The “wage gap” between men and women has been the subject of numerous proposed federal and state laws in the last few years. Proponents of California’s new Fair Pay Act (SB 358 – Jackson) — which the Legislature has approved and Governor Brown has said he will sign — claim the statute will close loopholes regarding what constitutes “substantially similar work.” The stated goal is to reduce overall pay disparity between men and women in the work force. The law also prohibits retaliation for discussing wages at work.

Employers should be aware that state and federal law already require equal pay based on equal work, and already prohibit “pay secrecy.” Below is a summary of the current laws and how the California Fair Pay Act claims to improve their effectiveness.

The Federal Equal Pay Act and California Equal Pay Law

The federal Equal Pay Act and the California Equal Pay Law require employers to provide men and women equal pay for substantially equal work. “Substantially equal” under these older statutes means the positions require roughly the same levels of (1) skill (2) effort and (3) responsibility. The work also must be (4) performed under similar working conditions and (5) within the same establishment.

“Skill” refers to training, education, or experience actually needed to perform the position. “Effort” measures the physical and mental requirements of the job — e.g., long hours or heavy lifting. “Responsibility” means the level of accountability associated with the position, such as handling money or trade secrets, for example. “Similar working conditions” means the physical comfort and risks are about the same for both jobs. “Same establishment” generally means the same physical/geographical location, unless salaries are set uniformly without regard to the location of the employee.

Unlike other anti-discrimination laws, it is not necessary for an employee to prove intent to violate equal pay laws. What matters is that workers of the opposite sex were not paid equally for substantially equal work. An employee making this showing is entitled to the gap in pay plus an equivalent amount in liquidated damages. So, if an employee shows she made $20,000 less than her male counterpart for the same work, she would be entitled to $40,000 in damages.

That said, the law recognizes exceptions. Not all pay disparities are illegal. Pay differentials are permitted when they are based on legitimate job-based differences including seniority, merit, quantity/quality of production, or any other reason unrelated to sex (the “catch-all” exception). The employer has the burden of showing that these differences exist.

Title VII and the Fair Employment and Housing Act

The federal Equal Pay Act, passed in 1963, pre-dated the broader provisions of Title VII of the Civil Rights Act of 1964. Title VII (and the California Fair Employment and Housing Act) generally prohibit discrimination – unequal treatment – against members of protected groups. The focus is on whether the employer paid an employee less than another worker because of the employee’s race, sex, religion, etc. This could mean that the employee’s salary was intentionally set artificially low due to discriminatory motives, or that the employer’s seemingly neutral compensation policies nevertheless favor members of one group over another without adequate justification. The employer may explain the disparity with any legitimate, non-discriminatory reason, just as in any discrimination case.

California Fair Pay Act’s New Provisions

The California Fair Pay Act’s intent is to close several perceived “loopholes” in the California Equal Pay Law’s old way of defining “substantially similar” work. The Fair Pay Act removes the requirement that “substantially similar” work must occur at the same worksite. Therefore, employees claiming pay disparities may look outside their own worksites, potentially broadening the pool of comparators.

The new law also attempts to tighten up the “catch-all” exceptions to the Equal Pay Act. The Fair Pay Act will require employers to affirmatively demonstrate that a wage difference between opposite-sex workers is based upon an approved list of factors, including a seniority, merit, or productivity system; or a bona fide factor other than sex, including education, training, or experience. Employers will have to prove that each system or factor is reasonable, and the sole source of any pay disparity.

The Fair Pay Act’s anti-retaliation provision does not add much to existing law. The California Labor Code already prohibits retaliation against employees who complain about equal pay. Both the National Labor Relations Act and California law also prohibits adverse action against employees who discuss their wages.

Remedies

Employees who contend their employers have violated the Fair Pay Act may file a claim with the Division of Labor Standards Enforcement for the unpaid pay disparity and an equivalent amount as “liquidated damages” Alternatively, employees may pursue their own civil actions for the unpaid wages and penalties as well as interest. The statute of limitations is two years, but three years if the employee claims the violation is “willful.”

Employees claiming retaliation under the Fair Pay Act may seek reinstatement and back pay or other equitable relief in court. However the statute of limitations for retaliation claims is one year.

Recommendations

It remains lawful to pay employees different rates based on education, experience, and merit. However, if signed, SB 358 adds another layer of complexity to the administration of compensation systems and payroll. Employers with programs in place to ensure equal pay should evaluate whether adjustment is necessary to comply with the new statute’s requirements. Employers that do not monitor employee compensation for pay disparity should ensure that they can justify differentials between compensation paid to men and women for “substantially similar” work.

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