Equal pay issues continue to make the news as state legislatures come up with novel approaches to address the pay gap. In a previous blog post, I highlighted the legislative action across a few different states, but nowhere is equal pay a bigger story than it is in California.
Just as employers have started catching up with the expansive new equal pay provisions that California put forth last year, the Golden State surges ahead again with two new measures. Beginning next year, California will prohibit employers from paying employees of different races or ethnicities unequal wages for substantially similar work, and it will also prohibit employers from using employees’ prior salaries alone to justify any wage differentials between employees of different sexes, races or ethnicities.
I spoke with Anthony Oncidi, partner at Proskauer Rose LLP in Los Angeles and head of that office’s Labor & Employment Law Group, about the recent changes to California’s Fair Pay Act and what to expect going forward. In his practice, he has seen a “significant increase” in the number of employers requesting compensation audits, as they try to ascertain whether unintentional pay discrepancies exist in their organizations and, where necessary, how to remedy them, he said. And with the new amendments taking effect Jan. 1, 2017, he expects the plaintiff’s bar “to devote even more resources and attention” to pay equity issues.
California law will now include equal pay protections for employees on the basis of their race or ethnicity—a first in the nation. While women in the U.S. overall tend to earn approximately 79 cents for every dollar earned by men, the pay gap is drastically pronounced for women of color. African-American women in California, specifically, earn approximately 63 cents on the dollar when compared to white, non-Hispanic men, and Hispanic women earn “less than 43 cents” on the dollar. A pay gap exists for men of color as well. According to national data released recently by the Department of Labor, median weekly earnings for black men are only 78.5 percent of what white men earn.
California’s recently enacted Senate Bill 1063 addresses this issue by mirroring the provisions pertaining to sex-based differences in pay and substituting the words “race or ethnicity” for “sex.” The law will now prohibit wage differentials for employees of different races or ethnicities, unless such differentials are based on seniority or merit systems, systems that measure earnings by quantity or quality of production, or other “bona fide factor[s] other than race or ethnicity” such as education, training or experience, if those factors are job-related and “consistent with a business necessity.”
Oncidi recommends that employers take “immediate action” to determine whether unintended compensation discrepancies may exist and establish best practices to avoid such issues in the future. Supervisors should be trained “to ensure that their compensation decisions are based on bona fide performance criteria,” and to ensure that those criteria are well documented, so that wage differentials can be justified should an issue arise in the future.
In addition to the new race and ethnicity provisions, California has added language to both the sex and race or ethnicity provisions of its equal pay laws, restricting the use of salary history information. Effective January 1, prior salary alone won’t be an acceptable justification for any difference in pay between employees of different sexes, races or ethnicities. As stated in Assembly Bill 1676, prior salaries “may reflect widespread, longstanding” wage disparities in the labor market, and therefore shouldn’t be relied upon when setting salaries for new employees.
Oncidi foresees employers continuing to use prior salary as a “key (but not sole) component” in their decision making processes, and foresees “an increase in lawsuits alleging that employers impermissibly relied on salary history to discriminate against certain employees, particularly in the class action context.” He also envisions a “difficult position” for employers in their efforts to recruit new employees, who are often seeking an increase in pay over their prior positions. Employers may have a difficult time attracting high-caliber employees “without knowing (let alone considering)” applicants’ prior salaries.
Employers, he says, will need to strike a balance between the reality of considering prior salaries and the new prohibitions imposed by the Fair Pay Act. “In order to do so, employers who wish to consider compensation history will also have to compare a new hire’s compensation with the salaries of other employees who perform substantially similar work,” he says. “If the new hire’s compensation will be higher, the employer must make sure that there is a bona fide justification for the increase, such as a relevant advanced degree or unique experience that will help the new employee contribute to the company.”
These amendments add additional teeth to an already robust set of equal pay protections. Just last year, California overhauled its equal pay law, changing the strict requirement of equal pay for “equal work” to equal pay for “substantially similar work,” and requiring employers to establish both bona fide factors other than sex and business necessities to explain differences in compensation. Further, as Oncidi notes, geography is “no longer a per se distinction” under California law. Employees can now compare their salaries to those of employees who work in other locations, although cost of living differences may still serve as bona fide justifications for wage differentials.
Regardless of whether the latest amendments cause an increase in equal pay litigation due to the increased burden on employers seeking to justify pay discrepancies, or a decrease due to employers scrutinizing their pay practices more carefully, the new laws are sure to have lasting effects both within California and beyond. “With approximately one in eight Americans living in the Golden State of California,” Oncidi says, “the changes that occur here will, as always, have reverberations throughout the country.”
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