Centralize Pay Decisions in Response to California’s New Fair Pay Law

By Allen Smith, J.D. May 9, 2016

California’s newly amended Equal Pay Act will, as a practical matter, require employers to centralize their pay decisions more than in the past, said Douglas Farmer, an attorney with Ogletree Deakins in San Francisco.

Speaking at the firm’s Workplace Strategies Conference on May 5, Farmer explained that the amended law has eliminated the requirement that plaintiffs alleging pay discrimination work in the same establishment as the individuals whose pay is unlawfully higher. Now employers with multiple facilities will have to defend themselves from claims that there are wage disparities across the state. 

Fortunately, employers may use cost of living as a factor other than sex to explain wage differences in different areas. There are distinct differences between wages in the rural central valley of California and wages in metropolitan areas such as San Francisco, Farmer noted.

Nevertheless, the elimination of the “same establishment” requirement will translate into greater coordination of pay-setting by HR, as it increases the likelihood and number of pay differentials and produces a significantly larger pool of potential plaintiffs, he noted.

More Litigation

“We anticipate an uptick in this area” of litigation, said Lori Bowman, an Ogletree Deakins attorney in Los Angeles, noting that one class action already has been brought and settled by five female lawyers against Farmers Insurance.

While summary judgment used to be easy for employers to obtain against state Equal Pay Act plaintiffs, the substitution of the phrase “substantially similar work” in place of “equal work” in the amended law, which took effect Jan. 1, will make it much harder for employers to prevail.

The old law provided that an employer could not pay an employee at a wage rate less than that paid to a worker of the opposite sex in the same establishment for equal work when doing equal jobs. Now, in addition to the “same establishment” provision being eliminated, employees need only show there was “substantially similar work.”

So, minor differences in skill, effort and responsibility no longer will be relevant, Bowman noted. And the focus is on the duties actually performed, not the job description. The work performed must be viewed as a composite of skill, effort and responsibility under similar working conditions, she added.

“Skill” is measured by factors such as experience, ability, education and training required to perform the job. “Effort” is the amount of physical or mental exertion needed to perform the work. “Responsibility” is the extent to which the employee works without supervision and the impact of the employee’s exercise of his or her job functions on the employer’s business, Bowman explained.

To determine whether jobs are substantially similar, the focus is on whether the positions have primary duties in common, she said, referencing legislative history. So, additional secondary duties do not necessarily disqualify jobs from being substantially similar, she cautioned.

Compliance Recommendations

Bowman made several compliance recommendations, saying employers should:

  • Develop job-related standards for setting wage rates.
  • Implement effective record-keeping of employees’ education, experience and training.
  • Develop and implement management training.
  • Identify and address the use of discretion or subjective decision-making in the setting of pay.
  • Document the basis for pay decisions.
  • Place controls on management discretion in setting pay.

In addition, she said employers should be sure they have identified and eliminated prohibitions on discussing pay.

“This is not a one-shot deal,” Bowman said. Instead, compliance must be ongoing, which may require pay audits at intervals.

There may be more pay legislation in California’s future, added Robert Jones, an attorney with Ogletree Deakins in San Francisco. He said Senate Bill 1063 would add provisions to the state Equal Pay Act regarding race and ethnicity, and he predicted that the bill is likely to pass.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.


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