California Takes the Lead in Enhancing Protections for Gender Wage Equality & Wage Transparency

On October 6, 2015, Governor Brown signed into law Senate Bill (SB) 358, referred to as the Fair Pay Act.  The Act amends Labor Code Section 1197.5 to require that employers prove wage disparities among men and women are not gender based.  The Act also penalizes employers for preventing employees from discussing wages.  Finally, it increases recordkeeping requirements.  These requirements apply both to California employers and companies with employees in California.  Although the changes become effective January 1, 2016, employers need to prepare for the effects the changes will create.  Additionally, the Act may lead to increased litigation, because the hurdles are being lowered for plaintiffs to bring lawsuits.  It may also be a gateway for new class action lawsuits, because attorneys will likely be looking for systemic gender wage disparity within individual companies.

Employers Must Prove Their Wage Disparities are Not Gender-Based

California requires employees who perform substantially similar work (consisting of similar skill, effort, and responsibility – not title), under similar working conditions, be paid wages at the same rate as those of the opposite sex.  The amended regulations further require that, if wage disparities do exist, the employer, not the employee, must prove the disparities are not gender-based.  An employer can justify a wage disparity if it demonstrates that the reason for the unequal pay falls into one of the below factors:

1. A seniority system;
2. A merit system;
3. A system that measures earnings by quantity or quality of production; or
4. A bona fide factor other than sex, such as education, training, or experience.

The “bona fide factor” can only apply when an employer proves that the wage differential is not based upon gender, is related to the position in question, and is consistent with a business necessity.  However, if an employee shows that an alternative business practice exists for the same business purpose that does not produce a wage differential, the “bona fide factor” defense cannot be used.

Employees’ Rights to Discuss Wages

The amendment also specifically states that employers cannot prohibit employees from disclosing their own wages or discussing other employees’ wages.  Employers cannot terminate, discriminate, or retaliate against employees for any actions that would allow employees to freely discuss employee wages.  Should an employer violate this provision, the aggrieved employee could sue to be reinstated to their position and obtain reimbursement for lost wages and work benefits, plus interest.

Although an employer cannot prohibit employees from asking about others’ wages, neither the employer nor employees are obligated to disclose wage information.

Changes to Employment Recordkeeping

Currently, employers are required to maintain records of employee wages and wage rates, job classifications, and other terms and conditions of employment for two years.  Beginning January 1, 2016, SB 358 changes this recordkeeping requirement to three years.