• Governor Signs Bill Expanding Pay Equity Law's Protections
  • January 5, 2017 | Authors: Katherine A. Hren; Eric W. Mueller; Richard S. Rosenberg
  • Law Firm: Ballard Rosenberg Golper & Savitt LLP - Encino Office
  • Last year, we detailed the significant changes California made to the Fair Pay Act. This year, the California legislature has further broadened the protections of the Fair Pay Act in two important ways: (1) prohibiting pay disparities based on race or ethnicity (SB 1063); and (2) prior salary history cannot, by itself, justify pay disparities (AB 1676). We discuss both changes below.

    Under the existing Fair Pay Act, an employer is prohibited from paying any employee a wage rate less than that paid to an employee of another gender when performing "substantially similar work" when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions. Where a gender based wage differential does exist, the employer is liable for damages unless the employer can demonstrate that the wage differential is based on: (i) a seniority system; (ii) a merit system; (iii) a system which measure earnings by quantity or quality of production; or (iv) a bona fide factor other than sex, such as education, training or experience. The new law SB 1063 now requires a pay differential to be justified by a bona factor other than sex, race or ethnicity, thus greatly expanding the protections of the law.

    As previously detailed, existing law places the burden on an employer to justify gender-based wage disparities. Now employers must also satisfy this heavy burden to demonstrate fairness relating to any pay disparities in substantially similar jobs between employees of different races and ethnicity.

    In a separate but related law, AB 1676 further increases an employer's burden and ability to combat claims of wage disparities. Section 1197.5 of the Labor Code (Fair Pay Act) will be amended to clarify that "prior salary shall not, by itself, justify any disparity in compensation." Stated another way, an employer is at risk when setting salaries or hourly pay rates if the employer relies upon prior salary when setting pay rates. According to the lawmakers, this new protection was included because they believe that the "market" is inherently biased and thus allowing employers to base future wage determinations on prior salary would simply perpetuate the wage disparity.

    Given these significant changes in the law, employers should carefully review their pay practices to determine whether pay disparities exist based on gender, race or ethnicity among employees performing substantially similar work.