Governor Jerry Brown signed the California Fair Pay Act (Fair Pay Act or the Act) last  week.  The law, which has been described as the toughest equal pay law in the country, strengthens protections that have been in place since the passage of the California Equal Pay Act in 1949.

Fair Pay Act Basics

The Fair Pay Act, signed October 6, 2015, amends California Labor Code section 1197.5 in several ways.  First, it eliminates the requirement that employees work in the same establishment.  Under the new law, employers must pay the same rate to employees of both sexes who do “substantially similar work,” “viewed as a composite of skill, effort, and responsibility,” regardless of whether the employees are in the same establishment.  The new law also requires employers to affirmatively show that any wage differential is based on specific and bona fide exceptions, such as a seniority system.

The Fair Pay Act also includes anti-retaliation protections for employees who attempt to invoke the Act and strengthens the current rule prohibiting employers from preventing employees from disclosing their salaries.  While employers previously could not condition employment on nondisclosure of wages or discriminate against an employee for disclosing wage amounts, the Fair Pay Act bars employers from preventing employees from discussing the wages of others, inquiring about other’s wages or encouraging employees from advising others on acting on the new law.  Finally, the Fair Pay Act increases the employer recordkeeping requirements from two to three years.

Expected Challenges

The California State Assembly passed the Fair Pay Act by a vote of 76-2, and the California Senate passed it unanimously.  The Act, which comes into effect on January 1, 2016, enjoys wide support, including from the California Chamber of Commerce.  Nevertheless, some critics, such as Professor Richard Epstein, a senior fellow at the Hoover Institution at Stanford University, have suggested that the law will create an “administrative quagmire” and encourage some companies to reduce their work force or leave California entirely.

Employers should review their compensation determinations to make sure that they meet the new requirements.  They should also make sure that their recordkeeping system is prepared to handle the longer retention period.  Consult counsel for advice and information regarding the implementation of these new policies.

© 2015 Perkins Coie LLP