California’s New Fair Pay Act
Beginning January 1, 2016, businesses in California will be subject to the Fair Pay Act, which is arguably the most aggressive attempt in the country to seal the gender wage gap. The law, which applies to employers in both the public and private sectors, establishes new standards in determining what constitutes equal pay between the sexes and grants employees additional protections in their investigations of whether a wage gap exists.
To ensure wage equality, the Fair Pay Act reaches beyond job title and work site by requiring employers to pay opposite sex employees comparable wages for substantially similar work, even if it is performed at different locations. Substantially similar work is basically defined as that which requires equivalent effort, skill, and responsibility, and is performed under similar conditions. This requirement distinguishes the Fair Pay Act from previous law, which only mandated that employers ensure parity between the wages of opposite sex employees who performed equal work at the same job sites.
The law also seeks to enhance transparency regarding pay rates. It guarantees employees the right to inquire about and discuss the wages of their co-workers, offering them protection against retaliation if they do so.
How can employers justify wage differentials under the Act? If an employee claims unfair pay practices, the law stipulates that businesses may have a defense if they can demonstrate that the differential was based upon any of the following factors:
- A seniority system
- A merit system
- A system that bases wages on quality or quantity of production; or
- A bona fide factor besides gender, such as a difference in education, training, or experience. This factor must be job-related and represent a business necessity. However, employers may face difficulty successfully asserting this defense because a plaintiff employee could trump it by showing that the business purpose could have been served by an alternative practice that would not produce a pay differential.
The Fair Pay Act also requires employers to keep records regarding employees’ wages and other terms and conditions of employment for three years. The law will be enforced by the Division of Labor Standards Enforcement, which will maintain the confidentiality of employees’ identities while investigating claims. If the agency determines that a complaint is valid, it may request wages for the employee and pursue legal action if necessary.
Democratic Senator Hannah-Beth Jackson wrote the law. In support of her position, she cited alarming statistics regarding wage inequality between men and women in California. On average, women earned 84 cents to each dollar earned by their male counterparts, while Latina women allegedly earned a shocking 44 cents to each dollar earned by a white man. Collectively, women who work full-time earn $33.6 billion less each year in California than men who work full-time. The national average is even more troubling, with women across the U.S. earning approximately 78 cents for each dollar earned by men.
As the Fair Pay Act promotes the goal of ensuring gender equality in the workplace, California employers will face a more substantial burden of proof than previous law imposed upon them. Familiarity with the law’s requirements and meticulous record-keeping of circumstances that would justify wage differentials will be critical to the avoidance of costly litigation.
In need of assistance in understanding new laws impacting your business hiring practices? Contact Creative Business Resources today!