On Tuesday, October 6, Governor Brown signed SB 358 (Jackson), the California Fair Pay Act. The Act, aimed at addressing the gender pay gap, will be the nation’s toughest. It seeks to ensure that women are paid equally for performing substantially similar work, and protects employees from retaliation for disclosing/discussing wages or seeking to enforce their rights. Credit goes to Senator Hannah-Beth Jackson (D-Santa Barbara) for authoring the bill, which had wide bipartisan support, and to co-sponsors Equal Rights Advocates, California Employment Lawyers Association, and Legal Aid Society-Employment Law Center.
The Fair Pay Act Strengthens Existing Law
California’s Equal Pay Act, Labor Code section 1197.5, was first enacted in 1949 and revised in 1985. It is similar to the federal Equal Pay Act of 1963. The Fair Pay Act bolsters the California Equal Pay Act in the following ways:
1. It provides for equal pay for “substantially similar work,” not just equal work in the same establishment.
This means that a woman need not hold the exact job as her male comparators to seek equal pay. Instead, the work needs to be “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.”
2. It eliminates loopholes and limits employers defenses when a wage differential is challenged.
Previously, the following four defenses were permitted:
- A seniority system.
- A merit system.
- A system that measures earnings by quantity or quality of production.
- A differential based on any bona fide factor other than sex.
This fourth category was vague and subject to abuse. The Fair Pay Act revised the fourth category, narrowing it as follows:
(D) A bona fide factor other than sex, such as education, training, or experience. This factor shall apply only if the employer demonstrates that the factor is not based on or derived from a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity. For purposes of this subparagraph, “business necessity” means an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve. This defense shall not apply if the employee demonstrates that an alternative business practice exists that would serve the same business purpose without producing the wage differential.
3. It enacts strong anti-retaliation provisions, with a one-year statute of limitations.
The Act adds Labor Code section 1197.5(j), which protects workers who disclose or discuss wages or seek to enforce their rights to fair pay:
(1) An employer shall not discharge, or in any manner discriminate or retaliate against, any employee by reason of any action taken by the employee to invoke or assist in any manner the enforcement of this section. An employer shall not prohibit an employee from disclosing the employee’s own wages, discussing the wages of others, inquiring about another employee’s wages, or aiding or encouraging any other employee to exercise his or her rights under this section. Nothing in this section creates an obligation to disclose wages.
(2) Any employee who has been discharged, discriminated or retaliated against, in the terms and conditions of his or her employment because the employee engaged in any conduct delineated in this section may recover in a civil action reinstatement and reimbursement for lost wages and work benefits caused by the acts of the employer, including interest thereon, as well as appropriate equitable relief.
(3) A civil action brought under this subdivision may be commenced no later than one year after the cause of action occurs.
4. It requires that employers keep pay records for three years, up from two.
Employers are now required to “maintain records of the wages and wage rates, job classifications, and other terms and conditions of employment of the persons employed by the employer” for three years. This is consistent with employees having a two-year statute of limitations to sue for wages, but three years for a cause of action arising out of a willful violation.
The Fair Pay Act Will Help Remedy Prior Discrimination
I previously wrote about the gender pay gap and its impact on women. According to research by the Institute for Women’s Policy Research, in 2014, women working full-time were earning 82% of what their male peers were earning. Breaking it down further, the wage gap for black and Latina women was even greater, with black women earning 68% and Latina women only 61% of what men did. One third of working mothers are single mothers, and a staggering 30% of them live in poverty. It is estimated that closing the gender pay gap would pull half of those families out of poverty. Yet, in the past decade, the gender pay gap has narrowed by just 1.5%.
The Fair Pay Act seeks to address that. One of the problems is that pay disparities, once in place, can follow a woman throughout her career. As she moves from one job to the next, a woman who was paid less than her male peer by her former employer is likely to be paid less at her next employer. There are a number of reasons, including that most employers have discretion in setting compensation and may take into account prior earnings in deciding the compensation offer to make. Employers often seek to be competitive, trying to pay more than the prior employer to induce a candidate to accept a job offer. If a woman earned less than her male peer, the new employer will be able to offer less while still exceeding the prior compensation amount. In addition, a woman who earned less at her prior job will have a harder time negotiating for a higher compensation than her male peer. Add to this the unfortunate unconscious biases people harbor that end up punishing women who negotiate more aggressively.
Take the following example: All other things being equal between the two of them, if John earned $100,000 per year at his prior job and Susan earned $82,000 at hers, and this information were known to the new company that sought to hire them, the company would likely offer Susan less in compensation than John. It would not be unreasonable for John to try to negotiate for a $10,000 pay increase with his new employer, but if Susan tried to negotiate for the same starting salary ($110,000), she might be perceived as greedy in seeking a pay increase that is nearly triple John’s. An employer could hold firm in offering a far smaller pay increase (say, $10,000), knowing that it would still be an improvement for Susan. More likely, Susan would not know what others in the role were being paid, and she would not know to ask for the $110,000 that John sought and received. There is nothing that is necessarily discriminatory in the employer’s conduct; it is merely making calculated business decisions and negotiating based on the information known. But the effects are the same as with discrimination: equally skilled, equally qualified women continued to be paid less than their male peers.
The Fair Pay Act Will Address a Harm of Horizontal Job Segregation
There are many fields that are deeply sex segregated (for example, nursing or construction). This is called horizontal segregation. The research shows that regardless of qualifications, jobs predominantly done by women pay less on average than jobs predominantly done by men. The Fair Pay Act directly addresses this issue by requiring equal pay not just for the same work, but for work that is substantially similar in skill, effort, and responsibility. With the Fair Pay Act, employers will be required to evaluate how they pay men and women performing work “of comparable character.” They will need to assess the various job positions they have to ensure that those that are female-dominated do not pay less than comparable ones that are male-dominated.
The California gender pay gap totals nearly $40 billion each year in lost wages. The Fair Pay Act is a historic law that tackles the pay gap head on. Families throughout the state will benefit from working women earning a fair wage.
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Photo Credit: Joe McHugh, California Highway Patrol.