California’s Fair Pay Act – New Law or Rebranding Existing Law?

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Beginning January 1, 2016 California will indeed have a revised Labor Code Provision 1197.5 that could open the door to more litigation of claims based upon gender differentials in pay. The statute has a laudable goal: differences in pay should not be gender based. There is much press about the fact that under this new law there can be no discrimination or retaliation against employees who disclose their wages. However, that already has been the law for many years. Under the new law, employers cannot prohibit employees from discussing their wages. That too already is the law.

So what has changed? Previously the law provided that an employer could not pay a lesser rate to someone of the “opposite gender” who was doing “equal work” unless the difference in rate was made pursuant to a seniority system, merit system, a system that measured quantity or quality of production, or a “differential based on any bone fide factor other than sex.” The primary expansion of the law comes from the language changing “equal” work to “substantially similar” work.

What does that mean? “Substantially similar” work in the statute is “to be viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.” Let’s not sugar coat it. It is a definition that will allow for much argument and litigation. So how can you protect yourself from such litigation? There are steps an employer can take. The law continues to allow differences in pay that are based upon one or more of the following factors:

  1. A seniority system
  2. A merit system
  3. A system that measures earnings by quantity or quality of production
  4. A bona fide factor other than sex, such as education, training or experience. However, for this last factor the employer must demonstrate that any difference in pay is 1) not a “sex-based differential in compensation;” 2) is “job related;” and 3) is consistent with a “business necessity.” “Business necessity” is defined as “an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to fill.” Huh? And to add to the confusion, this defense is also not available if the “employee demonstrates that an alternative business practice exists that would serve the same business purpose without producing a wage differential.” What does that mean? Expensive litigation for employers who get caught up in arguing this defense.

Consequently, employers who want to avoid litigation will be best served in making sure any differentials in pay are based upon factors such as seniority, merit, or systems that measure quantity or quality of production. Reviewing policies and processes for awarding compensation based upon such factors can prevent litigation not only under the revised labor code, but also protect against claims of discrimination from any employee who falls under any protected class. Employers may want to consider auditing their current pay policies to protect against claims of discrimination including those subject to the Fair Pay Act.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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