California’s Wage Equality Law: Will a Rise in Social Awareness and Litigation Lead the Way to a Rise in Pay?
California’s anti-discrimination laws offer some of the most comprehensive protections to employees in the nation. It is thus not surprising that California, along with Massachusetts and New York, leads the charge on pay equality mandates. Indeed, California’s 2016 Fair Pay Act which strengthens California’s pay equality statute, CA Labor Code § 1197.5, is suggested to possibly be “the nation’s most aggressive attempt” to close the salary gap between men and women.1 Aiming to give the statute some teeth, the Fair Pay Act strengthened Labor Code § 1197.5 by making it easier for employees to show disparate pay practices.
Previously, comparisons could be made only against employees of the opposite sex who worked at the same location, and who performed “equal work on jobs the performance of which requires equal skill, effort, and responsibility.” Under the 2015 amendment, which became effective in 2016, there is no longer a same location condition. Salaries can be compared against personnel at any of the employer’s work sites. Further, employees no longer have to show that they performed the same or “equal work;” pay equality is required for “substantially similar work, when viewed as a composite of skill, effort, and responsibility.” In addition, the burden is now explicitly on employers to justify the entire amount of any pay differential based on only certain factors, such as seniority, merit, production, or other bona-fide business necessity related factor. These factors must be reasonably applied. And effective this year, Labor Code § 1197.5 was further broadened to afford equal pay protections based on race and ethnicity.
While the impact of the recent changes is yet to be seen, historically, closing the pay gap is difficult. One might be surprised to learn that the equal pay requirements under Labor Code § 1197.5 have been around for 68 years. But according to the U.S. Department of Labor, women in California still earn only 84.8% of what the state’s men earn.2 When race is considered, the pay gap widens – compared to the white male’s dollar, Asian women, African American women, and Latinas earn only 72 cents, 63 cents and 43 cents, respectively.3 So, will the recent changes be enough?
Although it cannot be the only factor, California still allows prior salary history to be a factor in setting an employee’s wages. Some, however, argue that using an employee’s prior salary only works to perpetuate wage discrepancies. New York City and Philadelphia have actually barred employers from asking job candidates about their salary history or benefits. Massachusetts enacted the same law, but the first statewide ban does not go into effect until July 2018. In 2015, Governor Brown vetoed a California bill (AB-1017) proposing the same, but the current bill (AB 168) to ban wage history may fare better.
Opponents of stricter pay laws, though, fear that stringent regulations will force employers to adopt rigid and flat pay scales, and leave them unable to attract the best candidates. It may well be that simply increasing the scope and breadth of black letter laws is not an adequate solution. Ample prohibitions already exist against discrimination on the basis of gender, race or ethnicity. Yet as noted above, women, especially women of color, remain under compensated compared to their male counterparts; and sometimes, the pay disparity flies in the face of logic.
Take for example the suit filed last year by members of the U.S. Women’s Soccer Team, including star Hope Solo, against the U.S. Soccer Federation. According to figures submitted by the players, female soccer players were paid 25% of what male players earned, even though the women’s team generated $20 million more than the men’s team. With these readily and verifiable statistics, how can such pay disparities exist? Suits filed by female attorneys and partners, such as Jaroslawa Johnson of the international firm Chadbourne & Parke, allege that their compensation rates were lower than male attorneys, despite the women’s higher productivity and revenue production. Based only on the demonstrable statistics, these women’s lower pay rates make no objective sense. But compensation decisions are undoubtedly shaped also by subjective reasons.
Subjective factors, such as friendships, may directly lead to a larger raise or starting salary. These factors can lead to greater career opportunities, such as an invitation to a client dinner or a mentoring relationship, which can then indirectly translate into higher performance (perceived or not) and salary. Because these intangibles make it difficult to assign compensation levels consistently and equably, employers must take it upon themselves to increase opportunities for women and people of color, and to eliminate their own internal pay gaps, like companies such as Salesforce and Cisco. Both companies have conducted self-studies and voluntarily adjusted salaries upon finding pay inequalities.4 Employers who do not proactively take such steps may soon find themselves being forced to do so, such as Farmers Insurance Company.
In Coates et al. v Farmers Group Inc.,5 hundreds of female attorneys sued Farmers for allegedly consistently paying and promoting similarly qualified male attorneys more. To settle the case, Farmers agreed to pay $4 million to the plaintiffs. Farmers is also required under the settlement to enact various reforms, such as to provide diversity trainings, hire an outside consultant to review and modify its compensation, performance and promotion policies and procedures, and to use its best efforts to increase the number of female attorneys in its higher salary grades.
From the Farmers suit, to the suit by the U.S. Women’s Soccer Team, to Hollywood actresses such as Meryl Streep and Jennifer Lawrence speaking out on the issue, to Salesforce’s $3 million investment towards equal pay, social awareness and movement against pay inequality is rising. This, coupled with the enactment of tougher laws and even more laws proposed, including a federal bill prohibiting inquiry into past wage information6, can only lead to an increase in litigation. Attorneys should advise their clients to conduct self-studies and proactively correct any unequal treatment discovered. This expenditure would not only mitigate litigation risk, but would also be an investment in the company’s culture and ethics, and in employee retention and morale.
[1] Masunaga, Samantha. “California equal pay bill may be toughest in nation.” Los Angeles Times September 2, 2015
[2] Bureau of Labor Statistics, US Department of Labor, Chart: Women earn 88 percent as much as men in Hawaii, among the highest in 2015 (December 2016) https://www.bls.gov/cps/earnings.htm#demographics
[3] National Partnership For Women and Children, California Women and the Wage Gap, April 2016, http://www.nationalpartnership.org/research-library/workplace-fairness/fair-pay/4-2016-ca-wage-gap.pdf
[4] Raghu, Maya and Lowell, Caitlan “EMPLOYER LEADERSHIP TO ADVANCE EQUAL PAY: EXAMPLES OF PROMISING PRACTICES” National Women’s Law Center, March 2017 https://nwlc.org/wp-content/uploads/2017/03/Employer-Leadership-to-Advance-Equal-Pay.pdf
[5] Coates et al. v Farmers Group Inc. U.S. District Court for the Northern District of California, case number 5:15-cv-01913
[6] H.R.6030 “The Pay Equity for All Act of 2017” seeks to amend Fair Labor Standards Act of 1938 to make it unlawful for an employer to ask about prior salaries or retaliate against any employee for opposing any such conduct.