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California’s Fair Pay Act Now Covers Race, Ethnicity, and Prior Compensation History

By Audrey Nguyen with Michael Arnold

California’s Fair Pay Act was already one of the broadest equal pay laws in the country.  Governor Jerry Brown recently expanded it further by signing two laws that will go into effect on January 1, 2017.  We summarize the expansion below.

Pay disparities cannot be based on race or ethnicity

The Fair Pay Act currently prohibits employers from paying employees of the opposite sex differently where they perform substantially the same work, when viewed as a composite of skill, effort, and responsibility, and perform it under similar working conditions.  The new law, the Wage Equality Act (SB 1063), extends this prohibition to compensation disparity based on race or ethnicity.  If there is a wage differential the employer must demonstrate that specific, reasonably applied factors account for the entire wage differential.  These include:

  • A seniority system;
  • A merit system;
  • A system that measures quality or quantity of production; or
  • A bona fide factor other than sex, race or ethnicity, such as education, training or experience

An employer relying on a “bona fide factor” must ensure that such factor(s):

  • Is not based on or derived from a difference in compensation that is based sex, race or ethnicity,
  • Is job related, and
  • Is consistent with a “business necessity”

The bona fide factor(s) that the employer relies on must also account for the entire wage differential.

Employers will also be prohibited from using prior salary as the sole justification for any disparity in compensation

The other new law (AB 1676) further amends the Fair Pay Act to state that “prior salary cannot, by itself, justify any disparity in compensation.”  More specifically, it clarifies that prior salary does not fall under the “bona fide factor” exception for a wage differential under Labor Code Section 1197.5.

Importantly, the amendment does not prohibit employers from asking applicants for their salary history.  However, employers should think critically about whether that should be part of any recruiting or promotion-based conversation as the law is designed to “help ensure that both employers and workers are able to negotiate and set salaries based on the requirements, expectations, and qualifications of the person and the job in question, rather than on an individual’s prior earnings, which may reflect widespread, longstanding, gender-based wage disparities in the labor market.”

Taken together, these two amendments mean that California employers need to ensure that disparities in the wages of employees who perform similar work are not based on sex, race or ethnicity or solely on prior salary history.

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