October 13, 2015

 Compliance Matters ™
Governor Expands California's Equal Pay Act Protections 

Governor Brown has just signed a spate of new employment laws that are sure to pave the way for many new employee lawsuits. We will devote this and the next several issues of Compliance Matters to tell you what you need to know about these new laws.

At the top of this list of lawsuit creators is the bill which amends and strengthens California's Equal Pay Act. The new law goes into effect on January 1, 2016.

Background.   California's Equal Pay Act is our state law version of a federal law mandating gender wage parity. Generally, these laws prohibit an employer from paying an employee less than what it is paying to employees of the opposite sex for "equal work" (meaning jobs which require equal skill, effort, and responsibility and performed under similar working conditions in the same establishment).

Generally, gender wage differentials (for "equal work" in the same establishment) can only be legally justified under existing law where the company can demonstrate that the wage difference is due to either: (i) a seniority system, (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) by a differential based on any bona fide factor other than sex.

New law.  Under the new version of the law, the term "equal" work is replaced by the term "substantially similar" work. So, employers are now required to pay the same to employees of the opposite sex when performing "substantially similar work" when viewed as a composite of skill, effort and responsibility, and performed under similar working conditions. If disagreements occur as to what all that means, juries will decide whether two jobs are indeed "substantially similar".

Notably, the new law eliminated the requirement that the work in question be performed at the same location. As a practical matter, this means that an employee alleging discrimination may compare him/herself to a much larger pool of so-called comparators. Using this new legal standard, an  employee suing the company for gender-based pay discrimination may  now compare himself/herself with employees holding different job titles and with different responsibilities who are working in different locations of the company.

The new law explains that if a wage differential does exist, the employer will not be in violation of the law only if it is based upon: (i) a seniority system; (ii) a merit system; (iii) a system which measure earnings by quantity or quality of production; or (iv) a bona fide factor other than sex, such as education, training or experience.

While the last of these factors appears to provide a welcome defense to employers, the new law makes it clear that the "bona fide factor other than sex" defense is only available to the employer if the employer can demonstrate that the factor meets all of the following conditions: (1) it is not based on or derived from a sex-based differential in compensation; (2) is job-related with respect to the position in question; and (3) is consistent with business necessity.

In regard the first item, employers need to know that a deep dive will be made into any employer claim that the wage difference is justified by "the market" or linked to the prior earnings history of the comparators. That's because the legislators believe that the market may be inherently biased.

Even if an employer can meet this heavy burden, an employee can still prove a violation of the new law if the employee can demonstrate that an alternative business practice exists which would serve the same business purpose without producing the wage differential.

With this new framework fraught with ambiguity, commentators predict a veritable tsunami of new equal pay litigation. Chief among the very common sense questions employers are asking:  
  • How can I be sure that different jobs (at different locations) won't be deemed "substantially similar" enough to require equal pay? 
  • Can a company safely peg pay to the market or what a new hire was earning in a previous position? 
  • How similar does the job have to be to be deemed "substantially similar" and what factors will be used to make that determination?  
  • What does it take for an employer to justify a pay difference under the guise of it being "job related" and "consistent with business necessity"?
Many legislators felt that the existing wage disparity was due, in part, because there was very little transparency in the workplace when it comes to wages. To change all that, the new law encourages employees to talk openly about their wages and, thus, foment pressure for their companies to restructure wages accordingly.

To that end, the law expands protections currently provided to employees for disclosing or discussing the amount of their wages. The new law expressly prohibits an employer from discriminating or retaliating against any employee who seeks to enforce the provisions of the new law and further makes clear that an employer may not prohibit an employee from disclosing the employee's own wages, discussing the wages of others, inquiring about another employee's wages, or aiding or encouraging any other employee to exercise his or her rights under the new law.

Many labor law experts believe that this aspect of the law is pre-empted by the existing federal union-management relations law known as the National Labor Relations Act. That law prohibits a state from enacting its own laws covering subjects that are already dealt with within the federal law.

What to do?  The major implication of this new law is that employers will now have a far greater burden to justify any wage differentials between employees of the opposite sex.  It will increase an employer's burden to defend wage decisions based on factors such as local market conditions, cost of living in the particular work location, prior pay history, subjective performance factors, the employer's current financial situation, the need to increase wages to retain certain key employees, and/or the need to pay higher wages to recruit a certain employee.

Job one is to proactively examine pay practices to determine whether gender inequities exist as between "substantially similar" positions, and if so, whether those differences can be legally justified based on one of the factors listed above. Coordination with an expert compensation consultant may be needed in more complex situations. When making this assessment, we suggest that you are expansive when evaluating which positions are "substantially similar".

The next step is to proactively address these differences, and do so before a legal claim is mounted unless you are comfortable that the wage difference can be explained under the available excuses permitted in the law.

One caution is that an analysis like this likely will have to be turned over to a lawyer suing the company unless it's conducted under the auspices of labor counsel and protected by the attorney-client or work product privileges.

Your contact at the Firm is able to assist you in reviewing your compensation structure and developing a strategy for coming into compliance with the new law in time for its January 1st effective date.

If you have any questions about the contents of this article, please contact any member of the Firm. We can be reached at (818) 508-3700, or online at www.brgslaw.com.

Richard S. Rosenberg
Katherine A. Hren
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