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The Meaning of the New Fair Pay Act

By Dan Eaton The Daily Transcript

California law, like federal law, has long required that men and women receive equal pay for equal work. State law also has prohibited employers from disciplining employees for talking about their wages. On Tuesday, Gov. Jerry Brown signed into law the California Fair Pay Act (Senate Bill 358), designed to strengthen those laws with the intention of bringing about true gender wage equality. The law goes into effect Jan. 1, 2016. But what does the new law do that the existing laws don't? And what does this new law mean to California employers and employees?

It is important first to acknowledge that there is debate over whether this new law addresses a real problem. Many consider the gender wage gap a myth, attributing difference in pay to such gender-neutral variables as differences in the number of hours men and women work and to women tending to select professions that pay less on average than those chosen by men. That is why a capital management firm CEO Sarah Ketterer called the measure “economically foolish” in an essay published in the Wall Street Journal just days before Brown signed it. (“The 'Wage Gap' Myth That Won't Die,” Sept. 30).

But the Legislature declared in its findings that “A woman working full time year round earned an average of 84 cents to every dollar a man earned” and attributes much of that to gender. By signing the new law, Brown has resolved that debate in California.

So what are the key changes the law made?

The Fair Pay Act generally prohibits an employer from paying any employee a lower wage rate than that paid to an employee of the opposite sex “for substantially similar work.” Existing law required that the work be “equal.”

Where there are such differences, the employer may avoid liability under the new law only if it can demonstrate that any differences are justified by: a seniority system; a merit system; a system that measures earnings by “quantity or quality of production”; or a “bona fide factor other than sex, such as education, training, or experience.” Such a factor is considered “bona fide” only if the factor fulfills an “overriding legitimate business purpose” and only then if the employee is unable to prove that a different practice would serve the same business purpose without producing the wage gap. Existing law, by contrast, placed the burden of showing that the wage differences were infected by gender bias on the employee.

Under the new law, the gender-neutral factors on which an employer relies must account for the entire wage gap. It will no longer be enough for a gender neutral factor to be a substantial reason for gaps in pay.

But how are workers supposed to find out whether the sexes are paid differently in their workplace? Many consider it bad form to discuss how much they are paid or, worse, ask others how much they are paid. Others fear retaliation if they discuss such things in their workplace, even though existing California law prohibits such retaliation.

The new law expands the protections of existing law in this area. While existing law prohibits retaliation against an employee for disclosing his or her own wages, the new law also will protect an employee who discusses the wages of others, asks about another employee's wages, or encourages others to do so. The new law also, however, expressly authorizes an employer not to share information about the wages of other employees with an inquiring employee.

This law will make all employers and their counsel take a close look, as a protective measure, at how employees are paid across job classifications and throughout the company and make pay adjustments where warranted. An employee who feels she or he - the law doesn't apply only to women who are paid unequally - has a sense that an employer is violating this law also will have some questions about how the new law will work.

For example, how does one determine whether one job is “substantially similar” to another and what resources legitimately may be consulted to make that determination? What are the features of a lawful system that measures earnings by a necessarily subjective “quality of production” that results in a difference in pay between men and women? How hard will it be for an employer to show that a gender-neutral factor such as differences in education or experience accounts for all of the difference in pay between one job and a “substantially similar” job? For that matter, what will be required for an employee to show that a different compensation practice would serve the same stated purpose as such a gender-neutral practice without producing wage gaps by gender?

California is about to take the not unusual step of embarking on a new legal frontier with no road map. The journey will begin in an election year in which “wage inequality” is expected to be a hot topic. The stated destination is clear enough: gender pay equity. But will the new law's intervention in the workings of the labor marketplace work as intended? Or will the new law prove to be too much - or too little?

Dan Eaton is a partner with the San Diego law firm of Seltzer Caplan McMahon Vitek where his practice focuses on defending and advising employers. He also is an instructor at the San Diego State University College of Business Administration where he teaches classes in business ethics and employment law.  Follow him on Twitter @DanEatonlaw.  The views expressed are his own.

October 7th, 2015  |  Categories: Employment Law