Move over 50 Shades of Grey, there’s a new grey in town—the California Fair Pay Act. Just as the best-selling novel 50 Shades of Grey brought to light the controversial interplay between women and men in society, the California Legislature has revived the provocative dialogue regarding the inequities in compensation received by men and women in the workplace, and attempted to redress this disparity by imposing more stringent payment standards on employers.
At first glance, the Fair Pay Act, which California approved on October 6, 2015, conjures up the iconic images of Rosie the Riveter and equal pay activists like Lilly Ledbetter. However, its impact on employers may be less than empowering. The Fair Pay Act creates a new grey area in equal pay laws, requiring employers to take a closer look at how they compensate their female and male employees. This article will address the effect these provisions will have on employers, employees, and future legislation, and the best ways to avoid pay equity claims while the law’s kinks are ironed out.
The Statistics
Given the strides made in gender equality in the past decades, it is surprising that the wage gap is still an issue today. Although pay inequities between female and male workers are addressed in the federal Equal Pay Act, state anti-discrimination laws, and various other labor laws, these laws have limitations. When considering the history of equal pay legislation, the remaining wage gap makes sense. California Labor Code section 1197.5 dates to 1949 and was initially enacted to redress the segregation of women in the work force—namely their occupation of undervalued “pink collar” jobs, such as teaching, nursing, and childcare. Its federal counterpart, the Equal Pay Act, was established in 1963, primarily out of concern for the weaker bargaining position of women in the workplace and to combat antiquated wage structures. Gender equality has come a long way since the 50s and 60s, but lawmakers recognize the need for a statutory makeover.
According to the California Legislature, the disparity in wages has not been remedied by existing law. The U.S. Census Bureau’s 2015 Report estimates that women in California who are working full-time earn, on average, 84 cents for every dollar that men earn, while the national average is only 79 cents to the dollar. This wage gap was even wider for women of color. The Act’s proponents noted that collectively, women working full-time in California lose more than $33 million each year due to the gender wage gap. While this average is up from previous years (61 cents for every dollar in 1960 and 70 cents for every dollar in 1990), the Act’s advocates insist that additional steps are needed to further bridge this gap.
The Law, the New Open-Door Policy, and the Fortification of Retaliation Claims
The Fair Pay Act includes three provisions that significantly impact employers. First, it amends existing California Labor Code section 1197.5 to require employers to pay employees the same compensation for substantially similar work, even if their titles and work locations differ. If the job requires similar skill, effort, responsibility, and working conditions, then the pay must be the same. This is an increased standard from previous law, which only required the same compensation for the same type of work.
Second, the Fair Pay Act explicitly permits employees to inquire about the wages of other employees and discuss their own wages. This creates a new open-door policy inviting inquiry from employees as to the amount and terms of compensation received by their co-workers. However, employers are not obligated to disclose wages. The California Legislature included this provision as it found that not only was the actual amount of money being paid to women contributing to the wage gap, but “pay secrecy” was also contributing to this gap. Essentially, the fact that female workers were unaware that their male colleagues were paid more perpetuated the gap.
Third, the Fair Pay Act makes it easier for employees to assert claims of retaliation for any adverse employment action taken as a result of an inquiry into their wages or the wages of their co-workers. Under previous law, it was difficult for an employee to establish a retaliation claim, but as amended, Labor Code section 1197.5 expressly authorizes an employee to assert claims of retaliation and discrimination in relation to wages.
The Grey Area
Reminiscent of the term “substantially limits” in the Americans with Disabilities Act, which suffered continuous litigation before it was further defined by the courts (a definition that manystill consider up for grabs), the Fair Pay Act’s “substantially similar” requirement is a term of art, which will likely be defined only by years of litigation. Employers are faced with the conundrum of determining what jobs entail substantially similar work as to require the same amount of pay. The overlap of work that could be considered substantially similar creates a grey area that is difficult to clarify.
Employers can take some solace in the safe harbors carved into the Fair Pay Act. Employers may still pay men more than women if the wage differential is based on: (1) a seniority system, (2) a merit system, (3) a production/quality-based system, or (4) a bona fide factor other than sex, such as education or experience. However, these safe harbors may lead to rough seas ahead as they require a more fact-intensive inquiry regarding the reason for a pay disparity. When does education trump gender? How senior does a male co-worker need to be to justify a wage differential? How does an employer legally measure earnings by the quality of work? All of these inquiries are necessarily implicated by the language of the Fair Pay Act.
Further, the employer must be able to establish that one or more of these approved factors is the sole reason for the wage differential. If an employer is paying a male employee more for substantially similar work being performed by his female counterpart, the employer better have a good explanation for this gap. These are all considerations that should be taken into account by employers when creating and revising their compensation procedures and practices.
The Best Ways to Avoid Pay Equity Claims
The revival of the pay equity debate is not limited to California and has caught fire on the state and federal level. Connecticut recently enacted legislation to specifically address the issue of pay secrecy, by making it unlawful for employers to ban their employees from disclosing their own compensation or inquiring about a colleague’s wages. Similarly, New York now allows employees to discuss their wages with one another without the threat of retaliation. The Paycheck Fairness Act is proposed federal legislation that would add to the procedural protections of the Equal Pay Act by prohibiting employers from retaliating against employees for sharing wage information and placing an affirmative obligation on employers to justify the reasons why a female employee is paid less than her male counterpart. This Act additionally would create programs to train women in ways to better negotiate their wages. Currently, this legislation is blocked by lawmakers.
Until the parameters of the Fair Pay Act and other related statutes are further defined and the impact of these laws is better understood, employers have a number of ways to avoid pay equity claims:
- Audit job descriptions and compensation methods: The best way to ensure compliance with equal pay laws is to understand the skills and job responsibilities required for any given position within the corporate structure. If a janitor in San Diego performs the same skills and duties as a window washer in San Francisco, in the absence of one of the enumerated bona fide factors, they should be compensated the same regardless of their gender.
- Document reasons for wage disparity: Given the affirmative duty placed on an employer to justify reasons for any disparity in pay, any reasons for a wage differential between substantially similar positions must be well-documented. Keeping thorough documentation is key.
- Do not discourage conversation: As recent laws are targeted at eradicating pay secrecy in the workplace, employers should do nothing to discourage discussions among co-workers regarding compensation.
- Educate management personnel: The more managers, supervisors and C-suite executives know about the recent trends in equal pay laws, the better equipped they will be to address questions, ensure compliance and insulate the employer from liability.
- Maintain records: Under the Fair Pay Act, employers are now required to maintain records for three years, as opposed to the two-year period that was required previously. Record retention is good practice for employers regardless of the state in which they operate.
To avoid becoming unwillingly wrapped up in the wage gap controversy, follow these five steps and monitor developments in equal pay laws. Stay tuned to see how it all plays out.
About the Author
Ashley A. Halberda is an attorney with Carothers DiSante & Freudenberger LLP in Orange County, CA, focusing her practice in California labor and employment law. She can be reached at 949.622.1661 or ahalberda@cdflaborlaw.com.