“Show Me the Money” New Law Provides Greater Transparency in Issues of Equal Pay

Sierra J. Spitzer, Partner 
Schwartz Semerdjian Cauley & Moot, LLP
Published:  02.01.2016

The California Legislature reported that, last year, the gender wage gap in California stood at 16 cents on the dollar. A woman working full time year round earned an average of 84 cents to every dollar a man earned, and this wage gap extends across almost all occupations reporting in California.  This gap is far worse for women of color; Latina women in California make only 44 cents for every dollar a white male makes, the biggest gap for Latina women in the nation.1

The matter of equal pay has long been acknowledged as an issue but is rarely truly discussed.  This is likely due to a societal stigma of sorts that makes it “taboo” to discuss money matters with or involving co-workers.  As a result, the issue of pay has largely remained cloaked in secrecy, making it extremely difficult to successfully establish an equal pay claim.  

In October 2015, California Governor Jerry Brown decided to take definitive action toward addressing this issue and closing this gap when he signed into law California’s new Fair Pay Act, Senate Bill (SB) 358.   The aim of this new law is to lift the curtain and create greater transparency as to the issue of pay.  An assertive step in equal pay legislation, this law not only lessens the burden on employees in proving gender related pay claims but also forces the issue out into the open by enabling employees to inquire and discuss with their employers matters related to their own pay as well as the pay of their coworkers. Specifically, SB 358 does the following:  (1) amends California Labor Code §1197.5; (2) increases the number of years that an employer has to retain employee records; and (3) encourages discussion and disclosure of wages and creates additional protections for employees who wish to do so.  The new law goes into effect on January 1, 2016. 

Amendment of California Labor Code §1197.5

The existing law regarding equal pay is dictated by California Labor Code §1197.5 which prevents employers from paying an employee “at wage rates less than the rates paid to employees of the opposite sex in the same establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility…” To prove a claim under § 1197.5, an employee had to prove that a member of the opposite sex working “in the same establishment” earned more for equal work on jobs that require equal skill, effort, and responsibility.  However, this standard of “equal pay for equal work” could be overcome by an employer by pointing to one of four exceptions including, existence of a seniority system; a merit system; a system measuring earnings by quantity or quality of production; or a “bona fide” factor other than gender such as education, training, or experience.  

The new law amends Labor Code § 1197.5 by prohibiting employers from paying employees less than a member of the opposite sex for “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions…”  This amendment is intended to make it easier for an employee to establish an equal pay claim because it requires an employee to prove that he or she is getting paid less for “substantially similar,” rather than “equal” work.   In other words, an employee can now compare his or her wages to a co-worker who does similar work but has a different job title.  The new law also eliminates the “same establishment” requirement which allows employees to compare wages at any of the employer’s locations.  

There is also significant burden shift created by this new law.  SB 358 puts the onus on the employer rather than the employee to explain the wage differential.  Whereas the employer previously just needed to point to one of the four exceptions set forth in Labor Code § 1197.5 (seniority, merit, etc.) to explain the pay differential, now an employer can only avoid liability by establishing that “[e]ach factor relied upon is applied reasonably” and that “one or more factors relied upon account for the entire wage differential.”   

Additionally, the standard for using the defense of “bona fide factor other than sex” has become more difficult.  Now an employer must demonstrate that “the factor is not based on or derived from a sex-based differential in compensation, is job related with respect to the business in question, and is consistent with a business necessity.”

Changes for Employers’ Record Keeping

Employers must also retain 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, instead of only two.  Expanding the timeframe of discoverable relevant records by a year could no doubt prove very valuable in some cases.    

Encouragement of Open Discussion and Protection for Doing So 

SB 358 also affirmatively encourages employees and employers alike to openly discuss, question and disclose wages and offers protection for doing so.  Specifically, the law states:  “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.”  

Predictions for the impact of this new law are across the board.  Some say it will open the flood gates of gender equality litigation.  Some say that it will bring an increased awareness and open communication that will help bridge the inequality gap and serve to alleviate the issue.  In any event, as we head into a new year, employers should review their pay policies to ensure they are in compliance with this new law and should be prepared to respond to employees who ask them to “show me the money.”  

1 https://leginfo.legislature.ca.gov/faces/billCompareClient.xhtml?bill_id=201520160SB358