On August 31, 2015, the California Legislature overwhelmingly passed SB 358, the “Fair Pay Act,” in an effort to close the wage gap that exists between men and women. According to the legislative findings, in 2014 women in California earned an average of 84 cents to every dollar a man earned, a number that decreases significantly for women of color. Supporters are hailing the bill as the toughest equal pay measure in the nation. Governor Jerry Brown’s office has already indicated that he will sign the bill, which will amend Labor Code § 1197.5.

Equal Pay for “Substantially Similar” Work

Under existing law, men and women are already entitled to equal pay for equal work. The Fair Pay Act will expand and clarify the law to make it easier for employees to bring claims for equal pay violations. First, the Act eases the proof standard by requiring that employees of the opposite sex be given equal pay for “substantially similar” work. This allows for comparisons between employees with different job titles who perform similar tasks. Second, the Act clarifies that such equal pay comparisons may be made across different sections of the same company. As an example, the pay for a female hotel room housekeeper might be compared to a male janitor cleaning the lobby.

SB 358 allows employers to differentiate rates of pay among employees performing “substantially similar” work in only four circumstances. Pay may differ pursuant to: (1) a seniority system, (2) a merit system, (3) a system that measures earnings by quantity or quality of production, or (4) a bona fide factor other than sex. The employer has the burden of demonstrating that the bona fide factor is not sex-based, is job related, and is a business necessity. A bona fide factor cannot be shown if the employee demonstrates that an alternative business practice exists to serve the same purpose without creating a difference in wages. The Act also requires that each factor be applied reasonably and that these factors account for the entire wage differential.

This provision is enforceable in actions brought by the Division of Labor Standards Enforcement (DLSE) or by private plaintiffs. Employers may be subject to damages in the form of the wage differential (including interest) and an additional equal amount in liquidated damages, as well as litigation costs and reasonable attorney’s fees. Claims under the Act are subject to a two-year statute of limitations, but willful violations extend the limitations period to three years.

Disclosure of Wages

The Legislature found that the lack of transparency regarding wages and salary payments contributes to the gender wage gap:  women often do not realize that they are being paid less than their male counterparts. To combat this, the Act also strengthens existing law protecting the rights of employees to discuss their wages with coworkers. The Act makes it illegal to discharge, discriminate, or retaliate against an employee for “disclosing the employee’s own wages, discussing the wages of others, inquiring about another employee’s wages, or aiding or encouraging any other employee to exercise his or her rights” under that section. However, the Act does not create any affirmative obligation for employers to disclose employee wages.

The wage disclosure provision may also be enforced by either the DLSE or in a private civil action, but is limited to a one-year statute of limitations. Remedies available under the wage disclosure provision include reinstatement and reimbursement for lost wages and work benefits.

Record Retention

While employers are already obligated to maintain records of employees’ wages, job classifications, and terms of employment, the Act extends the time that the employer must maintain these records from two years to three years.

Employer Action Items

Although it is not yet known when the Fair Pay Act will go into effect, it is recommended that employers take action now to ensure that they are in compliance with these changes. In particular, employers should audit the pay differentials between male and female employees by the type of work they perform. If a difference exists, employers should ensure that it falls into one of the exceptions listed above. If an exception applies, generate and retain proof of the exception and preserve it for three years. Employers should also make appropriate changes to their policies and provide updated training to managers regarding employees’ ability to discuss and inquire into wages. Finally, employers should consult with records and IT to lengthen the retention time of employee documents to three years.