California’s Fair Pay Act

Last month, Governor Brown signed into law SB 358, the California Fair Pay Act, aimed at eliminating gender-based wage discrimination. Previously, establishing a claim of “equal pay for equal work” was difficult because the term “equal” could be interpreted to allow minor differences in job duties to justify gender-based pay differentials. The new Act establishes a standard of “substantially similar work,” defined as a combination of skill, effort, responsibility and working conditions. So, two employees with different job titles and daily tasks could be seen as performing substantially similar work requiring equal pay.

The Act provides exceptions for equal pay including: 1) a seniority system, 2) a merit system, 3) a system that measures earnings by quantity or quality of production, and 4) a bona fide factor other than sex such as education, training, or experience. While the first three exceptions can be defined and measured by an employer’s policies, the fourth leaves room for subjectivity that may create risk. SB 358 goes further by requiring that the reason for the differential must be job-related and consistent with business necessity. This means an employer cannot base a pay gap on factors that are not directly connected to success on the job.

Employees are also protected against discipline or retaliation for discussing their own wages or inquiring about the wages of others.

Employers can take a number of steps to ensure pay equity among employees and demonstrate compliance with the new law:

• Review all job descriptions to ensure the job duties, working conditions, and qualifications are accurate and up-to-date.
• Audit employees’ pay rates to identify potential differences between employees who perform “substantially similar work.” (Legal counsel may be necessary for some analyses.)
• Create a salary structure that defines pay ranges for specific positions or employee classifications using education, experience, skill level and other job-related factors to justify pay levels.
• Remove any company policies that prohibit employees from discussing or disclosing their wages.