CALIFORNIA: Two new laws increase scrutiny of employers’ wage decisions

Governor Brown has signed two companion bills designed to improve pay equity in the workplace. The first expands California’s groundbreaking pay equity law beyond gender so it also covers race and ethnicity (SB 1063). The second forbids employers from using prior salary as the sole justification for a pay disparity based on gender, race, or ethnicity (AB 1676). Both laws take effect on January 1, 2017.
 
California’s current pay equity law (Labor Code 1197.5) is already significant because it allows wage comparisons for jobs that require “substantially similar work,” unlike the federal Equal Pay Act which looks at “equal work.” The state law is still very new (it took effect on January 1, 2016), so it remains to be seen how broadly courts will interpret it. An employer can defend itself from charges of wage discrimination against workers of different genders (and soon, of different races or ethnicities) who work in substantially similar jobs by providing a legitimate explanation. The employer must show that the difference in pay is based on (1) a seniority system; (2) a merit system; (3) quantity or quality of production; or (4) some other bona fide factor such as education, training, or experience, which must be job-related and consistent with business necessity. The employer must apply any of these factors reasonably, and the factors must account for the entire difference in pay.
 
Tips: When investigating pay disparities in the workplace, starting pay often turns out to be the biggest culprit. The new law still allows you to consider prior salary as long as it isn’t the sole factor, but we recommend avoiding any consideration of prior salary if possible. Discrimination by prior employers may have influenced the previous wage, so you’re better off establishing your own pay structure that you can defend based on legitimate business reasons.