California & the Federal Government Expand Laws to Eliminate Wage Disparity

California state legislature amended the Fair Pay Act to prohibit race and ethnicity-based wage differentials and to preclude employers from relying on salary history to justify the wage gaps. In addition, the U.S. Equal Employment Opportunity Commission (“EEOC”) finalized Regulations to require employers to collect and include wage data in EEO-1 Reports.

In our E-Newsletters for Winter 2015 and Summer 2016, we discussed the California Fair Pay Act (“CFPA”), which became effective January 1 of this year.  The CFPA is aimed at eliminating gender-based wage disparity for work in jobs which require “equal skill, effort, and responsibility, and which are performed under similar working conditions.”  Since the passage of the CFPA, there have been several measures around the country that indicate a trend towards expanding protections against wage disparities that appear to be based on gender or race.  One such measure is California Assembly Bill 1676 (“AB 1676”), which Governor Brown signed into law on September 30, 2016. The new law will amend the CFPA to preclude employers from relying on an applicant’s salary history as the sole justification for a wage disparity. Like a similar bill that Governor Brown vetoed in 2015 (AB 1017), earlier drafts of AB 1676 would have prohibited employers from even seeking wage history. Ultimately, however, the bill was substantially narrowed to provide that “prior salary shall not, by itself justify any disparity in compensation.”

Governor Brown also signed into law Senate Bill 1063 (“SB 1063”), the Wage Equality Act of 2016, which expands the CFPA’s prohibitions beyond gender-based wage differentials to encompass wage differentials based on race and ethnicity. SB 1063 mirrors the gender-related provisions of the CFPA, and prohibits employers from paying “employees at wage rates less than the rates paid to employees of another race or ethnicity for substantially similar work when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.” Similarly, employers bear the burden to justify wage differentials as based upon a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or “a bona fide factor other than race or ethnicity, such as education, training, or experience.” Like the gender-related provisions, a “bona fide factor” must not be based on or derived from a race or ethnicity-based differential and must be job-related and consistent with a “business necessity,” defined as an “overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve.” Similarly, one or more of the factors relied upon must account for the entire wage differential. The new law also incorporates the amendments made by AB 1676, such that employers are precluded from relying on an applicant’s salary history as the sole justification for a race or ethnicity-related wage disparity. Finally, the SB 1063 includes a race and ethnicity-related anti-retaliation provision nearly identical to the CFPA’s gender-related anti-retaliation provisions, including protections for employees to disclose, inquire, or discuss their wages.  These new laws, which apply to all businesses that operate in California, will become effective on January 1, 2017.

The federal government is not to be outdone on efforts directed to the elimination of wage disparity practices.  On September 29, 2016, the Office of Management and Budget (the business division of the Executive Office for the President) approved the EEOC’s revisions to the EEO-1 report.  Beginning in 2018, employers operating in the U.S. with more than 100 employees will be required to report total W-2 compensation information and hours worked for all of its employees on an annual basis.  These expanded reporting requirements were implemented over strong objections from the business community, which raised significant questions regarding the utility and the use of the new data to be included in the EEO-1 reports.  The EEOC’s proffered justification for these requirements is that the adoption of the new EEO-1 form will enable the EEOC (and, for federal contractors and subcontractors, the Office of Federal Contract Compliance) to target compensation issues and address pay disparities.  With the change in administration it remains to be seen whether these new reporting requirements will remain in place.

Jonathan Turner is a partner in the Los Angeles office of Mitchell Silberberg & Knupp LLP. A significant portion of his practice is in the motion picture industry, where he has represented studios and other employers in labor arbitrations, administrative proceedings, court litigation, union avoidance issues, and collective bargaining negotiations. For more info about Jonathan, click here.
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