[author: Jonathan Turner - Mitchell Silberberg & Knupp LLP]

If they have not already done so, California employers must take steps to see that their pay practices conform to the new standards established under the California Fair Pay Act (“CFPA”), which becomes effective on January 1, 2016. The CFPA amends section 1197.5 of the California Labor Code, which prohibits employers from paying employees at wage rates “less than employees of the opposite sex in the same establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions.” Since the enactment of Section 1197.5 in 1949, employees who could establish the existence of a gender-based pay differential “for the same work in the same establishment” could sue to recover for the amount of the pay differential; however, according to the legislative findings giving rise to the enactment of the CFPA, Section 1197.5 has been “rarely utilized because the current statutory language makes it difficult to establish a successful claim.”1 The legislature also found that “pay secrecy” contributes to gender-based wage disparities “because women cannot challenge wage discrimination that they do not know exists.”2 Hence, in passing the CFPA, the state legislature declared its intent to make it easier for employees to sue and recover under the statute.

What follows is a summary of the CFPA and how its enactment amends existing law under section 1197.5.

Expansion of the statutory mandate that employers must pay employees equal pay for equal work

Under the current statute, employees are able to recover on gender-based wage disparity claims for jobs that require “equal skill, effort and responsibility, and which are performed under similar working conditions,” when compared to jobs performed by employees of the opposite sex at the same establishment. The CFPA expands the scope of wage disparity claims that can be pursued, both in terms of the similarity of jobs that are being compared, and the location where those jobs are being performed.

Under the CFPA, equal pay is required for “substantially similar work, when viewed as a composite of skill, effort and responsibility, and performed under similar working conditions.” Additionally, the CFPA removes the “same establishment” requirement when making the comparison; hence, employees will be able to pursue equal pay claims based on evidence that employees of the opposite gender working at another facility are being paid more.

Defenses to claims for gender-based wage differentials

Under the current law, an employer can defend against gender-based claims of wage disparity by proving that any such disparity is based on one of the following criteria: (1) a seniority system, (2) a merit system, (3) a system which measures earnings by quantity or quality of production, or (4) a differential based on any bona fide factor other than sex. While the CFPA does not abolish these defenses, it has made it more difficult for employers to prevail on them. The CFPA clarifies that the employer has the burden to demonstrate that one or more of these criteria accounts for the disparity. With respect to the fourth criteria, the employer must demonstrate that: (1) the factor other than sex is not based on or derived from a sex-based differential in compensation; (2) the factor is job-related with respect to the position in question; and (3) the factor is consistent with a “business necessity.”

In order to demonstrate “business necessity,” the employer now must prove that the wage disparity achieves “an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve.” Further, the defense will not apply “if the employee demonstrates that an alternative business practice exists that would serve the same business purpose without producing the wage differential.”

Employer record keeping requirements expanded from two to three years

Under the current statute, employers are required to maintain files containing pay records of the wages and wage rates, job classifications, and other terms and conditions of employment of its employees for two years. The CFPA expands this time frame to three years.

Protections for employees who discuss or request wage information

The CFPA includes a provision outlawing any employer policy that prohibits an employee from “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 this section.” Although the CFPA prohibits employers from retaliating against employees who request that their employer provide them with wage information regarding co-workers, the CFPA does not obligate the employer to provide employees with this information.

Remedies for wage disparity violations under CFPA

The CFPA makes no change to what employees can recover for gender-based wage disparity claims. Employees who prevail on such claims are entitled to the amount of the wage differential that was withheld, plus an equal amount as liquidated damages, and prejudgment interest. The recovery period is two years from the filing of an action, except that an action arising out a willful violation extends the recovery period to three years.

Attorney’s fees are also recoverable by plaintiffs who prevail on claims under the CFPA.

For an analysis of the predicted effect of the CFPA on legislation, check out the next issue of the CMCP Newsletter.