Consider the following hypothetical: you are a sales manager for a San Francisco-based company, with offices throughout California and an office in Little Rock, Arkansas. You lead a team of seasoned sales men and women. There’s an open position in the San Francisco office that you’ve been trying to fill for months. Finally, an applicant comes along that seems perfect for the role. He’s smart, enthusiastic, and has a proven record of success. He’s also a savvy negotiator, and demands a salary that is slightly higher than his current salary, but significantly higher than what anyone else working in the company in the same role is making.
If you decide to accept his salary demand, you are in effect hiring into a California Fair Pay Act lawsuit, unless you are also prepared to increase the salaries of the women on the team to match this new hire’s compensation. The fact that the new hire’s existing salary at his current place of employment is higher than your team’s existing salary level makes no difference and is not, standing alone, a defense.
The California Fair Pay Act, post-2016 amendments, is the most far-reaching and strict equal pay law in the nation. The intention behind the Act is to stamp out legacy pay inequities in the workplace. Its reach extends to race and ethnicity as well as gender. It applies to all employers in the state, regardless of size. It imposes massive liability for unjustified pay differentials, even if the employer lacked discriminatory intent. The consequences of non-compliance are severe – including double damages. And the Act imposes new record-keeping requirements on employers that effectively force employers to document justifications for any wage differentials that exist.
The core provision of the law mandates that employees who perform “substantially similar work” (viewed as a composite of skill, effort, and responsibility), and under similar working conditions, must be paid equally, unless the employer can demonstrate that any wage differential is based on one or more of the following factors:
- seniority system;
- merit system;
- a system that measures quantity/quality of production; and
- a bona fide factor other than ethnicity, race or sex (such as education, training or experience).
Once the employee proves a wage differential (of any size), the employer bears the burden of proving that the differential is entirely and reasonably attributable to one or more of the factors listed above. Shifting the burden of proof to the employer, and eliminating prior salary history as a justification, represent a dramatic shift from prior law. These reforms make defense of equal pay claims difficult and expensive for employers, often requiring expert testimony and statistical analysis.
Consider again our hypothetical: what about the office in Little Rock? Certainly the cost of living in San Francisco is much higher than that of Little Rock. Can the difference in pay between a woman working in Little Rock versus a man working in San Francisco be justified by this obvious cost-of-living difference? Surprisingly, many lawyers and commentators believe the answer is no, due to the 2016 amendments that removed the “same establishment” qualifier to the law’s operative mandate. (Previously, the law required equal pay for workers performing substantially similar work at the same establishment.)
In the words of one labor law expert:
[W]hat the Fair Pay Act really requires is an overhaul of hiring practices for HR professionals in California. Gone are the days when management can exercise discretion to negotiate salaries based on an applicant’s prior salary history, or the applicant’s negotiation skills.
Employers in California are urged to act now to ensure compliance with the recently amended Fair Pay Act as soon as possible. At a minimum, employers should prepare and disseminate a comprehensive Fair Pay Act workplace compensation policy that documents permissible wage differentials. Taking proactive measures now is the best way to mitigate the risk of potentially crippling litigation in the future.
The firm of Rooney Nimmo stands ready to assist. Please contact Sean Hogle, Partner, San Francisco – firstname.lastname@example.org.