California's New Fair Pay Act Drastically Expands Employers' Potential Liability


By: Julie Marquis and Allison Shrallow

As California’s new Fair Pay Act (SB 358) took effect January 1, 2016, California employers should expect to see a significant increase in pay discrimination claims.  Under the Act, an employee paid less than a co-worker of a different gender performing “substantially similar” work – even though they have different job titles and work in different facilities – may sue based upon the pay differential.  If so, the employer must prove the pay differential is based on factors other than gender.

The Act exposes employers to greater potential claims by striking the previous act’s requirement of equal pay for “equal work” and replacing it with language requiring men and women receive equal pay for “substantially similar work.” Under the Act, a lower-earning employee may compare herself or himself to an employee of the opposite sex who works at any of the employer’s facilities and holds a different job title, under the guise that the employee is performing “substantially similar work” but receives less pay.   In response to an unequal pay claim, the employer has the burden to prove the pay differential is justified due to a seniority system, merit system, a system measuring earnings by quantity or quality of production, or a bona fide factor other than sex.  Moreover, the employer must show these factors account for the entire pay differential, and each factor was reasonably applied in making the pay decision.  To support an equal pay act claim under federal law, a plaintiff must show discriminatory intent or a specific practice or policy with a discriminatory impact.  But this showing is not required under the California Fair Pay Act.

Another risk to employers lies in the Act’s anti-retaliation provision. As discussed here, this is yet another example of the California Legislature expanding the definition of “protected activity.” Under the Act, employers may not prohibit employees from disclosing their 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.  The Act’s anti-retaliation provision prohibits an employer from discharging, discriminating or retaliating against any employee because of any action he or she took to invoke or assist in any manner in the enforcement of the Act.

An employer found in violation of the Act’s equal pay provision stands to pay the aggrieved employee the amount of wages, with interest, lost by reason of the employer’s violation and an additional amount equal to the amount lost as liquidated damages. Further, an employee who successfully establishes retaliation after exercising rights under the Act may be entitled to reinstatement, reimbursement for lost wages and benefits with interest, and other equitable relief.  Employers should also take note the Act extends an employer’s obligation to maintain records of wages and rates of pay, job classifications and other employment terms to three years instead of two.

In sum, California’s Fair Pay Act dramatically changes existing law to make it much easier for employees to establish pay discrimination claims. Employers with California-based employees should contact legal counsel to conduct pay equity audits, update Employee Handbooks to include provisions in line with the Act and evaluate records and recordkeeping practices now to address these changes.