It has been reported that in 2014 a woman working full-time in California earned an average of $.84 to every dollar a man earned, and the national average is a wage gap of $.78 to the dollar. The wage gap is much worse for Latina women in California making only $.44 for every dollar earned by white men.
In an effort to rectify these inequities, Governor Brown signed the Fair Pay Act (the Act) (Senate Bill 358) on October 6, 2015 which is described as the strongest equal pay measure in the nation. The bill which takes effect January 1, 2016 applies to all private and public businesses in the State of California and seeks to remedy gender based wage inequalities.
New meaning for equal pay for equal work
California Labor Code §1197.5 currently requires that men and women receive equal pay for equal work performed in the “same establishment.” The Act changed the “same establishment” requirement to that of any location of the employer. This means that any pay differential between employees will be evaluated as to the business as a whole rather than just the one physical location where the employee
In addition, previously the standard was that an employee engaged in “equal work” with someone of the opposite sex; now the standard is “substantially similar” work. This new standard allows for comparisons between employees who perform similar tasks regardless of their job title. However, the term “substantially similar” is not defined in the Act, and this ambiguity is likely to lead to further litigation over its meaning.
An employer may defend against a claim of gender based wage inequality by asserting the wage differential is based on:
(1) a seniority system,
(2) a merit system,
(3) a system that measures earnings by quantity or quality of production, or
(4) a bona fide factor other than sex, such as education, training, or experience.
As to the 4th criteria, it is likely that employers will have a difficult time establishing that a pay differential was properly based on a “bona fide factor other than sex”. Under the new law, the bona fide factor other than sex defense can be used only if the employer demonstrates that the factor:
(1) is not grounded in or derived from a sex-based differential in compensation,
(2) is job-related for the position in question, and
(3) is consistent with business necessity.
It was believed that secrecy surrounding an employee’s compensation rate was contributing to the wage disparity between the genders because “women cannot challenge wage discrimination that they do not know exists.” To address this concern, the Fair Pay Act makes it unlawful for an employer to prohibit disclosure, inquiry and open discussion of wages with other employees.
What is important for employers to understand is that the Fair Pay Act does not create an obligation for an employer to disclose the wages of other employees because to do so would likely result in the employer having potential liability for the invasion of privacy of its employees if their wages were disclosed.
Previously employers were obligated to maintain records of wages and other terms and conditions of employment for no less than two years. The new law extends this requirement to three years. This obligation is consistent with an employer’s obligation to keep wage and timekeeping records for three years under the Industrial Welfare Commission Orders (however, best practices is to maintain all payroll related records for 4 years due to the extended statute of limitations under Bus & Pro. Code §17200 which can apply to wage and hour related claims).
Discrimination and Retaliation Prohibited – Civil Claims & Remedies
Employers are prohibited from engaging in any form of discrimination and retaliation against an employee who has exercised their rights under the Fair Pay Act. A civil action can be brought by an employee who wishes to allege that they have been terminated, discriminated against, or retaliated against because of engaging in protected activity under the Act. The remedies sought can include reinstatement and recovery of lost wages and benefits. In addition, the remedies set forth in Labor Code §1197.5 for failure to pay equal wages to men and women remain available so that employee’s can seek the recovery of the wage differential plus interest, an equal amount in liquidated damages, and attorneys’ fees and costs.
Employees may, in the alternative, file complaint with the Division of Labor Standards Enforcement (DLSE) alleging violations of Labor Code Section 1197.5. The DLSE may prosecute a civil actions on behalf of injured employees.
What Does This Mean for Employers
Employers can anticipate more litigation under the Fair Pay Act claiming a failure to pay equal wages for “substantially similar work” or for retaliation against an employee for the exercise of their rights under the law.
What Should I Do?
• Conduct an audit of all wage practices to ensure compliance with the Fair Pay Act.
• Review employee handbooks and other policies regarding the confidentiality and non-disclosure of information to ensure that such policies do not restrict an employee’s ability to disclose their own wage or inquire about or discuss the wages of others in the workplace.
$10.00 January 1, 2016
Effective January 1, 2016, California will implement the 2nd stage of the minimum wage rate increase to $10.00 per hour.
The minimum wage increase affects not only the hourly pay due to minimum wage employees, but may also impact the compensation level of those “salaried” exempt employees. In order for an employee to be classified as “exempt” under the Executive, Administrative, or Professional Exemption, the employee must earn a monthly salary of at least two times the minimum wage (in addition to meeting certain“duties” test).
Currently the minimum annual salary for an exempt employee must be at least $37,440.00. Once the minimum wage increases, the minimum salary required to maintain exempt status will rise to an annual salary of $41,600.00.
In addition to an increase for non-exempt (hourly) employees and the potential need to increase exempt employee’s so that their salary requirement is met, employers may need to address two other job classifications:
• Inside Sales Overtime Exemption: To be exempt from an overtime compensation entitlement, an inside salesperson must earn one and one-half times the minimum wage for each hour worked during the payroll period. This amount will increase to $15.00 on January 1, 2016.
• Overtime Exemption for Those Who Use their Own Tools: An employee who is paid at least 2x minimum wage may be required to provide and maintain his or her own hand tools and equipment customarily required by the trade or craft. This amount will increase to $20.00 per hour on January 1, 2016.
What Should I do:
• Increase those earning $9.00 an hour to $10.00 per hour.
• Review exempt employee compensation to determine if their annual salary meets the new base minimum salary requirements. If not, the employee must receive a wage increase or must be re-classified as non-exempt and paid on an hourly basis.
As has been widely reported, the Healthy Workplaces, Healthy Families Act went into effect on July 1, 2015 but what has not been widely reported is that the Act contains various fines and penalties for non-compliance ranging from $50.00 to $4,000 aggregate. In addition, the Act provides that a civil action can be brought by the Labor Commissioner who is charged with enforcement.
In addition to administrative penalties, the Labor Commissioner can also order reinstatement, backpay, and the payment of sick days unlawfully withheld. Some of the violations which could occur and the related penalties include:
• Violation: Unlawful withholding of sick days
Penalty: The greater of the dollar amount of paid sick days withheld multiplied by three, or $250 per affected employee.
• Violation: Violation results in harm to the employee or person (i.e. termination for taking sick leave, retaliation, etc):
Penalty: $50 per day “or portion thereof that the violation occurred or continued.”
There is a $4,000 aggregate cap on these two penalties. These penalties are paid to the employee or other person whose rights were violated.
• Violation: Failure to promptly comply
Penalty: The Labor Commissioner has discretion to take any action deemed to be appropriate in the circumstances, including assess a penalty of $50 per day, per employee or other person whose rights were violated and/or filing a civil action.
This monetary penalty is paid to the state and there is no monetary cap on this penalty as the stated purpose is to reimburse the state for the costs of investigating and remedying the violation.
While the law does not expressly permit employees to bring a private civil lawsuit against employers for violation of the statute, a civil action may be brought by the Attorney General or the Labor Commissioner on behalf of the public, and the remedies include the recovery of reasonable attorney’s fees and costs.
• Violation: Failure to post the poster:
Penalty: $100 penalty per offense.
Isolated, unintentional payroll errors or notice errors that are clerical or inadvertent mistakes regarding accrual and use of paid sick leave will not be considered violations of the paid sick leave mandate.
What Should I Do?
• Review the sick leave policies which have been implemented
• Ensure compliance with all aspects of the law including placing the posters in the workplace and providing the Notice to Employees form to all new hires and all current employees with the sick leave information completed on page 2.
• Consider implementing a procedure for employees to lodge complaints about non-compliance.