California Takes Aim at Sex-Based Wage Disparities

by Michelle Ferber and Ben McDonald

Arguably the most protective and demanding equal pay law in the country, the California Fair Pay Act of 2015 (“the New Act”) took effect on January 1, 2016 and offers California employees unprecedented protections against sex-based wage differentials.  While California has had equal pay laws on the books for more than sixty years, women still earn on average between 75% and 85% of what men earn.  The New Act substantially modifies its predecessor, the California Equal Pay Act of 1949, to make it easier for employees to demonstrate wage differentials based on sex.  Revamped with a greater and more powerful reach, the New Act has sex-based wage differentials firmly in its crosshairs.

The original 1949 law prohibited an employer from paying an employee less than an employee of the opposite sex in the same establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions.  Significantly, the New Act replaces the language “equal work” with “substantially similar work.”  This seemingly subtle amendment makes it much easier for an employee to demonstrate that he or she is being paid less than another employee of the opposite sex because the pool from which the employee can compare his or her wages is greatly expanded.  Furthermore, the term “substantially similar” is far more amorphous, making claims much harder to dispose of at early stages of litigation or investigation.

The New Act also expands the reach of the equal pay law by eliminating the language “in the same establishment.” The absence of this language in the New Act indicates that an employee’s compensation must now be compared to all employees engaged in substantially similar work for the same employer regardless of where the employees work.  This again makes it easier for an employee to demonstrate unequal pay by expanding the wage comparison pool.  For example, female employees of a particular company in California may demonstrate unequal pay by pointing to male employees working for the same company in Washington who earn more money for substantially similar work.

Under the New Act, employers have the burden to prove that any differential in pay between workers is due to non-discriminatory factors.  The New Act authorizes 1) seniority systems, 2) merit systems, and 3) systems that measure earnings by quantity or quality of production as possible non-discriminatory reasons for unequal pay.  The New Act also provides a fourth defense to unequal pay based on any “bona fide factor other than sex, such as education, experience, or training.” For this fourth defense to be available the employer must demonstrate that the bona fide factor is: 1) not based on or derived from a sex-based differential in compensation, 2) is job related with respect to the position in question, and 3) is consistent with a business necessity.  The employee then has the burden to demonstrate that an alternative business practice exists that would serve the same business purpose without producing the wage differential.  The employer must also demonstrate that the factor offered to explain the wage differential is applied reasonably and that one or more of the statutory factors account for the entire wage differential.

An employee with claims under the New Act may pursue damages through the Division of Labor Standards Enforcement (DLSE) or through a civil lawsuit.  If found to have violated the New Act, an employer is liable for the amount of wages (including interest) that the employee was deprived of plus liquidated damages in the amount equal to the unpaid wages.  Essentially, an employer is liable for two-times the amount of wages the employee was deprived of because of discriminatory pay practices.  Furthermore, offending employers may also be liable for the attorney’s fees and costs incurred in bringing successful claims under the New Act.  The New Act also prohibits retaliation against any employee seeking enforcement of the provisions of the New Act.  Finally, the New Act also places an obligation on employers to retain records of wages, wage rates, job classifications, and all other terms and conditions of employment for all employees for a minimum of three years. 

The broad and powerful reach of the New Act requires that all California employers take notice and conduct a review of their compensation practices.  Employers are advised to conduct employee pay equity audits to identify any pay disparities between employees of different sexes performing similar work.  Employers should also review all compensation policies and procedures, including employee handbooks and job descriptions, to ensure that their written policies provide equal pay for similar work.

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.