What California Small Business Owner’s Need to Know About California’s New Equal Pay Law

Date: January 14, 2016

California’s new Equal Pay Law became effective on January 1, 2016. The Act is considered to be the toughest Equal Pay law in the country. While, California law already prohibited employers from “paying an employee at wage rates less than the rates paid to employees of the opposite sex in the same establishment for equal work[,]” the new amendments are significant. They place a heavy burden on employers to justify pay differentials between employees engaged in substantially similar work.

The amendments make clear that the burden rests on the employer to demonstrate that any pay deferential is completely justified by legitimate considerations, including (a) a seniority system; (b) merit system; (c) quantity of work production; (d) quality of work product; or (e) some other legitimate consideration. Accordingly, it may be prudent—in order to avoid any potential problems—to reevaluate your pay structures, to ensure that any pay differential between employees is 100% justified. Importantly, the amendments make clear that employers cannot avoid paying equal wages for substantially similar work simply by giving employees different titles. For example, if a male employee is designated as “chief of marketing,” but does the same work as a female employee, they would have to be paid at the same rate, or the same salary—unless a differential could be justified by reference to the aforementioned legitimate considerations.

Employers may also be wise to document the justifications for any change in the rate of pay for an employee. And of course managers charged with making such decisions should understand the Equal Pay Law as well. For that matter, it’s important to understand that the law requires employers to “maintain records of the wages and wage rates, job classifications, and other terms and conditions of employment,” for three years. For more guidance on document retention policies, check out this helpful guide from the NFIB Small Business Legal Center.

It is also vital to understand that California’s Equal Pay Law applies equally to employees working in different locations. So regardless of whether all of your employees are paid equal wages for substantially similar work in one location, you could be in violation of the law if employees at another location are paid a different salary or wage without any explanation. And again courts will presume a discriminatory motive in the absence of bona fide non-discriminatory justifications.

Lastly, it’s important to emphasize that the new law prohibits employers from discouraging employees from talking about their wages or salaries. Of course, existing law already prohibited employers from conditioning employment on a requirement that an employee agree not to disclose wages, and prohibited employers from discriminating against employees for making such disclosures. But, the amendments were intended to enhance protections for employees against any sort of retaliation for discussing wages and salaries. Accordingly, employers should review and revise any handbook or policy that purports to prohibit employees from discussing wages and salaries. 


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