Governor Jerry Brown signed a new pay equity law on October 6, 2015, SB 358, subjecting California employers to a stricter standard for gender pay equality. Before the governor signed the law, it passed the state legislature with broad support. It’s considered the most aggressive equal pay law in the nation, and means that California employers should start preparing immediately to comply.
What SB 358 Prohibits
SB 358 effectively requires employers to pay male and female employees the same wages for doing the same jobs. It amends California’s Equal Pay Act and says employers cannot pay employees of one sex lower than employees of the opposite sex for “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.”
Employer Exceptions to the New Law
The law is allowing some exceptions if an employer can justify a pay differential as a true factor other than gender. To do this, an employer must prove three things: that the reason for the pay difference is not based on or from a sex-based differential in compensation, is job-related in the position, and is tied to a business necessity.
The law defines “business necessity” as an “overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve.”
For example, an employer may be able to avoid liability for wage differential if it can prove that the difference is based on the following:
- A seniority system
- A merit system
- A system that measures earnings by quality or quantity of production; or some other bona fide factor other than sex, such as training, education, or experience.
Employers trying to keep the difference in wages in place in their businesses should be aware that if the employee shows that an alternative practice exists that serves the same business purpose without requiring the wage difference, the exception will not apply.
SB 358 Expected to Lead to More Lawsuits
California’s existing equal pay law has tough standards for employees to prove unequal pay and makes it difficult for them to sue employers over wage differences. The new law, however, makes it easier to prove pay equity issues and is expected to trigger unequal pay lawsuits very quickly.
SB 358 makes it easier for employees to show that jobs across the company involve “substantially similar work,” even at differing locations. This brings up a question of whether a comparison to jobs outside of California will be permissible, opening employers to even further liability in gender pay equity issues.
What Employees Can Do Under SB 358
The new law allows employees to pursue unequal pay claims through the Labor Commissioner or in lawsuits. That means that an employee who successfully proves the pay differential exists can recover the pay differential plus an additional equal amount as liquidated damages.
In addition to two times the pay differential, employees who sue under SB 358 can also get interest, litigation costs, and attorneys’ fees awarded, regardless of an agreement by the employee to work at a lower rate of pay.
SB 358 Requires “Wage Transparency”
The new law requires wage transparency and prohibits employers from preventing employees from disclosing their own wages to others, discussing their wages, or inquiring about the wages of another employee. The law does not, however, require the employer to disclose another employee’s wages or make the employee disclose his or her own wages in response to a co-worker’s inquiry.
AB 1017 is a related bill under consideration by the governor. AB 1017 prohibits an employer from seeking salary history information, including compensation and benefits, about an applicant for employment. It doesn’t allow in-person inquiries or inquiries through recruiters or placement agencies either, to prevent perpetuating sex-based pay differentials. This is a common discussion in recruiting and hiring and should be watched carefully as it could affect employment verification processes as well.
How Employers Need to Prepare
The new law becomes effective January 1, 2016, but California employers should begin preparing now to review their pay practices and make any changes necessary for compliance.
Employers should examine their pay rates for the same or similar jobs with males and females doing the work, looking for disparities based on sex.
If disparities exist, they should be further reviewed to see whether they can be justified with the three qualifications under the new law. As with any review of wage and hour issues, the analysis should be conducted with an attorney for accuracy and confidentiality.