California’s New Fair Pay Act Makes It Harder For Employers To Justify Wage Disparities

California’s employee-friendly state legislature recently approved SB 358, the Fair Pay Act (“CFPA”), which is designed to reinforce the state’s existing equal pay laws and narrow exceptions that have historically made enforcement difficult. Governor Brown signed the bill into law, and the CFPA will be in effect starting January 1, 2016.

California’s gender pay gap, while narrower than in most states, has not changed much in the last decade. Women working full time are still only making 84 percent of wages earned by men working full time. The nationwide number is even lower at 79 percent, with an atrocious figure of roughly 60 percent for minority women.

The existing Equal Pay Law in California already mandates equal pay for equal work, except when disparate payment is based on a seniority system, a merit system, a system measuring earnings by quantity or quality of production, or a differential based on any “bona fide” factor other than sex. (Lab. Code § 1197.5). This means that employees working the same position in the same establishment cannot be paid different amounts based on gender, but makes it easy for employers to assert that there is a bona fide reason for different pay.

The CFPA significantly amends California’s Equal Pay Law to narrow those exceptions and offer greater protection:

  • Equal pay for “equal work” will expand to equal pay for “substantially similar work,” preventing employers from escaping liability by claiming that two employees do not perform equal work because of differing titles or differing locations.
  • Although similar non-gender based exceptions justifying pay disparities will still apply, the factors must be reasonable and must account for the entire pay differential. The proposed statute also amends the previously amorphous “bona fide” factor and provides specific examples of valid reasons for differential pay, including education, training or experience.
  • The proposed statute clarifies employers’ and employees’ burdens of proof in pay gap litigation. Specifically, employers will be required to demonstrate that the bona fide factor is job-related and consistent with a business necessity. If an alternative business practice exists that would serve the same business practice without producing the wage differential, the exception will not apply.
  • CFPA discourages secrecy by specifically prohibiting employers from retaliating against employees for disclosing or discussing their wages, or for inquiring about co-workers’ wages.
  • Employers will be required to maintain payroll records for 3 years, as opposed to two years under prior law.

By expanding the scope of California’s equal pay mandate and providing less leeway to employers trying to justify differential pay, CFPA will offer greater protections to employees and come closer to eliminating the gender pay gap in California.

However, employers seeking to comply with the labor code face some uncertainty, particularly given that “substantially similar work” is not clearly defined in the statute. That uncertainty will inevitably result in a higher volume of litigation and employment disputes. Employers should carefully examine their employment and pay policies and seek professional assistance in applying the new statute.

Karineh Tarbinian

Karineh Tarbinian is an associate attorney with Brown White & Osborn LLP. She handles a wide variety of civil litigation and has a special interest in employment, construction, and real estate law.
Karineh Tarbinian