California has long been known as one of the most employer-focused states in the U.S. The state continues to lead the nation in new workplace regulations, recently enacting its own variation of the Paycheck Fairness Act, as the California Legislature also moves to prohibit employers from asking job applicants for their salary history and other employer wage disparity policies.
California’s Fair Pay Act (SB 358), which will become effective January 1, 2016, once Governor Brown signs the law, was passed by both California’s Legislature and Senate. Under the new law, an employer may not pay any of its employees less than what it pays employees of the opposite sex for “substantially similar” work, unless the employer can affirmatively demonstrate that the difference in pay is based on one or more of the following 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 training, education or experience.)
The fourth factor in this list, however, will only apply if the employer demonstrates that the factor is job-related for the position in question and consistent with a business necessity. The defense claimed to “business necessity” will not be effective if the employee can demonstrate that there is an alternative business practice which would serve the same business purpose without producing the differential in wage. Under the new law, the employer must also show that it was reasonable in applying these referenced factors and that those factors account for the entire wage differential.
As with existing law, the new law provides employees with a private right of action to sue, in addition to authorizing the Division of Labor Standards Enforcement to prosecute actions on behalf of aggrieved employees. There is an applicable two-year statute of limitations, or three years for willful violations, and an employee can recover the balance of wages due, liquidated damages equal to the wages due, interest, and costs and attorneys’ fees. The new California law adds an anti-retaliation provision, which serves as a shield to protect employees who attempt to enforce their own rights or encourage others to do so, or who disclose their own wages, discuss the wages of others or inquire about another employee’s
wages. As if these provisions were not weighty enough, the law also increases record-keeping requirements for employers from two to three years.
The impact of these changes, once signed into law by Gov. Brown, will significantly lower the bar for an equal pay suit by enabling plaintiff employees to compare themselves with other employees working at any location for the same employer, and in any similar, but not necessarily the same, position or placement. In addition to California SB 358, the California Legislature has also recently sent to the Governor’s desk two additional laws (AB 1017 and AB 465) that would:
- Prohibit an employer from seeking salary history, including benefits, from job applicants; and
- Prohibit an employer from requiring individuals, as a condition of employment, to agree to the waiver of any legal right, penalty, forum, or procedure for any employment law violations, which would effectively act as a bar to nearly all arbitration agreements.
One additional bill is of importance to employers operating in the state (AB 1354) as it has recently passed the state legislature and would effectively codify the OFCCP’s proposed Equal Pay Report rule for employers who have contracts with the State of California. Even if employers do not operate their businesses in California, they should still take notice of these recently legislatively approved laws. As has often been the case in recent years, the new California laws are likely to prompt similar enactments in other states, though the ban on mandatory arbitration agreements will likely be challenged in federal court as being preempted by the Federal Arbitration Act.
In response to these and other recent changes in law, California employers will need to be especially diligent in reviewing wage rates for similar positions across all their locations in the state, in order to detect and address any potential wage disparities that could be associated with gender. In turn, liability concerns raised by these new laws might also require the implementation of more uniform wage structures across locations, including reducing the discretion of local managers in making compensation decisions.
Article by Peyton Smith, a former Partner at Reed & Scardino. For further information about labor and employment law and human resources, please contact us.