Nine Key Labor Code Modifications Under California's Fair Pay Act

• Publication year: 2017
• Author: Jennifer Rubin and Audrey Nguyen

Nine Key Labor Code Modifications Under California's Fair Pay Act

Jennifer Rubin and Audrey Nguyen

Jennifer Rubin, a Partner in Mintz Levin's Employment, Labor and Benefits Practice, focuses her bi-coastal practice on meeting the increasingly complex employment needs of executives of public and private corporations. She leverages her twenty-seven years of experience as a trial lawyer to help clients craft business solutions to legal problems.

Audrey Nguyen recently joined Mintz Levin's Employment, Labor & Benefits Practice, and supports that practice with respect to counseling, employment litigation, and other regulatory matters.

California's Fair Pay Act (CFPA), which became effective on January 1, 2016, is one of the broadest statutes addressing wage discrimination in the country.¹ It prohibits employers of all sizes from paying an employee wages less than those paid to member(s) of the opposite sex who perform "substantially similar" work.² It also prohibits employers from using sex—and, as a result of more recent amendments, race, ethnicity, and previous wage history—as a basis for wage disparities in the work-place.³

Before the CFPA, California, like the Federal government, already prohibited discrimination and disparate pay based on sex, through the California Fair Employment and Housing Act.⁴ However, the CFPA, which amends California Labor Code section 1197.5, takes those prohibitions even further. It seeks to address the gender wage gap by modifying existing laws in nine key ways:

1. Establishes "Substantially Similar" Standard - The standard is now "substantially similar work" rather than "equal work";
2. Prohibits Reliance on Race and Ethnicity - Employers are now specifically prohibited from basing a wage differential on race or ethnicity;
3. Shifts Burden to Employers - Employers now have the burden to show that the factor(s) purportedly reasonably relied upon to set a wage constituted a "business necessity";
4. Eliminates "Same Establishment" Standard;
5. Limits Use of Wage History in Determining Salary - Employers are not permitted to justify wage differentials based solely on individuals' past earning history;
6. Encourages Wage Disclosure - Employers may not prohibit employees from disclosing their wages, inquiring about others' wages, or discussing others' wages;
7. Extends Recordkeeping Requirements - Employers are required to maintain information on skill, effort, responsibility, and working conditions for a period of three years;
8. Authorizes Civil Actions - Employees are authorized to bring a civil action against employers for violations; and
9. Prohibits Retaliation - Employers are prohibited from firing or otherwise retaliating against employees who seek to enforce the section, and employees are authorized to bring civil action against employers for violations.

1. "Substantially Similar"

Prior to the CFPA, Labor Code section 1197.5 had been virtually identical to federal law in requiring equal pay for "equal work" for jobs in the "same establishment," unless excused for specifically identified reasons. The CFPA amended section 1197.5 to prohibit employers from paying lower wages to employees of different sexes doing "substantially similar work when viewed as a composite of skill, effort, and responsibility."

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If there is a wage differential, California employers must now demonstrate that specific, "reasonably applied" factors account for the entire wage differential.

Importantly, what the CFPA does not do is 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 sexes, races, or ethnicities is entirely based upon one or more of the permitted criteria.⁵

The "substantially similar" standard is a key concept, but poses a large interpretation problem due to its vagueness. The statute indicates that the concept of "substantially similar" is assessed by a composite of "skill, effort, and responsibility."⁶ Without additional guidance by California's regulatory agencies, it is difficult to assess whether the standard is more or less broad than "similarly situated," a standard used both by the Federal Civil Rights Act and California's Fair Employment and Housing Act.⁷ It does not bode well for the future clarity of "substantially similar" that courts around the country currently assess the term "similarly situated" differently.⁸ What is clear, however, is that "substantial" is broader than "equal," thus permitting employees to draw from a larger pool of employees in making comparisons.

2. Race and Ethnicity

The CFPA now requires employers to demonstrate that reasonably applied factors account for the entire pay differential between similarly situated employees of different races or ethnicities, as well as different genders.⁹

3. Bona Fide Factors

As discussed above, if there is a wage differential between employees of different sexes, races, or ethnicities performing "substantially similar" work, the burden shifts to the employer to prove that "reasonably applied" factors account for the entire wage differential.¹⁰ These factors include:

• "A seniority system;
• A merit system;
• A system that measures quality or quantity of production; or
• A bona fide factor other than sex, race or...