California Employers: New Law Forces Employers to
Defend Compensation Policies

By Roger M. Mason, Esq,, Kurt E. Wilson, Esq., and  Dara Ashrafi Esq.

On October 6, 2015, the Governor of California signed into law SB358, the California Fair Pay Act (CFPA). Set to go into effect on January 1, 2016, the CFPA overhauls California’s existing wage equality laws in an effort to further narrow the gender salary gap by shifting the burden of proof onto employers to demonstrate that their wage policies are not discriminatory. The amendment is expected to increase the number of gender wage discrimination lawsuits filed against California employers.

What Does The California Fair Pay Act Do?

The CFPA amends Labor Code Section 1197.5, which has been in existence since 1949, currently prohibits employers from paying a member of one sex less than someone of the opposite sex “in the same establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions.” The CFPA expands the existing protections by discarding the requirement that the workers be in the “same establishment” and, further, by requiring employers to provide equal pay for “substantially similar work, when viewed as a composite of skill, effort and responsibility.” Thus, as of January 1, 2016, employers must analyze their employees’ wage differentials across all of the employer’s locations and with respect to the employees’ actual job responsibilities—not merely job titles.

Under the CFPA, once an employee has established the existence of a wage differential, the burden shifts to the employer to demonstrate that the differential is based upon one or more of the following factors:

(1) A seniority system;
(2) A merit system;
(3) A system that measures earnings by quantity or quality of production; and/or
(4) A bona fide factor other than sex, such as education, training, or experience.

Although the above factors existed under the original Section 1197.5, the current amendment requires that employers affirmatively establish that their reliance on the factors is reasonable, and that one or more of the factors account for the entire wage differential. Additionally, no longer can an employer cite to a bona fide factor other than sex as a justification for a wage differential without also demonstrating that the use of such a factor is consistent with a “business necessity.” An employee can now rebut an employer’s showing of a “business necessity” by demonstrating that an alternative business practice exists that would serve the same business purpose without producing a wage differential.

Assuming that an employer fails to meet the above standards, an employee would be entitled to recover the amount of the wages (with interest) not paid due to the wage differential, plus an additional equal amount as liquidated damages.

Additional Changes Under The CFPA

The CFPA contains numerous other amendments to Section 1197.5 of which employers should be mindful. 

1. Increases employers’ retention requirement for records concerning employees’ wages, rates of pay, job classifications, and other terms and conditions of employment from two years to three years;
2. Prevents employers from prohibiting any employee from disclosing the employee’s own wages, discussing the wages of others, inquiring about another employee’s wages, or aiding or encouraging any other employee to exercise their rights under the CFPA;
3. Designates that an employee’s invocation of the CFPA or assistance in any investigation under the CFPA is a protected activity immune from any discriminatory or retaliatory action by the employer;
4. Creates a private right of action for employees who have been discriminated or retaliated against with a one year statute of limitation.

How Can California Employers Protect Themselves?

Given that the CFPA will create the potential for significant liability exposure for employers, we highly recommend that California employers obtain the assistance of counsel to ensure they are in full compliance with the amended Section 1197.5 before it goes into effect.

Most importantly, HR directors should review their current compensation policies and eliminate any otherwise bona fide compensation adjustment factor that cannot be supported by a strict business necessity. Following that determination, job descriptions and salaries of all employees should be analyzed in light of the remaining bona fide factors to ensure that the entirety of any wage differential between like jobs can be adequately accounted for. Finally, all training materials for managers and supervisors with the ability to set wages should be updated to reflect the amended Section 1197.5 and your company’s new CFPA-compliant factors, and any other reference to wage compensation schedules and workplace wage disclosure rules (notably in employee handbooks) should be revised in accordance with the CFPA.

The information provided in this issue of "Legal Notice" is general in nature and is not intended to answer every question that may arise under different fact situations and should not be relied on in the place of professional advice in a given case. If you have specific questions please contact Roger M. Mason or Kurt E. Wilson.

SWEENEY, MASON, WILSON & BOSOMWORTH is a Professional Law Corporation located at 983 University Avenue, Suite 104C, Los Gatos, California, 95030, telephone (408) 356-3000. This "Legal Notice" is designed to assist our clients and other business owners in spotting issues which may result in costly litigation and court awarded damages if allowed to continue unaddressed.

SWEENEY, MASON, WILSON & BOSOMWORTH’s philosophy is that by educating our clients and other businesses about their legal obligations, including changes in the law, we best serve our legal goal of minimizing or preventing expensive litigation.


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