The California legislature has amended California’s Fair Pay Act to close the pay gap between men and women. While this law looks tough for employers in California, many companies already have embraced pay equity as an opportunity. Touting pay equity appears to be a new trend as demonstrated by the actions of The Gap, Go Daddy, and  Diversity and inclusion experts find that pay audits lead to standardization and increased equality.

Here’s the bitter truth: The amendment to the California Fair Pay Act makes it among the strongest statutes in the country requiring pay equity, and charts new ground, making this area ripe for new litigation against unwary employers. It does the following:

  1. Broadens the comparators for pay equity, making it such that equal pay must be provided to those performing “substantially similar work” rather than “equal” work.
  2. Expressly places the burden of proof on the employer by requiring they show that any pay difference is based on a legitimate factor such as a seniority system, merit system, a system that measures earnings based on quantity or quality of production, or other bona fide factors aside from sex such as education, training or experience that serve a legitimate business purpose.  Further, employers must demonstrate that any pay differential is attributed 100% to legitimate factors. Moreover, even when an employer meets this burden, an employee may then introduce an “alternative business practice” that would serve the same purpose without resulting in a difference in pay.
  3. Increases the required record keeping period for maintaining records reflecting wage rates, job classifications and other documents used to determine compensation from two years to three years.
  4. Encourages employees to share wage information by permitting them to actively inquire and disclose their own wages as well as support other employees to do the same, without fear of reprisal.
  5. Adds a separate cause of action for retaliation for any employee who is terminated, discriminated or retaliated against for exercising his or her right under the amended law.

Turning lemons into lemonade: Review compensation practices to determine if they are in defensible compliance with these new requirements by doing the following:

  • Perform a comprehensive job classification and compensation analysis to identify any pay discrepancies that could lead to a claim.
  • Review employee policies and procedures, including but not limited to job descriptions, employee handbooks, performance review processes, and salary and bonus adjustment processes for compliance with the amended law.
  • Train employees involved with or responsible for compensation‑related decisions about the new requirements for equal pay and the permissible bona fide factors that may be used in the decision making process. Consider training all managers about unconscious bias in hiring and performance evaluations that may result in unequal pay scales that are indefensible under the new law.
  • Train managers about employees’ rights to inquire about and discuss compensation and their right to support other employees in doing the same, and also train managers regarding management’s obligations to prevent retaliation against employees for exercising their rights under the amended law, and to continue to ensure employer compliance with privacy laws.
  • Maintain records to support the use of any bona fide factors such as education, training, geography or experience in compensation‑related decisions.
  • Revise record retention protocols to meet the amended Act’s three‑year requirement.

Here’s the payoff: By achieving pay equity, you too can make headlines touting your pay equity and reap the benefits by attracting and retaining talented employees.

Our firm has the expertise to help you through this process, and can also protect any analysis of current pay practices performed under the attorney‑client and/or attorney work product privilege. If you have questions about how to demonstrate compliance with the amendment to California’s Fair Pay Act, please contact Gary Gansle, Karen Wentzel, or Michael Kelly at Squire Patton Boggs.