One of the most significant changes in the law in 2016 is Senate Bill 358, known as the "Fair Pay Act." Effective January 1, 2016, the Act amends Labor Code section 1197.5 to attempt to ensure California employees can demand wages equal to those of opposite sex employees doing “substantially similar work.”
Prior to the amendment, section 1197.5 required that employers give men and women “equal pay” for “equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions.” The statute’s new language is broader in that it requires equal pay for “substantially similar work.” Whether two employees are performing “substantially similar work” will not depend on their respective titles, but instead on “a composite of skill, effort, and responsibility.”
Section 1197.5 previously provided several factors that an employer may consider and use as justification for paying one employee more than an opposite sex employee doing “substantially similar work.” Those factors included seniority systems, merit systems, and systems that measure earnings by quantity or quality of production.
The Act, however, changes how employers may invoke these factors. Employers must be prepared to show the factor is applied reasonably and accounts for the entire pay gap. Where the difference in pay is based on a “bona fide factor” listed in the law, such as education, the employer must show the “bona fide factor” serves a business necessity. Even if an employer meets these requirements, an employee may overcome the employer's argument by showing there is an alternative business practice the employer could use that would achieve the given business purpose without creating a wage gap.
This Act will make businesses substantially more vulnerable to discrimination lawsuits, due to the broad use of the phrase "substantially similar work" and the decreased ability of employers to rely on traditional non-discriminatory factors to justify wage differential. In light of this increased exposure, employers should take precautions to minimize potential liability. For instance, employers should thoroughly document the basis for setting salaries and raises, using the factors permissible under the statute. Employers should also perform a pro-active review to determine whether any wage differentials exist that cannot be explained by accepted factors, and correct the disparity if necessary.
