The Coast is Not (Necessarily) Clear: California Seeks to Mandate Pay Data Reporting Modeled on Revised EEO-1 Form Stayed by OMB

This month, the California Senate held a hearing regarding SB 1284, which would require California employers with at least 100 employees to annually report certain demographic pay data to the Department of Industrial Relations (DIR). Notably, this bill was sponsored by Senator Hannah-Beth Jackson, who also sponsored California’s Fair Pay Act (FPA) (on which we previously reported here, here, here, and here). It was also introduced just a few short months after the Office of Management and Budget’s memo mandating a review and immediate stay of similar reporting requirements at the federal level for the Equal Employment Opportunity Commission (EEOC)’s revised EEO-1 form. The California Senate Judiciary Committee has explained that SB 1284 is “modeled closely” on the revised EEO-1 form. As a result, it suffers from similar flaws.

SB 1284 would require covered employers to annually report pay data from employees’ W-2 forms within broad specified job categories and pay bands, broken down by sex, race, and ethnicity, and would also impose civil penalties for non-compliance. The California Chamber of Commerce and other advocacy groups have expressed a number of concerns with SB 1284, many of which echo concerns Orrick and others previously articulated regarding the proposed revisions to the EEO-1 form. These concerns include:

  • The broad job categories required by SB 1284 do not track the FPA requirement of equal pay for employees who are similarly situated in terms of their skill, effort, and responsibility;
  • The use of W-2 income data is potentially flawed because it would omit certain types of compensation, such as stock compensation, and thus create a potentially misleading impression of overall pay differences within a company; and
  • W-2 earnings also reflect employee’s own decisions, such as whether to work additional shifts, or to take pre-tax deductions, such as for a 401(k) or a dependent child, and thus differences in W-2 earnings may not be attributable to any conduct of the employer.

Accordingly, the aggregated, summary data required by SB 1284 could create the false impression of pay discrimination where none exists. Indeed, the Senate Judiciary Committee has acknowledged that the data reports mandated by SB 1284 would not “identify the degree to which any such gaps can be explained by some of the legally permissible bona fide factors for disparate pay.” Nevertheless, the Committee concluded that the data collected could be “informative and helpful,” opining that even bona fide factors that differentiate employees—such as experience, education or training—may “themselves [be] influenced by underlying discrimination” and that companies might increase their proactive efforts to root out pay discrimination if subject to a new reporting requirement. But the opposite may well prove true. Because the reporting categories do not group together similarly situated employees, employers might find themselves caught up in the tension between evaluating pay according to legally relevant standards, or according to the new broad-brush mandate SB 1284 would impose.

In addition to these substantive defects, the bill could create the risk of widespread, out-of-context disclosure and dissemination of the reported data. The bill does provide that pay data would be considered confidential and not generally subject to disclosure pursuant to the California Public Records Act. These confidentiality requirements would no longer apply, however, if an action “involving such information” were instituted pursuant to the Fair Employment and Housing Act (FEHA) or the FPA. And the bill does not place any restriction on how DIR can use the data; the Division of Labor Standards Enforcement (DLSE), which is tasked with enforcing California’s Fair Pay Act, would presumably have access because it is an office within the DIR. The bill also requires employers to provide a copy of the report to the Department of Fair Employment and Housing (DFEH) upon request, and likewise does not limit how the DFEH can use the data. Notably, the DFEH has the authority to initiate a complaint or investigation under the FEHA, and the DLSE and DFEH have a written agreement to share information regarding pay matters “requiring joint investigation by the agencies” or where they believe that doing so would “assist in the investigation, resolution, and prosecution of [a] case.” Thus, it is possible that these pay data reports could be broadly used or publicized without any opportunity for employers to provide context for the raw numbers.

Governor Brown previously expressed concern regarding a similar pay data reporting bill, AB 1209, which would have applied to employers with 500 or more employees within the state of California. That bill passed both houses of the California legislature before Governor Brown vetoed it, explaining that “it is unclear that [AB 1209] as written, given its ambiguous wording, will provide data that will meaningfully contribute to efforts to close the gender wage gap” and that he was “worried that this ambiguity could be exploited to encourage more litigation than pay equity.”

It remains unclear whether Governor Brown or (depending on the timing of the bill’s legislative progress) his successor would sign AB 1284 if it reached the governor’s desk. Orrick will continue to monitor its progress and report on any meaningful developments.