender disparity.

(2)  Review compensation rates (including bonuses, overtime or commissions) for different jobs across your workforce to see if there are pay disparities between genders when the skills, effort and responsibility are similar.

(3)  If there are pay disparities, document the reasons based on the Act’s specific listed factors. If you can’t, remedy the pay disparity before January 1st.

(4)  Start saving all personnel, classification and wage records for 3 years.

(5) Ensure that no policies or handbook provisions prohibit employees from disclosing, discussing or inquiring about their own or others’ wages.

(6)  Make sure that your anti-retaliation policies include a reference to the Fair Pay Act.

Posted by: Sarah Mott