With Governor Jerry Brown’s signature, California officially amended its equal pay legislation through the California Fair Pay Act (the Act) to include more employee-friendly provisions. The Act, which now creates the nation’s strongest equal pay protections, seeks to close the pay gap in California. The Act may serve as a model for legislation in other states and supporters are even hopeful the Act’s passage may finally push Congress to pass the Paycheck Fairness Act, which has been introduced in Congress every year since 1994 and upon which California’s legislation was based.

The most important aspect of the new law is that it changes the standard from “equal pay for equal work” (which is also the standard under the federal Equal Pay Act) to “equal pay for substantially similar work” based on the employee’s skill, effort and responsibility, and similar working conditions. The Act also includes enhanced anti-retaliation provisions intended to improve transparency about employees’ salaries. The Act states that employers may not retaliate against employees who discuss their own wages, others’ wages, or seek information about another employee’s salary.

Along with the new legislation comes the potential for litigation over some of the murkier provisions in the law. Under the old version of the law unequal pay to opposite-sex employees was justified if the pay was based on “a bona fide factor other than sex.” Under the new law, employers must demonstrate that the factor relied upon is reasonably applied and accounts for the entire pay difference. Unfortunately, the Act fails to define “reasonable” and it places the burden on the employer to demonstrate the factor is: (1) not based on a sex-based differential in compensation; (2) job-related to the position at issue; and (3) consistent with a business necessity. This raises questions about whether employers may pay premiums to hire or retain talented workers in high demand, or pay workers according to market conditions. In a litigation context, these factual disputes may make it more difficult for employers to succeed on summary judgment motions.

Similarly, the new law eliminates the requirement that the comparator wages be from “the same establishment.” This could pose issues for employers with a statewide presence because they will now have to justify pay disparities despite differences in facility size or location. It is unclear if there will be any judicial limitations imposed on this analysis until the new standard is tested through litigation.

The new law will take effect on January 1, 2016. In the meantime, employers should examine their pay practices in anticipation of a pay audit or lawsuit to ensure any existing pay disparities are justified under the new law.

For a more in depth analysis of the Act, see the article prepared by our Orrick colleagues, Gary R. Siniscalco and Lauri Damrell.