California Bolsters Pay Parity Laws on the Grounds of Race, Ethnicity, and Gender

By Anne Cherry Barnett

With some of the strongest equal pay laws in the country, California recently expanded its equal pay protections with the passage of two new bills which will take effect on January 1, 2017:  (1) The Wage Equality Act of 2016 (California SB 1063) and (2) AB 1676, Concerning the use of prior salary to justify wage disparities.

(1)  Wage Equality Act of 2016—California SB 1063

California’s Fair Pay Act (CFPA) provides that employers must not pay employees of the opposite sex less wages for “substantially similar work, when viewed as a composite of skill, effort and responsibility and performed under similar working conditions.” Effective January 1, 2017, Senate Bill 1063, also known as the “Wage Equality Act of 2016,” will extend the equal pay requirements of the Fair Pay Act amendments to Labor Code §1197.5 to cover race and ethnicity, in addition to gender.  

With these recent amendments, employers must not compensate employees at a rate less than that paid to employees of a different race or ethnicity for “substantially similar work.” These new amendments supplement existing protections under the Fair Employment and Housing Act (FEHA) for potential claims of discrimination for race and ethnicity. However, similar to last year’s amendments to the CFPA, employers may utilize a successful defense if they can establish that any wage differential is based upon a seniority system, merit system, or system that measures earnings by quantity or quality of production, or bona fide factor other than sex, race or ethnicity, such as education, training or experience.  Employers relying on a bona fide factor other than sex, race or ethnicity must demonstrate that the factor is: (1) not derived from a differential in compensation based on the protected category; (2) job related to the position at issue and; (3) consistent with “business necessity.” The employer has the burden of proof, so employers should retain statistics and give thought to how they will prove and can justify pay differentials, both on an individual and systemic basis.

(2)  AB 1676—California’s Twist on Salary Inquiries

Not for lack of trying, California has not been able to match Massachusetts’s recent law prohibiting employers from inquiring as to an applicant’s salary history. In fact, AB 1017, a predecessor bill to AB 1676, attempted to prohibit such inquiries only to be vetoed by California Governor Brown last year on the grounds that the bill prohibited employers from obtaining relevant information with “little evidence” that it would result in more equitable compensation. Accordingly, as a compromise, the Legislature passed AB 1676 which amends Labor Code §1197.5 to prohibit employers from using prior salary as the sole justification for a current pay disparity. While in California, employers can technically still request salary history information from applicants, they should tread carefully and err on the side of open ended questions to the applicant about their salary expectations as opposed to history. Employers who utilize a nationwide application form will still need to review in light of the recent prohibition in Massachusetts.
Next Steps

With the enactment of the Fair Pay Act and the anticipated rise in equal pay litigation in California, many employers have been conducting reviews of their compensation structures and written policies to ensure compliance. Such reviews should be continued and these additional amendments to the Fair Pay Act should also be considered for compliance as these new laws go into effect on January 1, 2017. Companies that have already completed equal pay audits and/or reviews regarding gender should now review their policies and practices with a focus on race and ethnicity to ensure compliance and that any wage disparities are justified under these newest amendments to the CFPA. Employers should conduct these reviews with the assistance of counsel in order to protect the results under the attorney work product doctrine and attorney client privilege.