In the wake of the Black Lives Matter movement and a nationwide push towards greater equality, transparency and accountability, the California legislature this week passed a bill (SB 973) that would establish at the state level the equivalent of the EEOC’s discontinued EEO-1 pay data collection form. If signed by Governor Newsom, SB 973 would require that starting March 31, 2021 every California employer with 100 or more employees who files a federal EEO-1 report must annually submit a pay data report to the California Department of Fair Employment and Housing (“DFEH”) that discloses: (1) the number of employees by race, ethnicity, and sex in each of ten broad job categories, and (2) the number of employees by race, ethnicity, and sex whose annual earnings (defined as W-2 income) fall within each of the pay bands used by the United States Bureau of Labor Statistics in the Occupational Employment Statistics survey. Employers with multiple establishments must submit a consolidated report, as well as a report for each establishment.
This bill not only impacts employers in California, but it may have further wide-ranging repercussions if other states follow California’s lead. Indeed, it is authored by Hannah Beth Jackson, who also authored California’s Fair Pay Act in 2015, the bill that significantly revised California’s Equal Pay Act (“EPA”), and quickly became a model for other states over the course of the past five years, as we have reported here, here, and here. The bill also is consistent with an ongoing push for greater pay transparency across the nation. For example, at the start of the COVID-19 lockdowns, and even prior to this summer’s socio-political events, activist shareholder groups kicked off the proxy season calling for increased pay data transparency through shareholder proposals and a “Gender Pay Scorecard” targeted at twenty specific companies, several of which responded by proactively adopting pay equity resolutions (we previously reported on similar activist proposals here). Additionally, this is not the first attempt by the California legislature to enact similar legislation—SB 171 died last year, and we reported on previous years’ legislative attempts here and here.
SB 973 is modeled after the federal EEO-1 pay data collection form, which has had a tumultuous history. After being approved during the Obama Administration, it later was stayed by the Office of Management and Budget, and eventually discontinued entirely by the EEOC. The federal EEO-1 form also was the subject of litigation, and at one point in time was reinstated by a federal court, notwithstanding harsh criticism regarding the utility of the data (on which we reported here, here, here, and here). The Office of Federal Contract Compliance Programs (“OFCCP”) also has rejected the data, stating that “it d[id] not expect to find significant utility” in it. At present, it remains to be seen how or whether the EEOC will use the data it collected when the revised EEO-1 form was in use. As we reported last July, the EEOC currently is funding an independent study by the National Academies of Sciences, Engineering, and Medicine’s Committee on National Statistics (CNSTAT) to evaluate pay data submitted by employers for fiscal years 2017 and 2018, both to inform potential next steps for the data, as well as to guide any potential future collections. Meanwhile, a group of workers’ advocacy groups last week sent a letter to CNSTAT urging it to assemble a panel of diverse experts to conduct the review of the pay data at issue.
While the fate of a pay data collection at the federal level remains up in the air, the problems with SB 973 echo those of the prior EEO-1 pay data collection form, including but not limited to the following:
- The summary data collection will lump together and purport to compare the incomes of all individuals in extremely broad categories (g., “Professionals”) without consideration of whether such individuals perform “substantially similar” work, which is the relevant comparator standard under the terms of the California EPA. In other words, the proposed pay collection is inconsistent with the legal standards contained in the California EPA, and therefore is not a meaningful way to assess for pay equity under the Act.
- The summary data collection also does not account for employer affirmative defenses, meaning job-related explanations that legally justify any pay differentials between employees of different races or sexes who perform similar work. Accordingly, reliance on it to assess for unlawful pay inequities can lead to both false positives and false negatives.
- The use of W-2 income data also is not a good metric for assessing pay equity. Among other things, it does not accurately reflect compensation earned for work performed in a given pay period, including because of the way certain types of non-traditional income, like stock options, are reported (or not reported).
Additionally, California employers should be mindful that if signed into law, the California DFEH will oversee the pay data collection—as opposed to the agency responsible for enforcing the California EPA (the Division of Labor Standards Enforcement (“DLSE”)). According to the bill, the DFEH—the agency responsible for enforcing California’s anti-discrimination laws—would coordinate enforcement with the DLSE (consistent with its existing directive to share information regarding alleged pay discrimination). Nevertheless, the DFEH would be chiefly responsible “to receive, investigate, conciliate, mediate, and prosecute complaints.” It also is noteworthy that at present, the DFEH’s chief counsel is Janette Wipper, a former plaintiffs’ class action lawyer and managing partner of Sanford Heisler’s San Francisco office, where she had regularly filed employment class actions and secured a $253 million jury award in a gender bias case against Novartis Pharmaceuticals. Ms. Wipper also previously served as Director of the OFCCP’s Pacific Region, where she garnered a reputation for pursuing aggressive investigations during compliance audits and making allegations of systemic compensation discrimination based on statistical analyses of pay data. Ms. Wipper also launched OFCCP enforcement actions against tech giants Google and Oracle, and most recently filed a pay discrimination complaint by the DFEH against Cisco.
We will continue to monitor developments with respect to SB 973, as well as any related legislation, on our Equal Pay Pulse. Stay tuned for updates.