Governor Signs Gender Pay Equity Law Supported by the Business Community

Under existing California law (Labor Code Section 1197.5), an employer is generally prohibited from paying an employee at a wage rate less than the rate 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 and which are performed under similar working conditions. In addition, current law establishes exceptions to that prohibition where the payment is made pursuant to a seniority system, a merit system, a system which measures earnings by quantity or quality of production, or a differential based on any bona fide factor other than sex.

However, there have been concerns about the inadequacy of existing law, despite it being in existence for over 65 years. For example, in Section One of the bill, there are several findings and declarations, including the following contained in Subdivision (c):

(c) California has prohibited gender-based wage discrimination since 1949. Section 1197.5 of the Labor Code was enacted to redress the segregation of women into historically undervalued occupations, but it has evolved over the last four decades so that it is now virtually identical to the federal Equal Pay Act of 1963 (29 U.S.C. Sec. 206(d)). However, the state provisions are rarely utilized because the current statutory language makes it difficult to establish a successful claim.

Governor Jerry Brown signed SB 358 into law on October 6, 2015 as Chapter . It is effective on January 1, 2016.  SB 358 prohibits an employer from paying any of its employees at wage rates less than those paid to employees of the opposite sex for “substantially similar work” when viewed as a composite of skill, effort, and responsibility. Prior language concerning the “same establishment” requirement is now considered as a possible bona fide factor, as indicated by Senator Jackson’s letter to the Daily Journal set forth below.
SB 358 also requires the employer to affirmatively demonstrate that a wage differential is based upon one or more specified factors including a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a bona fide factor other than sex. Moreover, the bill requires the employer to demonstrate that each factor relied upon is applied reasonably and that the one or more factors relied upon account for the entire wage differential.

As a separate matter, SB 358 prohibits an employer from discharging or in any manner discriminating or retaliating against any employee by reason of any action taken by the employee to invoke or assist in any manner the enforcement of these provisions. The new law authorizes an employee who has been discharged or discriminated or retaliated against to recover in a civil action reinstatement and reimbursement for lost wages and work benefits caused by the acts of the employer, including interest thereon, as well as appropriate equitable relief. It also requires a civil action to recover wages for retaliation to be commenced no later than one-year after the cause of action occurs.

Finally, the bill prohibits an employer from prohibiting 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 these provisions. And the new law increases the duration of employer recordkeeping requirements from 2 years to 3 years. SB 358 extends existing enforcement mechanisms for wage discrimination to claims for retaliation and provides a one-year statute of limitations for retaliation claims

SB 358 seeks to strengthen California Labor Code Section 1197.5, which precludes an employer from discriminating against an employee in pay on the basis of gender.  Currently, Section 1197.5 mandates that an employer shall provide equal pay for equal work, unless a bona fide factor other than gender justifies the differential.  In an effort to eliminate the risk of a stringent interpretation of this standard, SB 358 amends this code section to specify that an employee shall not be paid less than another employee who is performing “substantially similar” job duties, unless a bona fide factor exists.  As such, the new language should achieve the intent of the law and eliminate any employer from seeking to justify a wage differential through meaningless differences in job duties under the guise that such positions are not “equal.”

SB 358 also provides further clarity to the term “bona fide factor” under which an employer may provide differential pay for a legitimate business purpose, such as to compensate an employee that has more extensive training, education or experience.  Proponents believe this clarification will help employers navigate their pay structure and avoid unnecessary litigation regarding what business purposes qualify as a “bona fide factor”.  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. A business necessity is defined as an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve.

There are some who wrongfully believe that the changes made by SB 358 eliminated some justifications for a difference in pay.  However, those examining the changes to Section 1197.5 need to be aware of the statement of legislative intent provided by the author’s Letter to the Senate Daily Journal set forth below:

May 26, 2015 SENATE JOURNAL 1099
MOTIONS, RESOLUTIONS AND NOTICES
MOTION TO PRINT IN JOURNAL
Senator Jackson moved that the following letter be printed in the journal.
Motion carried.
May 26, 2015
The Honorable Kevin de León
President pro Tempore of the Senate
Dear Senator De León: SB 358 is a measure intended to narrow the
gender wage gap by modifying California’s equal pay law. I write this letter
to clarify my intent of striking “work is performed at different geographic
locations” and “work is performed on different shifts or at different times
of day” from the bill. I would like to request that this letter be printed in the
Senate Daily Journal regarding Senate Bill 358. Although the introduced
version of the bill listed “work is performed at different geographic
locations” and “work is performed on different shifts or at different times
of day” as statutory exceptions to the equal pay law that could be claimed
by an employer in response to a complaint alleging a gender-based wage
differential, the current version does not specifically list those factors
because each of those factors may be a “bona fide factor,” as that factor is
defined in this bill. Accordingly, the amendments to this bill that strike
“work is performed at different geographic locations” and “work is
performed on different shifts or at different times of day” should not be
construed as the Legislature’s intent to make those factors unavailable to
an employer responding to an equal pay complaint. Rather, the employer
may claim a “bona fide factor,” that may be specifically described by the
employer as work that is performed at different geographic locations or
work that is performed on different shifts or at different times of day, so
long as the employer can prove that the factor is consistent with business
necessity, as specified on in the bill.
Sincerely,
HANNAH-BETH JACKSON
Senator, 19th District

As one can read, SB 358 provides additional guidance to employers regarding justifications for wage differentials.  The author’s letter makes clear that work performed on different shifts or in different establishments still exist as justifications for a difference in pay. As a result, the business community actively supported the passage of SB 358 because the bill will provide clarity to the law and reduce the potential for costly litigation, and it strengthened the “bona fide factor” language.

It is important to note that this letter by Senator Jackson was submitted the day that SB 358 passed off the Senate Floor with a unanimous vote. As such, it was done contemporaneously with the vote of the full Senate and should be afforded considerable weight by a court of law when interpreting the changes made to Section 1197.5 by SB 358.

Chris Micheli is a Principal with Aprea & Micheli, Inc. and serves as a lobbyist for CompTIA in California. He can be contacted at (916) 448-3075 or [email protected]