California’s Fair Pay Act – What does it mean?

In 2016, California put into effect a series of employment laws addressing the gaps in earnings between men and women. The California Fair Pay Act is designed to continue the fight in closing the exceptions under the former income equality laws, preventing employers from taking advantage of loopholes to justify paying workers less. Under the revised laws, employers bear a higher set of standards and burdens requiring them to take proactive steps to ensure equal pay among the sexes, allow for open communication among their workers about pay, and increased transparency in their pay policies.

This is not to be confused with Governor’s Brown’s recent signing of California’s new minimum wage law designed to achieving a $15.00 minimum wage by the year 2022. Beginning in 2016, the state’s minimum wage was raised to $10.00 per hour, the minimum wage will increase steadily until $15.00 per hour is reached. The new law tackles growing concerns and market data that shows that, while workers’ productivity has increased over the past decades, wages have only risen by a marginal percentage. Furthermore, the costs of goods, services, and housing have grown sharply over the past 20 years and many workers are unable to earn enough to generate disposable income after meeting their financial obligations.

This article examines the changes under the Fair Pay Act, the new burdens placed on employers, the expansion of rights and protections for California workers, and the remedies available for any violations of the law.

What Were The Previous Fair Pay Laws In California?

With respect to equal pay among workers of opposite sexes, under California’s wage laws through 2015, there is a general prohibition against paying employees at a rate less than those paid to members of the opposite sex in the same company and for equal work. “Equal work” refers to working on a job and performing with the same amount of skill, effort, and reasonability under the same working conditions. There were exceptions to the equal pay rule, where seniority, or a merit based system, measuring the quantity or quality of the work allows for differences in wages among employees even if they are opposite sex. The idea was that the differences in pay are not related to the sex of the employees, but rather being paid according to their contributions to the productivity of the company.

If an employer is found to be in violation of the law, it is a misdemeanor offense for paying an employee less than other employees in the same position—and with the same job duties—as other employees of the opposite sex. It is also unlawful to reduce the pay of the opposite sex employees in order to comply with the law; they must raise the wages of the underpaid employee, not reduce the other employees’ wages.

What Is So Significant About The New Fair Pay Act?

The most important development of the Fair Pay Act is that is moves the burden of proof to the employer and off of the employee(s). Employers must take a proactive approach to their pay and compensation policies. Employers must actively demonstrate that differences in pay are not related or motivated by sex differences, but are based solely of a set of factors attributable to business growth and development. Even where employers satisfy their requirements, employees may still have a claims if they are able to demonstrate that there are alternative business practices that would achieve the same business goals without the need for wage differences.

What Changes Were Made To The Fair Pay Act?

Under the California Fair Pay Act, employers are prohibited from paying employees of the opposite sex lower wages for substantially similar work, not equal work as was defined previously. Under the substantially similar work model, this means any work that is viewed in the bundle of an employee’s skills, effort, responsibility, and under similar working conditions as their colleagues. Furthermore, the employee is not limited to their own establishment in order to prove wage discrimination. Now, employees may bring an action against their employers for wage discrimination based on the employee wage rates in any of their employer’s facilities and in other job categories as long as the work is substantially similar.

Under this new higher standard, the burden of presenting a defense by the employer has risen as well. An employer facing a claim must demonstrate that the disparities in an employee’s wages is based on reasonable application of one or more of the following:

  • A seniority system;
  • A merit-based system;
  • A system measuring earnings based on the quantity or quality of production; OR
  • A genuine factor that is motivated by something other than the employee’s sex. This means that the factor is directly related to the employee’s position and is consistent with business necessity.

Does The New Fair Pay Act Require Employers To Be Open About Salaries?

Yes. Under the Act, secrecy behind employees’ pay is much more limited. The purpose of the Act is to increase transparency among workers’ wages and salaries in order to prevent retaliation by bosses. The Act prohibits employers from implementing policies or rules that prevent employees from discussing or disclosing their own rates of pay with other employees, discussing the wages of fellow coworkers, asking questions about other employees’ wages or assisting coworkers in exercising and enforcing their rights and protections under the Act. However, it should be noted, that the Act does not required anyone, including the employer, from disclosing an employee’s wages or salary.

In addition to transparency standards, the Act requires employers to keep logs and records of their employees’ “wages and rates of pay, job classifications, and other terms and conditions of employment” for three years.

What Remedies And Methods Of Enforcement Are Available Under The Fair Pay Act?

The principal government agency for filing wage discrimination and inequity claims is the Division of Labor Standards Enforcement (DLSE). The DLSE investigates violations of equal pay law, any acts of retaliation by employers, and allows for confidentiality with the employee. The DSLE is able to pursue its own lawsuit on behalf of the employee or a group of employees. However, the employee(s) has the right to reject enforcement or a lawsuit by the DSLE if they choose to pursue the action on their own.

The principal remedy for an employee who is a victim of unlawful wage disparity is to recover the difference between their current rate of pay and the amount they should have been paid. Additionally, if the employee is successful in demonstrating that the wage disparity was a willful act of wage discrimination, the employee may recover an equal amount of liquidated damages.

If an employee is successful in a claim against their employer for a violation of the Fair Pay Act, they may be entitled to recovery of their loss of wages plus interest, liquidated damages, and even recovery of their attorney’s fees. Additionally, if an employee is terminated or retaliated against in any way, they may seek reinstatement to their old position, reimbursement for lost wages, any loss in benefits, and other relief as well.

There are limitations of when and how a lawsuit may be brought under the Fair Pay Act. An action against an employer must be brought within one year of the employer’s violation. With wages, it is possible that the violation is ongoing or sporadic, making it difficult to determine when the one year limitations period ends. However, unlike other employment law claims, the Act does not require that administrative avenues are exhausted prior to filing a lawsuit. It is important to discuss these procedures and rules in depth with an experienced employment law attorney before proceeding.

What Should Employers Be Doing To Ensure Compliance?

There are signs that workers can look for in order to determine if their employers have been proactive and are complying with California’s new pay standards. The following set of steps were recommended by the National Law Review for employers to perform in order to remain in compliance with the law:

  • Conduct a wage audit or review of their employees’ equity in pay, including identifying opposite sex pay practices for “substantially similar” work;
  • Conduct a review of their compensation policies and procedures, including job descriptions, handbooks, and performance review rules;
  • Implement a policy and set of protocols that ensure accurate record keeping under the Act’s three year log provisions;
  • Increase training for management and supervisors who are involved in the decision making of employee pay and compensation.

Are There Any Unanswered Questions Under The Act?

As with any new law, there is always a degree of ambiguity and interpretation that must be analyzed and debated by legislators and the courts. Most significantly, the new law does not “run parallel” to other existing employment laws, which means that a number of the terms and language is open to debate. Significantly, the law uses phrases like “seniority system” and “merit system” but does not define them. This opens the door to the question as to what is a true merit system? Many employers are going to challenge suits against them by arguing that their policies are true merit systems by simply meeting tenure and performance standards. Additionally, the law uses the phrase “substantially similar work” as its basis for providing protections, however, it does not actually set out a clear test for how work will be deemed “substantially similar.”

These ambiguities in the law should not dissuade employees from seeking enforcement of their rights and protections. However, due to the vagueness and uncertainties surrounding the new language of the law, it is highly advisable to seek the counsel of an experienced employment law attorney when asserting a claim.

 


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