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California's Fair Pay Act

California's Fair Pay Act (California Labor Code § 1197.5) became effective on January 1, 2017.  Briefly, the law prohibits pay differentials as between men and women, as well as among both races and ethnicities, for "substantially similar work."  Exceptions are allowed in the context of seniority systems, merit systems, systems measuring the quantity or quality of production, or other "bona fide" factors other than sex, race and ethnicity.  In the face of a lawsuit, however, the employer bears the burden of proving the existence of an appropriate exception.

The new statutory provisions also bar differentials based solely on "prior salary" history.  This prohibits improper pay differentials based on nothing more than what an employee was making at their prior employment.  While prior salary history is not necessarily irrelevant, much more than that would be required to justify an otherwise improper differential.  The law stops short of prohibiting employers from asking job candidates about their salary history, but employers should be very careful about asking for this information without having a well-thought out and proper reason for seeking it.

The penalties for violating the law are significant: effectively double the amount of the improper differential, plus interest and attorney's fees.  Employees can recover two years of differential wages; three years if the employer is found to have acted willfully.

Employers should make an honest assessment of pay for employees doing substantially similar work in order to determine whether differentials exist and, if they do, whether the employer is comfortable with its ability to demonstrate that those differentials are permitted by the statute.  If in doubt, seek input from a qualified specialist.  The changes in the statutory language are likely to make equal pay a "hot button" employment issue, and so the expense of reasonable precautions now would seem the wisest approach. 

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