I’m certain that if I polled each of my clients and I asked them if they pay employees differently based on sex, gender, ethnicity or nationality, the answer would be a resounding, “No.” I’m equally certain that if those clients went through a full equal pay audit, a few might receive surprising and possibly troubling results.
California for decades has prevented employers from paying some employees less than other employees of the opposite sex for equal work. These decades-old laws (the Equal Pay Act) have been given additional teeth in the years since 2016. They now prevent a company from “paying any of its employees wage rates that are less than what it pays employees of the opposite sex, or of another race, or of another ethnicity for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.” This makes it much more difficult for companies to justify inequities in pay through the “bona fide factor” defense (i.e., something other than sex, race or ethnicity).
The Labor Commission defines “substantially similar work” to mean, “work that is mostly similar in skill, effort, responsibility, and performed under similar working conditions. Skill refers to the experience, ability, education, and training required to perform the job. Effort refers to the amount of physical or mental exertion needed to perform the job. Responsibility refers to the degree of accountability or duties required in performing the job. Working conditions have been interpreted to mean the physical surroundings (temperature, fumes, ventilation) and hazards.” Remember that if a company has multiple locations, these considerations will need to be applied across all locations, and not just a single location.
This does not mean that companies cannot have differences in pay for substantially similar work in California. Rather, if differences exist, the company must be able to prove that the differences are entirely based on legitimate reasons; things as seniority, merit, system-based metrics, experience level, education, training, licensure, or some other “bona fide factor other than sex, race, or ethnicity.” Notably, an employee’s prior salary and the “he was a better negotiator than she was” justifications are not legitimate reasons for differences in pay. Employers are also prohibited from asking applicants about existing or prior salary levels.
Employees are savvy. They talk to each other about their pay, and many know that California’s equal pay laws (and similar federal laws) expressly allow them to do so. These laws also make it illegal for employers to attempt to quash wage-related discussions or to retaliate against employees for having these discussions.
If you have feelings of uncertainty about equal pay compliance at your company, now may be a good time to conduct an audit to review your practices related to paying employees equally for substantially similar work. Here are five quick takeaways to consider:
1. If you are not the owner or primary decision maker, get audit buy-in from those key players at the outset, otherwise, positive change is unlikely.
2. Consider conducting the audit under attorney-client privilege. This may provide legal protection from litigation discovery or government audits later.
3. Take time at the start of the audit to ensure that the data being analyzed is up to date and correct.
4. Cross-reference jobs with “similar” positions, jobs in other departments or even at other company locations. Thinking broadly can uncover otherwise missed information.
5. If the audit turns up unwanted results, best practice is to resolve the pending issues, correct prior errors and pay employees correctly so that the company can move forward in compliance.
How companies conduct their audits and make any post-audit adjustments matters. The goal is to implement any necessary changes that can mitigate litigation risks, maintain employee morale and correct issues discretely, without waving a red flag to potentially litigious employees.
Ryan Haws chairs the Advice & Counsel Group at the employment law firm LightGabler. He can be reached at [email protected].