On Oct. 6, 2015, California Governor Jerry Brown signed into law Senate Bill 358 (SB 358), amending California’s Equal Pay Act (CEPA) to make it easier for workers to discover and prove the existence of unlawful gender-based wage differentials. While CEPA already prohibited employers from paying lower wages to female employees as compared to their male coworkers for “equal work,” some courts had interpreted CEPA to mean that male and female employee comparators must hold exactly the same jobs to require equal pay.
SB 358, which takes effect on Jan. 1, 2016, amends CEPA to expressly prohibit employers from paying any employee wage rates that are less than those paid to employees of the opposite sex for “substantially similar work” (as opposed to “equal work”). Thus, under CEPA as amended by SB 358 and codified in California Labor Code § 1197.5, employees with different job titles who work in different departments may be used as comparators for determining the existence of unlawful gender-based wage differentials, provided that their jobs are “substantially similar” in terms of skill, effort and responsibility.
A wage differential is now unlawful under CEPA law unless the employer can demonstrate that it is based on 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. 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.”
As amended, CEPA now also expressly requires employers to keep records of wages and other terms and conditions of employment for three years. CEPA also now contains enhanced anti-retaliation provisions, as follows:
“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.”
Notably, although CEPA now protects employees’ right to inquire about the wage rates of other employees, it does not require the employer to respond to such inquiries.
In order to ensure compliance with CEPA as amended by SB 358, employers should review their compensation programs and examine the pay rates of employees of different genders performing substantially similar work in terms of overall skill, effort and responsibility. Where pay disparities are found, employers should determine whether they can be justified on the basis of legitimate factors such as a merit or seniority system, a system that measures earnings by quantity or quality of production, or differences in education, training or experience that is job-related and consistent with business necessity. If these legitimate factors are lacking, employers should consider increasing pay rates, where necessary, to address any apparent gender-based wage differentials.
For questions regarding California’s Equal Pay Act or its amendments, please reach out to your McGuireWoods contact, the authors or any other members of the McGuireWoods California labor and employment group.