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Strict New California Fair Pay Act Will Become Effective January 1, 2016

In only a few months, employers in California will be subject to one of the strictest and most aggressive equal pay laws in the country.  This week, Governor Jerry Brown signed the California Fair Pay Act (“Act”), Senate Bill 35, a new law intended to increase requirements for wage equality and transparency.  The Act amends Section 1197.5 of the California Labor Code relating to private employment.

New “Substantially Similar Work” Standard

Under the Act, an employer is prohibited from paying employees of the opposite sex lower wage rates for “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.”  Previously, the equal pay statute was more limited.  It prohibited employers from paying employees of the opposite sex in the same establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions. The new standard permits an employee to bring an unequal pay claim based on employee wage rates in any of their employer’s facilities and in other job categories as long as the work is substantially similar.

The employer’s defense burden has also increased under the Act. An employer must establish that the entire wage differential is based on the reasonable application of one or more of the following:

  • A seniority system;

  • A merit system;

  • A system which measures earnings by quantity or quality of production; or 

  • A bona fide factor other than sex, such as education, training, or experience. This factor will apply if the employer shows that the factor is not the result of a sex-based differential in compensation, is job related to the position, and is consistent with business necessity.  An employee can defeat this defense by proving that an alternative business practice exists that would serve the same business purpose without producing the wage differential.

Increased Wage Transparency

The Act also seeks to decrease pay secrecy by further prohibiting employers from enacting rules, policies or otherwise engaging in conduct that prohibits employees from disclosing their own wages, discussing the wages of others, asking about other employees’ wages or aiding and encouraging employees to exercise rights under the Act.  Yet, no one, including an employer, is obligated to disclose employees’ wages.

Additional Remedies and Cause of Action for Discrimination and Retaliation

The statute currently allows employee recovery of wages and interest, plus an equal amount as liquidated damages, and attorneys’ fees.  The Act also prohibits discharge, discrimination and retaliation of employees for asserting rights under the Act and permits a civil action seeking reinstatement, reimbursement for lost wages and interest, an equal amount as liquidated damages, lost benefits, and other equitable relief.  Such a claim must be brought within one year of the prohibited conduct.  There is no requirement that an employee exhaust administrative remedies prior to filing suit. 

Increased Record Keeping Requirement

Additionally, this new law requires that an employer maintain records of employees’ “wages and rates of pay, job classifications, and other terms and conditions of employment” for a three-year period.

Practical Takeaways

This new law goes into effect January 1, 2016. Employers would be wise to use this time to assure that their compensation practices are in defensible compliance with these new requirements.  We suggest the following proactive steps:

  • Conduct a wage audit/review of employee pay equity, including identifying opposite sex pay practices for “substantially similar” work;

  • Review all pay and compensation-related policies and procedures, including job descriptions, employee handbooks, review and evaluation protocols;

  • Consider the scope of information and documents that may fall within the Act’s three-year record retention requirement and modify policies and practices accordingly; 

  • Provide internal training to members of management who make decisions regarding employees’ pay and compensation; and

  • Consider performing some or all of the foregoing under the shield of attorney work-product.

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About this Author

Mark Terman, Business and employment law attorney, Drinker Biddle
Partner

Mark E. Terman is a results-driven litigator whose work extends from restrictive covenants, trade secret, fraud and other business torts and employee misconduct; to wrongful termination, discrimination and sexual harassment, wage & hour, and unfair labor practices matters; and to corporate/shareholder disputes – from case inception to injunction, summary judgment and trial proceedings. His counseling work includes claim prevention, crisis management/mitigation, investigation, M&A, contract/equity/executive compensation, competitive business practices/restrictive...

310-203-4051
Shavaun Taylor, Employment lawyer, Drinker Biddle
Associate

Shavaun Adams Taylor has experience in single and multi-plaintiff litigation brought under federal and state employment laws against allegations of race, gender, national origin and age discrimination. She also counsels employers in drafting employment-related contracts and revising employment policies and handbooks to ensure compliance with state and federal laws and regulations.

Shavaun defends employers in class and collective actions involving state and federal employment and wage and hour laws, including FLSA, Illinois Wage Payment and Collection Act, Illinois Minimum Wage Law, and the Illinois Day and Temporary Labor Services Act. She also defends employers in other complex litigation matters, including large-scale EEOC systemic investigations involving various allegations of discrimination and disparate impact claims arising out of the use of background checks, government enforcement actions by the Department of Justice involving large-scale electronic discovery requests and multimillion-dollar projected fines, and complex workplace investigations involving claims of discrimination, harassment and retaliation. Shavaun regularly represents and advises hospital and health care providers in labor relations and employment matters.

(312) 569-1340