California’s New Fair Pay Act Seeks to Close Loopholes and End Gender Pay Gap

California’s amended Fair Pay Act went into effect January 1, 2016 and seeks to eliminate loopholes in the existing equal pay law that prohibits paying women less than men, and vice versa, for performing substantially similar work, when viewed as a composite of skill effort and responsibility. The state legislature found that a California woman earned an average of 84 cents to every dollar a man earned, and the amended Act seeks to close this 16-cent gender pay gap.

The amended Labor Code Section 1197.5 provides that: "[an] employer shall not pay any of its employees at wage rates less than the rates paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort and responsibility and performed under similar working conditions except where the employer demonstrates: (1) The wage differential is based upon one or more of the following factors: (a) a seniority system; (b) a merit system; (c) a system that measures earnings by quantity or quality of production; (d) a bona fide factor other than sex, such as education, training or experience." The statute specifies that this last factor shall apply only if the employer demonstrates that the bona fide 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."

Even though California and federal law have prohibited gender-based wage discrimination for decades, according to the California legislature, collectively women working full time in California lose approximately $33.6 billion each year due to the gender wage gap. California lawmakers sought to eliminate the wage gap and improve the law by:

• Requiring equal pay for "substantially similar work" (not necessarily the same work) "when viewed as a composite of skill, effort and responsibility and performed under similar working conditions;"
• Eliminating the requirement in the prior law that prohibited such gender wage differentials only when they occurred "in the same establishment;"
• Requiring the employer to affirmatively demonstrate that a wage differential is based upon one or more specified exceptions, such as a seniority system, a merit system, a system that measures earnings by quantity or quality or a bona fide factor other than sex;
• Requiring the employer to demonstrate that each exception to the prohibition on gender pay differentials is applied reasonably, and that one or more exceptions relied upon account for the entire pay differential;
• Prohibiting an employer from discharging, discriminating or retaliating against any employee for invoking or enforcing the law; and
• Promoting transparency in employee salaries by prohibiting employers from preventing employees from disclosing their own wages, discussing the wages of others, asking about another employee’s wages or encouraging other employees to exercise his or her rights under the law.

The Division of Labor Standards Endorsement is charged with administering and enforcing the law. Violations of the law can also result in civil law suits seeking back wages with interest, liquidated damages and attorneys’ fees. Employers with California employees should review their existing pay structure to ensure they are compliant with the new law.