New Calif. Fair Pay Law Is Toughest in Nation

By June D. Bell Oct 7, 2015
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Don’t call it the “Equal Pay Act.”

California Senate Bill (SB) 358, signed into law by Gov. Jerry Brown on Oct. 6, 2015, seeks to close the wage gap between men and women by requiring comparable pay for “substantially similar” work—not equal pay for equal work.

Expected to take effect Jan. 1, 2016, the new law will shift to employers the burden of showing that any differences in pay between the sexes are due to seniority, education, a merit system or other acceptable factors. It will be the toughest fair pay act in the country, said Gary M. McLaughlin, a partner in the labor and employment practice of Akin Gump Strauss Hauer & Feld in Los Angeles. The legislation seeks to end a pay disparity of 5 to 8 percent between the sexes for doing the same work, even when factors such as education, experience and union membership are identical, according to studies cited in the state Senate record.

Dubbed the “California Fair Pay Act,” the legislation also allows employees to compare salaries without fear of retaliation. In addition, they can anonymously report concerns about gender-based salary inequities to the state’s Division of Labor Standards Enforcement (DLSE), which can investigate and order corrective measures.

The new law—approved unanimously by the California Senate in August—aims to close a loophole in California law, which as early as 1949 barred gender-based discrimination in setting wages, and has evolved to the point that it is “virtually identical” to federal laws prohibiting pay disparities between men and women doing the same work, the bill notes. However, the current law’s efficacy has been undermined by what labor and employment attorney Michelle Lee Flores calls a “get out of jail free card,” a standard that requires men and women to perform identical work to pursue a successful claim for equal pay. That requirement has proved to be nearly impossible to meet due to even slight variations in workers’ experience, duties, locations or responsibilities.

‘Nobody’s Ever Equal’

“It used to be that you needed to find someone in your same workspace and say, ‘Here’s my equal and they’re being paid more … .’ But nobody’s ever equal. We’re all different,” said Flores, a member of Cozen O’Connor’s labor and employment department in Los Angeles. The new legislation instead requires the same pay for workers performing “substantially similar”—not necessarily identical—work.

Under current law, employees bear the onus of proving gender-based pay inequities, usually via a lawsuit to compel the release of their employer’s salary information. But the new law requires employers to justify any pay differences between male and female workers doing substantially similar work. “It really flips the burden,” McLaughlin said. Acceptable exceptions that businesses can cite to explain gender-based differences in wages include seniority, education, and productivity measures that can be tracked by “quantity or quality of production.”

Prepare and Analyze

Labor and employment attorneys recommend that HR professionals prepare for the new regulations by gathering comprehensive data on workers’ pay, including salaries, pay rates, bonuses and job classifications. The new law, which mandates that employers keep this information for three years, should prompt a thorough analysis of salaries as well as a proactive effort, if needed, to adjust compensation to comply with the law. If an HR analysis uncovers what appear to be gender-based differences in pay, the HR team should drill down and compare wages across offices, positions and worker experience, McLaughlin said. Are there disparities that suggest bias and that should prompt the company to put more-uniform compensation structures in place?

Businesses may walk a fine line as they seek to correct inequities without acknowledging any prior wrongdoing. Management should express its commitment to fair compensation without suggesting or admitting any previous illegal or discriminatory pay structures, according to Flores. “Saying you want to change things going forward doesn’t mean there was anything wrong in the past,” she said, adding, “There’s concern about the potential liability of fixing it going backward. But it’s not impossible. How you present the information is important.”

Employers have no obligation to make their findings public or share that information with workers, said Phillip R. Maltin, a partner at Lathrop & Gage in Los Angeles who handles labor and employment issues and commercial litigation. Managers and HR professionals should thank workers for bringing concerns about gender-based salary inequities to their attention and emphasize that they are committed to fairness.

Workers might become more likely to share their paycheck information with one another because under the new law they cannot be barred from revealing their pay, discussing others’ pay and asking about other workers’ wages. Sharing salary information can enable employees to uncover wage inequities without fear of recrimination, the bill’s author, Sen. Hannah-Beth Jackson, D-Santa Barbara, told the Sacramento Bee in August. “People have been afraid to ask what their colleagues are making,” she said. “You can’t challenge what you don’t know.”

Advice to Managers

HR professionals should insist that hiring managers meticulously document criteria used to set worker wages, McLaughlin said, so that down the line—for example, after the supervisor who approved a hire is gone—the company can explain the factors used to set each worker’s salary. “You might pay a new employee more because of prior experience,” he said. “You make a selective assessment and decide to pay more, but then you might in retrospect have to justify why that experience was worth $10,000 a year and not $5,000.”

Detailed job descriptions can be invaluable tools for performing effective evaluations. A thorough, updated job description “really reflects the work people are doing, not the job you theoretically envision the worker doing,” Maltin said. When HR professionals and managers list job duties, they may discover that different titles have significant overlap in responsibilities. That revelation might prompt them to make pay adjustments, which should be done swiftly. “If a business knows it’s out of compliance and waits to fix it until it’s facing litigation, that can be very costly,” Maltin said.

The criteria for awarding bonuses should be scrutinized as well, he said. Paying bonuses for “a good year” or “excellent performance” can no longer fly. Managers must instead be able to spell out objective, calculable goals that workers must achieve to obtain the bonus. To educate supervisors and hiring managers about the potential for unconscious biases that can create pay disparities, Maltin recommends including discussions on fair pay in anti-bullying and sexual harassment training.

One tactic that may help ensure fair pay is to stop asking job candidates for their salary history. (A bill awaiting the governor’s signature would make it a misdemeanor to seek job applicants’ salary history in California.) An employee’s salary at a previous job should have no bearing on a prospective job offer, Flores said, though it often does. Typically, a new salary is a small increase from the previous salary, a practice that can perpetuate gender-based pay differentials. Companies should instead set a salary range for a position and negotiate new hires’ pay within that range, based on education, experience and skills, she said.

HR professionals who want to ensure that their companies comply with the new law need to act now to correct gender-based inequities in wages that cannot be explained by different levels of education, training or experience. They also should be prepared for the possibility of DSLE inquiries and workers’ increased attention to the nexus of pay and gender. “When you’re on top of this,” Flores said, “you control the story.”

June D. Bell (june@junebell.com) is a San Francisco Bay Area reporter who covers California employment issues for SHRM.

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