Earlier this year, Governor Jerry Brown signed legislation amending the California Equal Pay Act.
California law prohibits gender-based wage differentials. This amendment makes it easier for current and former employees to allege payment of wage rates less than those paid to employees of the opposite sex, and changes the standard from equal pay for equal “skill, effort and responsibility,” to equal pay for “substantially similar work.” This amendment also eliminates the requirement that the work be performed at the “same establishment” to demonstrate a wage gap.
When a wage rate gap is shown, it will be the employer’s burden to demonstrate the wage differential is based on one or more of the following factors:
- a seniority system,
- a merit system,
- a system that measures earnings by quantity or quality of production, or
- a bona fide factor other than sex, such as education, training, or experience.
The last factor applies only if the employer demonstrates that the factor is:
- not based on or derived from a sex-based differential in compensation,
- related with respect to the position in question, and
- consistent with a business necessity.
“Business necessity” means an “overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve.” This defense will not apply if the employee demonstrates that an alternative business practice would serve the same business purpose without producing the same differential.
The employer must also demonstrate each factor relied upon is applied reasonably, and that the factors relied upon account for the entire wage differential. If the employer fails to meet this burden, the employer may be found liable for wage discrimination.
Should an employer be found in violation, the employer will be liable for the amount of the wage difference with interest, plus liquidated damages equal to the amount of the difference. An employee who brings a successful civil action is also entitled to an award of attorneys’ fees and litigation costs.
The Labor Code requires every employer to “maintain records of the wages and wage rates, job classifications, and other terms and conditions of employment of the persons employed by the employer”. The new amendment increases the retention period for such records from two years to three years.
This new amendment further prohibits discharging, discriminating against, or retaliating against any employee “by reason of any action taken by the employee to invoke or assist in any manner the enforcement of this section.” Further, an employer may not “prohibit an employee from disclosing the employee’s own wages, discussing the wages of others, inquiring about another’s wages, or aiding or encouraging any other employees to exercise his or her rights under this section.”
The Equal Pay Act applies to exempt and to non-exempt employees alike. Employees have two years to file equal pay claims, or three years if the employee can establish a willful violation by the employer. Employees have one year to file a retaliation or discrimination claim under this amendment.
Here are some recommendations:
- Review the wages of all employees to identify if employees of one sex are being paid less than the rates paid to others of the opposite sex for “substantially similar work.” The actual duties performed by an employee should be examined as courts will look past job titles and job classifications.
- Review the criteria used to determine the pay of new hires and the pay of existing employees. Objective, gender-neutral criteria are preferable to subjective criteria.
- Ensure equal employment opportunity and anti-discrimination policies expressly prohibit pay discrimination.
- Maintain all required records for at least three years, preferably four.
- Consider requiring employees to sign arbitration agreements as a condition of employment. Thanks to some recent decisions applying the Federal Arbitration Act, a good arbitration agreement can prevent wage and hour class actions altogether and require current employees to resolve whatever employment related claims they might have by arbitration and not by a lawsuit filed in court.
- Maintain accurate, up-to-date written job descriptions for all positions.
- Consider auditing pay practices to determine whether pay differentials exist. Although pay disparities are allowed under the new law if they are based on certain factors that are unrelated to gender, such as education, training, or experience, employers must be prepared to demonstrate that these factors account for the entire pay differential.
- Carefully document all decisions related to pay, performance, and promotion, and provide timely and effective performance evaluations.
This new regulation will require everyone to closely review their pay practices. PMIS HR Services Division is here to assist you in every way. Please do not hesitate to contact us if you have any questions at email@example.com or (626) 217-9000, extension 121.