New Expanded Fair Pay Protections

California has statutorily prohibited unequal pay on the basis of sex since 1949.  As a previous blog post explained, that law was amended in 2016 to formally change the standard for equal pay claims based on sex.  Instead of requiring equal pay for “equal” work, the statute now requires equal pay for “substantially similar work when viewed as a composite of skill, effort, and responsibility, performed under similar working conditions.”

Effective January 1, 2017, the protection of the California Fair Pay Act also applies to race and ethnicity, following Governor Jerry Brown’s signing of S.B. 1063, titled the “Wage and Equality Act of 2016.”  This statute provides another avenue for employees to bring pay fairness claims, but is not a massive change to the employer’s obligations, as discrimination in pay is already prohibited under the FEHA.

While disparities in pay based on sex, race, or ethnicity are prohibited, the Fair Pay Act specifically allows employees to be paid differently based on:

• A seniority system
• A merit system
• A system that measures earnings by quantity or quality of production
• A bona fide factor other than sex, race, or ethnicity; such as education, training, or experience. This factor shall apply only if the employer demonstrates that the factor is not based on or derived from a sex, race, or ethnicity-based differential in compensation, is job-related with respect to the position in question, and is consistent with a business necessity.  For purposes of this provision, “business necessity” means an overriding business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve.  This defense does not apply if the employee demonstrates that an alternative business practice exists that would serve the same business purposes without producing the wage differential.

Another amendment to the Fair Pay Act, A.B. 1676, also effective January 1, 2017, prohibits employers from relying solely on an employee’s prior salary to justify a disparity between the salaries of similarly situated employees.  Employers routinely consider a new hire’s previous salary as part of crafting a competitive package to attract the employee; however, as the Legislature noted, “When employers make salary decisions during the hiring process based on prospective employees’ prior salaries or require women to disclose their prior salaries during salary negotiations, women often end up at a sharp disadvantage and historical patterns of gender bias and discrimination repeat themselves, causing women to continue earning less than their male counterparts.”

Employers may continue to consider a new hire’s previous salary; however, it may not be the only justification for compensating that employee differently than an employee of a different sex, race, or ethnicity performing the same or substantially similar work.  This factor may be taken into consideration along with frequently related factors such as differences in experience, skill, or qualifications.  (See Green v. Par Pools, Inc. (2003) 111 Cal.App.4th 620, 629-30.)

Finally, the California Fair Pay Act may not be applicable to public agency employers.  The Fair Pay Act is part of the Labor Code, and courts have held that provisions of the Labor Code that are not made expressly applicable to public agencies do not apply.  (Johnson v. Arvin-Edison Water Storage Dist. (2009) 174 Cal.App.4th 729, 736; Division of Labor Law Enforcement v. El Camino Hospital Dist. (1970) 8. Cal.App.3d Supp.30, 34.)  As noted above, other statutes that are clearly applicable to public agency employers prohibit discrimination in pay.

Employers can protect themselves against claims under the Fair Pay Act by auditing their pay practices, reviewing and revising job descriptions, and ensuring that articulable justifications exist for any disparities between employees performing similar work.

Paul D. Knothe, Attorney in the Los Angeles office of Liebert Cassidy Whitmore, advises and represents clients in the areas of employment law and labor relations. He can be reached at pknothe@lcwlegal.com. 

This article was originally published in the Municipal Management Association of Northern California (MMANC)’s Municipal Magazine (January 2017)