Fair Enough? New Equal Pay Legislation Expands California’s Fair Pay Act

Just less than a year ago, California adopted the Fair Pay Act (“FPA”), which took effect on January 1, 2016 and created some of the strongest equal pay protections in the nation.  On September 30, 2016, Governor Jerry Brown signed two bills that expand the law even further.

The current FPA prohibits employers from paying lower wages to employees of the opposite sex for “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions,” unless the employer can establish that the wage differential is based upon a seniority system, merit system, system that measures earnings by quantity or quality of production, or bona fide factor other than sex, such as education, training, or experience.  Employers must demonstrate that the one or more factors relied upon are applied reasonably and account for the entire wage differential.  Moreover, employers relying on a bona fide factor other than sex must demonstrate that the factor is: (1) not derived from a sex-based differential in compensation; (2) job-related to the position at issue; and (3) consistent with a business necessity.

Senate Bill 1063 (“SB 1063”) amends Section 1197.5 of the Labor Code to prohibit not just gender pay discrimination, but also discrimination based on race or ethnicity.

Governor Brown also signed Assembly Bill 1676 (“AB 1676”), which prohibits employers from relying exclusively on prior salary in justifying pay disparities.  The governor’s action follows his rejection of similar, but even more stringent legislation just last year.  In 2015, the California legislature passed AB 1017, a bill that would have prohibited asking job applicants about prior salaries.  Governor Brown vetoed that bill, expressing concern that the bill “broadly prohibits employers from obtaining relevant information with little evidence that this would assure more equitable wages.”

Undeterred, proponents repackaged this requirement as AB 1676, which again sought to prohibit an employer from seeking a job applicant’s prior salary history and to require the employer, upon reasonable request, to provide a pay scale for the position applied for.  The California Legislative Women’s Caucus identified this bill as one of its top five priorities for this legislative session.  Presumably to avoid the fate of AB 1017, after AB 1676 passed in the Assembly, the Senate significantly modified the bill to simply amend the FPA rather than create a new Labor Code section.  The law now provides that “prior salary shall not, by itself, justify any disparity in compensation.”  The preface to the bill explains that this is simply a codification of existing law.

Both laws go into effect on January 1, 2017.  In the meantime, employers should consider a privileged review of their pay practices in anticipation of a pay audit or lawsuit to ensure any existing pay disparities are justified under the new laws.