Twice In Two Years: California Expands The Fair Pay Act For The Second Consecutive Year

Starting January 1, 2017, companies of all sizes doing business in California will need to take extra care to ensure they are not paying employees differently based on their race or ethnicity or basing new employees' compensation solely on their prior salary. California Governor Jerry Brown recently signed two pieces of legislation that significantly expand the state's recently revamped Fair Pay Act (FPA). Employers seeking to reduce legal risk amid the growing pay equity movement should take note.

Race and Ethnicity Now Included

Senate Bill 1063 extends FPA protections to prevent race- and ethnicity-based disparities in pay. Specifically, the law—known as the Wage Equality Act of 2016—adds language to California Labor Code Section 1197.5 prohibiting an employer from paying "wage rates less than the rates paid to employees of another race or ethnicity for substantially similar work." Previously, the law only contained such protections based on gender.

In amending the bill, the legislature inserted findings that "[i]n 2015, the gender wage gap in California stood at 16 cents on the dollar. For women of color, wage inequality is much worse. African American women in California make just 63 cents and Hispanic women less than 43 cents for every dollar white non-Hispanic men make." Although the pay gap has slightly narrowed in recent years, the law is aimed at accelerating the closure of the gap. The nonprofit Institute for Women's Policy Research found that Hispanic women would not obtain equal pay for 232 years without policy changes, based on trends from the past 30 years.

No Justifying Pay Differences on "Prior Salary, By Itself"

The second amendment, Assembly Bill 1676, prevents employers from using "prior salary ... by itself" to justify any pay disparities between workers. The law, which also amends California Labor Code Section 1197.5 is designed to stop employers from unintentionally perpetuating wage inequities by relying on earlier (and usually lower) salaries to set wages. As the legislature wrote in its findings and declarations, the act is designed to help parties "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."

To be clear, the law does not ban questions about prior salary; however, such questions cannot be the...