On October 6, 2015, California Governor Jerry Brown signed into law Senate Bill 358, an act to amend Section 1197.5 of the Labor Code relating to private employment. This bill has come to be known as the California Fair Pay Act. I think it is the most significant piece of pay legislation since the original FLSA. To my astonishment, it seems to have flown completely under the radar at WorldatWork.
Both California and the Federal government have long prohibited employers from paying employee at wage rates less than wage rates paid to employees of the opposite sex for work requiring the same skill, effort and responsibility in the same establishment. This has generally been know and referred to as “equal pay for equal work”.
More specifically, the existing California law prohibits an employer from paying an employee at a wage rate less than the rate paid to employees of the opposite sex for equal work on jobs requiring equal skill, effort, and responsibility, performed in the same establishment and under similar working conditions.
The new legislation eliminates the requirement that the work be performed in the same establishment, and changes the definition of equal work to “substantially similar work, when viewed as a composite of skill, effort, and responsibility…performed under similar working conditions. “
Affirmative defenses will continue to exist for wage differentials based on seniority, merit or quantity or quality of production, or for differentials based on a bona fide factor other than sex, such as education, training and experience. However, the burden of proof with respect to these defenses is shifted to the employer, who in the case of the bona fide factor, 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 position in question, and is consistent with a business necessity” which in turn is defined as “an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve” and that no “alternative business practice exists that would serve the same business purpose without producing the wage differential.” These factors must be applied “reasonably” and must account for the entire pay differential.
The act also explicitly prohibits discrimination or retaliation against employees for disclosing, discussing or inquiring about their own or co-workers’ wages.
Penalties for violations include back wages plus interest, an equal amount in liquidated damages and costs of the suit and attorney’s fees.
There are three principal reasons why I think this legislation is so significant:
First, by changing the standard from “equal” to “substantially similar” and creating attractive opportunities for class action lawsuits, it effectively creates a pathway to what has generally been known as “equal pay for work of equal value” or “comparable worth”. You will note that there is no market-based defense. The Plaintiff’s bar will be more than happy to see if a female engineer should be paid as much as a male marketer. Second, by eliminating the “same establishment” requirement, a single wage rate for any given job will necessarily apply across the entire state, notwithstanding that the cost of living in San Francisco dwarfs that of living in Bakersfield. Finally, California is typically five years ahead of the rest of the country, so this is very likely to spread.
This legislation is ostensibly intended to address the “gender pay gap”. There is scant likelihood that it will do so. For example, both the Department of Labor (see here) and even the American Association of University Women (see here) make it quite clear that the “gender pay gap” is principally the result of educational and occupational choices, hours worked, and withdrawals from the labor force for child rearing and caregiving. The one political jurisdiction that has substantial experience with actual comparable worth legislation is the Canadian Province of Ontario. And there, despite enacting comparable worth legislation in 1987, the “gender pay gap” 24 years later, in 2011, was 26%.
So, if you have operations in California that you can’t virtualize or move to Texas, it may be time to pull out your old Hay guide-point charts and reconvene your job evaluation committee. You’ll likely be needing them.
Tony Bergmann-Porter is the Director, Compensation at Jostens. He has many years' professional experience in compensation and total rewards, and is the current President of the Twin Cities Compensation Network, the leading WorldatWork Local Network partner. Tony holds a BBA and BA from the University of New Brunswick, and an MAHRIR from the Carlson School of Management. He also holds CCP, CSCP and SPHR certifications. He enjoys track days and autocrossing with his Corvette. Follow him on Twitter at @TonyB_P.
Image courtesy of http://www.legislature.ca.gov/