California’s Fair Pay Act

October 15, 2015

On October 6, Governor Brown signed the Fair Pay Act, giving California what many see as the toughest pay equity law in the country. But, in fact, California has had an Equal Pay law on the books since 1949, and federal laws have mandated equal pay for equal work since the early ‘60s.

Yet, the gender wage gap persists.

So what’s the hold up and why should the Fair Pay Act make a difference? The gap is a socially and historically complicated phenomenon, and it may be that any remedy is necessarily piecemeal.

A Deep Dive into Wage Gap Statistics

The California legislature made four key findings to support its conclusion that the state’s equal pay provisions and law regarding wage disclosures had to be improved in order to eliminate the gender wage gap.

The first was that the pay gap continues to exist. According to a study done by the National Women’s Law Center in 2014, a woman working full time in California earns only 84 cents for every dollar that a man makes. For women of color, the gap is even more significant. A Latina woman, for example, earns only 44 cents for every dollar that a white man makes.

It exists at every level of earnings. What is true for the manager at a tire factory is true for movie actors, as Patricia Arquette made so abundantly clear in her 2015 Oscar acceptance speech. One of the worst offenders in California may be Silicon Valley, where men with Bachelor’s Degrees make 40 percent more than women with the same education, and men with a graduate or professional degree make 73 percent more.

And it lasts throughout a woman’s working life. It actually tends to get worse over time, largely due to percentage based raises. The gap also persists in retirement because Social Security payments are based on earnings. Further, the wage gap has hardly changed in the last 35 years.

Secondly, the legislature found that the persistent disparity in earnings has a significant impact on the economic security and welfare of millions of working women and their families. Women are more likely than men to live in poverty, especially those who are single mothers or women of color. Female-headed households make up a majority of those living below the poverty line.

Third, lawmakers concluded that existing California law had failed to tackle the problem of occupational segregation. Occupational segregation is based on an entrenched, nearly unconscious, view that there are “men’s jobs” and “women’s jobs.”

Economists assess the degree of occupational segregation by the measuring the percentage of male or female workers who would have to change jobs in order for each occupation to have gender representation that reflected the workforce as a whole. The 2011 measure indicates that fully half of working men or working women would have to change jobs to achieve the gender diversification that exists in the employed population as a whole.

Occupational segregation matters because the so-called “women’s jobs” pay less. While women represent 49 percent of the overall workforce, they comprise 59 percent of the low-wage workforce.

Finally, the legislature found that pay secrecy also contributes to the gender wage gap, because women cannot challenge wage discrimination that they do not know exists. Many employee handbooks still contain provisions that prohibit discussions of pay, even though both California law and the National Labor Relations Act prohibit pay secrecy policies. Many workers are unaware of their rights or afraid to exercise them for fear of retaliation.

What the Fair Pay Act Does

In order to address this situation, effective January 1, 2016, the Fair Pay Act clarifies existing law in five ways:

It requires equal pay for “substantially equivalent work,” substituting that idea for the previous concept of “equal work.” In practice that had come to mean “exactly the same job with the same title.”  Thus, under the new rule,  a janitor and a hotel maid who cleaned rooms might be found to be performing substantially equivalent work even though their titles were different and their duties varied slightly.

The substantially equivalent work standard is very similar to the idea of ”comparable worth,” which has been the subject of equal pay advocacy for some time.

Second, the Fair Pay Act eliminated the restriction that only jobs at the same establishment be compared for pay purposes. Thus, under the FPA, if the janitor and the hotel maid worked for the same hotel corporation but in different California cities, their jobs might nonetheless be considered substantially equivalent.

The law also shifts the burden of proof onto the employer to affirmatively demonstrate that any wage differential for substantially equivalent work is based upon one or more specified factors.

Permissible factors include a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a bona fide factor other than sex. The employer must demonstrate that each factor relied upon is applied reasonably, and that one or more account for the entire difference.

Even if the employer can defend different pay for substantially equivalent work, the worker may still prevail if she can show that an alternative business practice would serve the same business purpose without producing the differential.

The FPA also discourages pay secrecy by explicitly prohibiting retaliation or discrimination against employees who disclose, discuss, or inquire about their own or co-workers’ wages for the purpose of enforcing their rights under the law.

Finally, the Fair Pay Act provides that an employer who violates the new standard for equal pay must remedy the action with back pay plus an equal amount in damages, which is presumably a greater deterrent for employers.

Is Everyone Happy Now?

No, of course not. There are those who see employers fleeing for less restrictive jurisdictions. Others see the dawn of a new age of government control of wages and work.

Objectively, the law will likely require more recordkeeping to justify differentials in pay based on permitted factors such as performance or seniority. It also requires that records be retained for a period of three years, rather than two, as previously mandated. It is simply too early to guess whether there will be an increase in employee litigation.

But even advocates for change have reservations about whether the provisions of the law will actually succeed in addressing the persistently troubling issue of pay inequality. The wage gap is a very complicated problem.  It is not simply the product of Scrooge-like employers trying to hold wage costs down or of outdated views of the role of men and women in society.

Harvard economist Claudia Goldin reportedly noted that the Fair Pay Act isn’t “the end of the story.” While it may accomplish some things, she believes that it does not deal with fundamental issues such as how workers are rewarded for long hours, the inflexibility of our work culture and occupational segregation that leaves women lower-paid professions.

The law also does not address the fact that women tend to be the primary caregivers for children and older family members. Many, who have the luxury to do so, choose to pause their careers or cut back on work hours during the years when family obligations are the most demanding. This, too, has a depressing effect on lifetime earnings.

It may be too much to ask any law to address all of these factors.

What Should Employers Do?

Now is a very good time for employers to ensure that their compensation practices are in defensible. The following steps would be a good start:

  • Conduct a wage audit of  employee pay to identify opposite sex pay practices and historical inequities for similar functions that may persist because of percentage wage increases;
  • Review all pay and compensation-related policies and procedures, including job descriptions, employee handbooks, review and evaluation protocols;
  • Make sure the employee handbook does not contain a provision prohibiting or discouraging discussion among employees of pay rates;
  • Consider the scope of information and documents that may fall within the law’s three-year record retention requirement and modify policies and practices accordingly; and
  • Provide internal training to members of management who make decisions regarding employees’ pay and compensation, and encourage them to document reasons for pay differentials.

Some employers have gone so far as to adopt a policy of total transparency about pay rates on the theory that a proverbial sunshine policy will allow unjustifiable wage differentials to be resolved without litigation. Others, taking the opposite approach, may want to consult with legal counsel about what documents may be protected as attorney-client work product.

The Fair Pay Act is a step in the direction of resolving an issue that has long lasting effects on the financial welfare of a very large percentage of the population – those currently working, their families and those in retirement. Estimates are that, as a group, women working full-time in California lose more than $33 billion each year due to the wage gap. Whether the law can make a measurable dent in this problem will only be seen over time.

Anne Wallace, Esq.

By

Anne Wallace is a New York lawyer who writes extensively on legal and business issues. She also teaches law and business writing at the college and professional level. Anne graduated from Fordham Law School and Wellesley College.

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Related Publications

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.

October 14, 2015
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