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New California Statutes Aimed at Reducing Wage Disparity Go into Effect

prism ringLaws at the federal and state levels regulate multiple aspects of the employer/employee relationship. Federal law sets certain minimum standards for many employers nationwide, such as a minimum wage of $7.25 per hour and a prohibition on specific types of discrimination. State laws may add to these minimum requirements, but they cannot reduce the standards set by the U.S. Congress. California has augmented the protections afforded to employees in many ways, including a state law prohibiting wage disparities based on gender. Several bills recently enacted by the California Legislature have further added to these provisions. Employers in the Bay Area and throughout California should understand how these amendments might affect them.

Prior to the 2015 session of the California Legislature, the California Labor Code prohibited employers from paying workers of different genders at different rates for “equal work” performed “in the same establishment.” The law defined “equal work” as work that “requires equal skill, effort, and responsibility” and is “performed under similar working conditions.” Cal. Lab. Code § 1197.5(a) (2014). Pay disparities were permissible if they were based on systems of seniority, merit, “quantity or quality of production,” or another “bona fide factor other than sex.” Id. Penalties for violations of these provisions included the amount of underpaid wages, along with “an additional equal amount as liquidated damages.” Id. at § 1197.5(b).

The California Legislature passed SB 358 in 2015, and it took effect on January 1, 2016. The bill amended § 1197.5 to expand the prohibition on wage disparities based on gender. Whereas an employee previously had to show a disparity in pay among workers “in the same establishment,” SB 358 allowed comparisons among all employees performing “substantially similar work.” Cal. Lab. Code § 1197.5(a) (2015). The assessment of whether the work is substantially similar is based on “a composite of skill, effort, and responsibility…under similar working conditions.” The same exceptions, such as a seniority- or merit-based system, still apply, except that the statute now addresses “bona fide factor[s] other than sex” in far greater detail. Id. at § 1197.5(a)(1)(D).

In September 2016, the Governor signed two additional amendments to the statute, which will take effect at the beginning of 2017. SB 1063 adds a new subsection to the statute that applies the same protections found in SB 358 to wage discrimination based on “race or ethnicity.” The same exceptions apply, as well as the same compensatory and liquidated damages found in the pre-2015 statute.

The second bill amending § 1197.5, AB 1676, addresses the use of salary history in making decisions about how much to pay workers. The Legislature cited federal officials with the Equal Employment Opportunity Commission and the Office of Personnel Management, who have warned about the risks of over-reliance on an individual’s prior salary. Since wage disparities based on gender, race, and ethnicity have existed for a very long time, basing salary decisions on past salary rates has the potential to perpetuate those disparities. The bill amends the existing § 1197.5(a)(3) to state that “[p]rior salary shall not, by itself, justify any disparity in compensation.”

For the past 40 years, employment attorney James G. Schwartz has represented Bay Area businesses and business owners in a wide range of litigation and transactional matters. To schedule a free and confidential consultation with a knowledgeable and experienced business advocate, contact us today online or at (925) 463-1073.

More Blog Posts:

New Law Bans Forum Selection Clauses in California Employment Contracts that Apply Laws of Other States, Pleasanton Business & Commercial Law Blog, November 15, 2016

Judge Rejects Settlement Agreement in California Employment Class Action, Pleasanton Business & Commercial Law Blog, October 6, 2016

“Independent Contractors” Versus “Employees” Under California Labor Law, Pleasanton Business & Commercial Law Blog, September 15, 2016

Photo credit: Ardonik [CC BY-SA 2.0], via Flickr.