The New California Law That May End Gender Pay Inequality [e230]

October 14, 2015

Nasir and Matt discuss the passage of the California Fair Pay Act and how it aims to end gender based pay inequality. They also talk abouthow certain industries will be more affected by this new law than others.

Full Podcast Transcript

NASIR: Welcome to our podcast where we cover business in the news and add our legal twist. My name is Nasir Pasha.

MATT: And I’m Matt Staub.

NASIR: And, today, we are covering a new law in California that just passed despite Matt’s strong objections. You know, this actually passed unanimously, 39-0, but, Matt, I remember he wrote me an email that day of. He was like, “If I was in the California Senate that day, I would have voted no.” It would have been the sole “nay” vote.

MATT: I don’t know if I should even be on the rest of this episode. Actually, I need to be on so I can defend myself against these allegations but it’s pretty impressive it was 39-0.

NASIR: I guess that was for the California Senate back in August 31st.

MATT: Yeah, I did see that, though.

NASIR: Yeah.

MATT: Unanimous passage. Yeah, we’re talking about the California Fair Pay Act. It’s not talking about the state fair. It’s talking about fair pay between men and women. I mean, there’s a few specifics on this. I’ll run through them and we can just discuss it here. I think these first couple of things are probably the biggest things. It’s requiring that men and women receive equal pay for what is now substantially similar work regardless of whether they work at the same physical location. In the past, I believe it was just defined as the same work, yeah.

NASIR: Yeah. Just so everyone’s clear, this is not, I mean, it’s new and it’s not new in the sense that, you know, always before you couldn’t discriminate between men and women. But, in order to prove discrimination or to violate the law, the burden of proof was not easy to prove, in other words, because, you know, same work and then, well, go ahead. I think you’re listing out some of the other changes.

MATT: Yeah, no, but you’re right – same work is pretty vague. Just to go with that, substantially similar work means the positive skill, effort, responsibility performed under similar working conditions but need not be the exact same job. I think that’s a much more defined way of putting it than just same work which I think pretty much anyone can get around unless two people are doing the exact same thing. That’s point number one. The other big thing is this business justification defense. It modified that. Inserted by employers to accept an otherwise prohibited pay discrepancy from the equal pay requirement based on a recognized justification. We’re talking about things like seniority system, merit system, a system that measures earnings, by quality or quantity of production, or a bona fide factor other than sex such as education, training, experience. Let’s see, there was one other part of this. The employer has to establish. It kind of shifts the burden on the employer almost to establish that this business justification for unequal pay is accounted for the entire wage discrepancy that exists and also was reasonably relied upon by the employer. If anyone’s still following what I said…

NASIR: No, it’s a kind of subtle thing and so it’s not easy to follow, actually, because there was actually this rule of a business justification defense, basically. That’s been there, too. But the difference is, for example, you know, they made it clear that, okay, if there’s two people, similar work, but one is senior to the other, then them being seniors is a business justification for giving them a higher salary. Now, that’s fine but, in the past, let’s say that you have two people – a woman that’s been there for five years, a man that’s been there for six years – same job but, because of that extra year, he’s being paid double salary – that may not make sense under the new law because the entire wage discrepancy has to be justified in the sense that maybe that more senior male may be justified in having an increased wage, but double? Probably not.

MATT: Yeah. Like I said, the entire discrepancy, I think that’s a big part of it, too. Some of the things you mentioned, yeah, obviously, if someone’s been around a lot longer, you can get by with that. But I think it’s narrowing the kind of the gap of what employers are going to be able to get away with which I’m sure employers in California don’t want to hear because it’s already a tough go-through but there’s no reason to not pay people of different genders the same amount if they’re doing substantially similar work.

NASIR: Sure, now you say that.

MATT: Yeah.

NASIR: You were going to say that August 31st but…

MATT: There’s no proof I said that. Let’s see. A couple of other things that are more minor. Well, this kind of is a little bit minor but I think it’s going to affect a lot of employment agreements or handbooks – precluding employees from discussing their wages, discussing the wages of others, inquiring about others’ wages, or aiding or encouraging any other employee to exercise his or her rights under the act which I think a lot of handbooks probably or employment agreements have some sort of a confidentiality clause in there that might restrict employees from doing that because they don’t want to have people get paid differently. Well, now, if they’re doing it, it could be violation of this act, too. But they don’t want to have someone get paid less and then they go and try to justify getting paid more, going to the supervisor, things like that.

NASIR: Yeah. Take the legal side of it. Politically, you know, what people make is always kind of a weird thing and different employers have handled it differently. Some are very open about it, some are very secretive about it, and this prohibition is interesting. I understand why they did it. I think some employers are going to be unhappy about it. I tend to not like seeing these kind of prohibitions anyway. I think it doesn’t create the right atmosphere. It’s kind of an old school mentality but, still, I mean, there’s still plenty of employers that are in that mindset that, “Well, we’re going to have to make the change and keep up with the times.”

MATT: Right, and I do see as there being some reasons why you’d want to have that stay confidential but it’s not going to really change things too much for employers.

NASIR: Yeah.

MATT: I mean, in general. Or it’ll change things with what they have to do, sure. But, you know, I don’t think it’s a big thing. And then, let’s see. This is the biggest one – increases employers’ record-keeping obligations from two to three years. That’s the takeaway.

NASIR: Obviously, it’s not a huge thing, but every employer – or every business for that matter – should have a retention of records policy and, okay, the smaller you are, the easier it is just to say, “Okay, keep everything for a long time.” As you grow into a bigger company, there’s actually reasons to go ahead and destroy those records as time goes on after a certain amount of time and so forth and statute limitations go by and it becomes costly in itself maintaining those records so there’s other financial reasons why you may want to do that as well. But this increases that from two to three years, and what kind of records? Like, for example, this law, some take-home advice after this is coming out, since we talked about how you have to be able to justify some of these wage discrepancies, when you’re giving raises or denying raises or promotions or what-have-you, documenting the basis and reasoning for those kind of things may become a savior two or three years down the line and you’re keeping those records to be able to justify, “Hey, look, I gave this person a raise because they’re on their merits – because they did this, this, and that. Look, here’s my notes to show that.” Of course, that can be abused the other way, too. At the same time, documentation is everything in any kind of legal defense, whether you’re defending against the government or defending against a current or former employee or an outside litigate.

MATT: Yeah, you’ve got to have that stuff in writing. It’s going to go a long way. This obviously is in California. Where do you see this or what industry or industries do you see being affected by this the most?

NASIR: I was talking about it today at the office and, first, from a national level, this is going to have a huge impact. California, I think this is the first real aggressive law when it comes to equal or fair pay between men and women in the country. Accordingly, it’s not going to be surprising as much of an issue it was made in the last election, the presidential election, you know, was it books of women or binders full of women that probably made that? This law maybe it’s likely to be emulated in other states. California is going to be the first to do that. But, also, California being the home of Holllywood, this was also a big issue in the last, I think it was the Oscars, if I recall, that lot of the female actresses made statements in their acceptance speeches, et cetera, to bring this to light and it brings the question of what kind of impact is it going to have on the movie industry.

MATT: Yeah, and I agree completely, and I do, it’s a good point, I forgot about it being brought up in whatever that was – the Emmys or Oscars, I get all those confused. But it’s tough for that because, let’s say you have a movie and you’re paying the male lead more than the female lead. They’re both very well-known actors. What if the male lead is just someone just generates so much money? Like Will Smith for example. Every movie he’s in, you could take it to the bank, it makes X amount of dollars. And then, there’s every movie that the female lead’s been by herself as the lead, you know, it’s half of that. I mean, is there justification? It’s tough.

NASIR: How do you measure that justification? Lead actress or lead actor is harder to decide but if they’re supporting actors or actresses, it brings it down to most likely they’re going to be more closer in their level of fame, et cetera. That’s not easy to do and I’m sure Hollywood has its own cultural, you know, how it deals with salary and so forth, and not only just from a gender perspective but also a racial perspective – that comes into play, too. It’s kind of hard to tell how this is going to react but that’s definitely part of the discussion after this law passed.

MATT: I’m thinking about the adverse ramifications of this. I could definitely see employers now, well, let me think about this.

NASIR: Well, yeah, I think you’re bringing up a good point. Employers are going to be more inclined to just pay people equally regardless of their merit because it’s just the safer thing to do, you know? On one hand, the statute reaches its objectives, but that means also, if you should be paying someone else more regardless of their gender but because of some kind of business justification, the employer may not be inclined to do so if they feel like it’s going to be difficult to make that proof in a court of law.

MATT: Definitely. The other thing I was thinking is, let’s say a male and a female are both up for a promotion to the next level where there’s a bunch of other people on that level now, they might be more inclined to put the female up there more than they did the male.

NASIR: It definitely raises the question. Some may say, “Well, it’s a good thing! At least now they’re thinking about, you know, the concept that, ‘Okay, who should go up because of the merits?’” But I don’t think this law goes too far to say that a rational employer in most situations aren’t going to have to unreasonably keep one person down over the other because of this act. You know, I think that might be too overcautious but I can see some employers falling into that trap.

MATT: Yeah, and I was thinking too why this hasn’t been in the news. Maybe I’ve just not paid attention this week but it seems like this would be a much bigger story but then I thought about it more and it’s like, well, it’s like you could discriminate based on gender previously. Like you were saying, it’s just clarifying what is the sort of discrimination.

NASIR: Yeah.

MATT: If it would have been the first law passed where you say you can’t discriminate based on the person’s gender then, yeah, this is obviously a huge issue. But it’s just saying, “Well, you still can’t discriminate, but there’s more ways to discriminate, I guess.”

NASIR: It basically gives a blueprint for plaintiffs’ attorneys on how to sue an employer. At the end of the day, that’s what it is. By doing so, it puts employers on notice that, “Hey, from now on, you’re going to have attorneys on the sidelines waiting for you to mess up so you better straighten up,” which, frankly, is an effective way to get it done, I think.

MATT: Yeah, always looking out for those attorneys.

NASIR: Yeah, the police force of the law – not really. I guess the police are the police of the law.

MATT: I guess I probably should have mentioned at the beginning instead of at the end that obviously you were joking at the beginning of me not being in support of this. For somebody that listened or that stopped listening at some point.

NASIR: Yeah, I mean, most people just listen to the first thirty seconds so you’re out of luck.

MATT: I’m in charge of writing the title so maybe I’ll…

NASIR: Title, “Matt Supports California Pay Act.”

MATT: To make sure that’s very clear, yeah.

NASIR: Yeah, it may come off as sarcastic, especially with the first few minutes.

MATT: Yeah.

NASIR: All right. Well, I think that’s it, big law coming. Is this effective already? When is it going into effect?

MATT: No, I think it’s January 1st, 2016, I think.

NASIR: Okay. Well, let’s prepare. We’ve got to change those handbooks, if need be.

MATT: Yeah. Well, that’s the thing. They always give you some time to change the handbooks.

NASIR: Yeah.

MATT: At least the discussing wages, that stuff, I mean, I feel like that’s been around a little bit longer because I’ve been going back through handbooks, making sure that’s not in there because I think someone like Macy’s got hit with that and another company.

NASIR: That may employ some federal violations, too. That now makes it much more clear. It’s bright lined, you can’t use it.

MATT: Yeah.

NASIR: Okay. Well, thanks for joining us.

MATT: Yeah, keep it sound and keep it smart.

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Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
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