California Expands Gender-Based Wage Protections by Adopting “Substantially Similar” Test and Requiring Employers to Justify Wage Discrepancies

The California Fair Pay Act, which goes into effect on January 1, 2016, prohibits employers from paying employees less than the rate paid to members of the opposite sex who perform “substantially similar” work.  Although current laws prohibit wage discrimination within the same establishment for the same work, the new law expands the geographic scope to include all of an employer’s locations (even outside of California) and expands the scope to include “substantially similar” work, not just “equal work.”  An example, as offered by State Senator Hannah-Beth Jackson, is a female housekeeper who cleans hotel rooms at one location may challenge the higher wages paid to male janitors who clean the lobby and banquet halls at another location.  We summarize the law below.

What the Law Does:

Mechanically, the law does three things:

• It makes it illegal for an employer to “pay any of its employees at wage rates less than the rates paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.”
• It prohibits employers from retaliating against employees who disclose their own wages, discuss the wages of others, inquire about another employee’s wages, or aid or encourage another employee to exercise his or her rights under the new law. Note: the new law does not require employers to disclose the wages of other employees to inquiring employees.
• It increases recordkeeping requirements regarding wage rates, job classifications and other terms of employment to three years from two.

What the Law Does Not Do:

The law does not mandate that employers pay everyone the same for substantially similar work.  It does, however, shift the burden to employers to prove that any discrepancy between wages paid to different genders is based upon one or more of the following:

• 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.

The Law’s Effect:

While the new act unquestionably exposes employers to more litigation, it is unlikely to rock the workplace like other recent California legislation, such as paid sick leave.  The new law makes clear that employer policies may not prohibit employees from sharing compensation or wage data.  And it underscores the importance of training human resources professionals and supervisors in compensation practices .

Action items:

• Consider implementing a training session for your human resources and management personnel involved in setting and modifying compensation.
• Review your employee confidentiality policies to ensure any prohibition regarding communications about wages and wage rates are removed.
• Revisit your records retention policies to ensure they comply with the new three-year retention requirement.

As always, consult your California employment lawyer if you have specific questions about how this new act impacts your business.

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