Employer Alert: California Pay Equity Task Force Issues Guidance on Fair Pay Act

The California Pay Equity Task Force recently published guidance and approved resources for employer compliance with the state’s equal-pay laws. As we continue to track developments in this arena and await further interpretation from the courts, employers should be aware of this comprehensive and illustrative guidance in reviewing their hiring and compensation practices.

Following enactment of California’s Fair Pay Act (SB 385, Jackson; D-Santa Barbara), the California Commission on the Status of Women and Girls launched the Task Force in 2016 as a statewide, multi-stakeholder effort to engage diverse interests and facilitate meaningful discussion on recent legislative revisions to California law. Further details on the Task Force—including meeting minutes and a list of its membership (ranging from employee- and employer-advocates, experts, policymakers, state legislators, the California Labor Commissioner, and the Director of the California Department of Fair Employment and Housing)—are available here. This update from the Task Force follows an October 2017 acknowledgment from Governor Jerry Brown regarding “expected recommendations coming out of the Task Force [to] assist companies around the state with assessing their current wage practices.”

The Task Force focuses on providing an overview of current California law and addresses key issues related to employees, unions, and employers alike. Employers may be particularly interested in the following tools that provide a Step-by-Step Wage Rate Evaluation Template (geared toward assessing whether employees are performing substantially similar work) and Guidance for Employers on Starting Compensation.

Step-by-Step Wage Rate Evaluation Template for Employers

California law generally requires employers to pay the same wage rate to employees who perform substantially similar work. While determining whether employees are performing “substantially similar work” is a nuanced and employer- and position-specific process, the Task Force recommends that employers focus on the “overall job content and actual duties performed” to begin this assessment. Employers are also encouraged to begin by “group[ing] together those positions that require the same skill, effort and responsibility (when viewed as a composite) based on function (e.g., HR, Legal, Marketing, etc.) and role from entry level to VP (e.g., assistant, director, vice president).”   However, this comparison is only a starting point, and the Task Force further suggests that employers ask the following questions to ensure accuracy in grouping positions:

  • “Is the position fungible? Can you move someone from one position to another?”
  • “Does this position involve the same depth, or breadth of scope? Does the role require the same skill, effort and responsibility?”
  • Is “relying on ‘job family’ … consistent with whether the job requires the same skill, effort, and responsibility when viewed as a composite and performed under similar working conditions”?

In developing this Template, the Task Force reviewed a broad spectrum of federal authority and provides illustrative comparisons and examples, as referenced in endnotes throughout the Template. It appears this approach for evaluating proper comparators is consistent with the approach dictated by Title VII, which may serve as a source of instructive precedent as courts begin to apply the new California law.

In particular, the Template includes specific benchmarks for identifying comparators

  • “Skill is measured by factors such as the experience, ability, education, and training required to perform a job.”
  • “Effort is the amount of physical or mental exertion needed to perform a job. Effort may be exerted by two employees in a different way, but may still be similar.”
  • “Responsibility is the degree of accountability required in performing a job.”

The Template also provides guidance and examples related to assessing appropriate affirmative defenses under California law, including a discussion on the validity of “a seniority system, a merit system, a system that measures earning by quantity or quality of production” and other bona fide factors that are “consistent with a business necessity and is job related.” In discussing these “other bona fide factors” the Task Force identifies “education, experience, certifications, ability, seniority, performance, skill, training, and geography” as a non-exhaustive list.

Guidance for Employers on Starting Compensation

The Task Force also provides an overview of California law pursuant to California’s prohibition on requesting prior salary information under Labor Code section 432.3(e) and sets forth “suggested practices for employers in setting starting salaries.” Noting that each organization is different and that there is no single approach, the Guidance includes a number of factors employers may consider in developing a compensation philosophy to ensure employees are paid in a fair and nondiscriminatory manner. These considerations include rewarding employees for job performance and their contribution to the company, as well as gearing compensation toward employee-retention and motivation, market competitiveness, budget, and profitability.

The Guidance also includes a number of recommendations for how employers may communicate with prospective employees without asking for prior salary information, including:

  • “Ask the applicant, ‘What are your salary expectations?’ and ask why they believe their qualifications are in line with their expectations.”
  • “If the applicant mentions that he or she would be forfeiting deferred equity by leaving their current job, focus back on the applicant’s expectations: ‘What does that mean in terms of your compensation expectations? What will it take for you to take a job at this organization?’”
  • “Be ready to discuss your pay scale (i.e. salary range) for the specific position for which you are considering the applicant and for which the applicant is qualified, whether that be an internal or external applicant. . . . If you do not already have a pay scale for the job, be prepared to provide the range of what you are prepared to pay for the position. If there is only one static rate as opposed to a range, provide the rate.”
  • “Be prepared to discuss your compensation philosophy, which may help guide the applicant in setting their salary expectations and explain their basis for them.”
  • “Be able to clearly define the ‘total’ compensation being offered, especially if there are performance-based bonuses or rewards. This should also include a discussion of what other non-financial incentives the organization offers.”

Employers may consider reviewing their hiring and compensation practices with these newly issued recommendations in mind. Employers should also continue to monitor legislative developments related to California’s equal-pay law, which remains one of the most protective in the nation. As recently reported, the state recently enacted new legislation updating the prohibition on employers inquiring into applicant prior-salary information and the requirements for providing a pay scale for positions following an applicant’s reasonable request.