The California fair pay act (sb 358): HOW NEW CHANGES WILL AFFECT YOUR BUSINESS

On October 6, 2015, California Governor Jerry Brown signed into law the California Fair Pay Act (SB 358).  Generally speaking, the California Fair Pay Act prohibits discriminatory wage practices, and endeavors to close the gender wage gap.  Effective January 1, 2016, it is the most rigorous fair-pay law across the country.  

The California Fair Pay Act imposes new challenges for California businesses, requiring businesses to reassess how they pay and classify their workers.  This blog post illuminates some of the most important changes reflected in the Act.

First, the Fair Pay Act places the burden of proof on businesses to disprove an employee’s claim of pay disparity based on gender.

Second, the Fair Pay Act expands the scope of protection for employees beyond existing federal law, the 1963 Equal Pay Act.  The Equal Pay Act also prohibits businesses from engaging in wage discrimination on the basis of gender for the same work.  The Fair Pay Act is even more protective than the Equal Pay Act in that it prohibits businesses from engaging in wage discrimination on the basis of gender for substantially similar work.  The Fair Pay Act amends Section 1197.5 of the Labor Code and provides:

An employer shall not pay any of its employees at wage rates less than the rates paid to 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, except where the employer demonstrates:

(1) The wage differential is based upon one or more of the following factors:

(A) A seniority system.
(B) A merit system.
(C) A system that measures earnings by quantity or quality of production.
(D) A bona fide factor other than sex, such as education, training, or experience. This factor shall apply only if the employer demonstrates that the factor is not based on or derived from a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity. For purposes of this subparagraph, “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 shall not apply if the employee demonstrates that an alternative business practice exists that would serve the same business purpose without producing the wage differential.

(2) Each factor relied upon is applied reasonably.

(3) The one or more factors relied upon account for the entire wage differential.

Third, the Fair Pay Act requires businesses to maintain records of the wages and wage rates, job classifications, and other terms and conditions of employment of employees for a period of three years.

Finally, the Fair Pay Act prevents businesses from retaliating against employees who seek to enforce the Act by inquiring about their pay in comparison to the pay of their counterparts of the opposite gender.  While the Fair Pay Act does not create an obligation for employees to disclose wages, it mandates that an employer may not prohibit an employee from disclosing the employee’s own wages, discussing others’ wages, asking questions about another employee’s wages, or aiding or encouraging any other employee to exercise rights under the Act.  This sort of translucency may allow employees to challenge any wage disparities internally prior to turning to litigation.

Since January 1, 2016, employees may now file claims in court or through the state labor commissioner’s office.  An employee may file a civil action against an employer to recover wages no later than two years after the alleged wage discrimination occurs or, in the case of an employer’s willful violation, no later than three years after the alleged wage discrimination occurs.

In summary, California businesses with employees face higher hurdles in terms of complying with the existing panoply of equal pay laws.  Smith Shapourian Mignano, LLP is available to answer your business questions and concerns regarding compliance with the Fair Pay Act, and to litigate disputes arising from alleged violations of the Fair Pay Act.  Please contact our office to learn more.

This blog does not constitute solicitation or provision of legal advice, and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter in a timely manner, as statutes of limitations may bar your claim.