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Governor Brown Signs Equal Pay Act

The California Legislature has passed and the Governor has signed Senate Bill 358, which is “an act to amend Section 1197.5 of the Labor Code, relating to private employment.” More broadly, the bill is intended to expand the private right of action and Division of Labor Standards Enforcement ability to enforce as to differential pay between genders in California workplaces.

Notably, the law is written in gender neutral terms; while Senate Bill 358 clearly states it is intended to provide women an avenue to higher wages, Labor Code §1197.5 remains written to apply regardless of the gender of the complaining employee.

The major substantive change to equal pay law is a drastic limitation upon the defenses an employer can raise in an equal pay lawsuit. Under current law, a pay differential based on “any bona fide factor other than sex,” is not a basis for a cause of action. Under the new law, new subsection (a)(1)(D) states

“(D) A bona fide factor other than sex, such as education, training, or experience. This factor shall apply only if the employer demonstrates that the factor is not based on or derived from a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity. For purposes of this subparagraph, “business necessity” means an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve. This defense shall not apply if the employee demonstrates that an alternative business practice exists that would serve the same business purpose without producing the wage differential.”

This limitation will make the affirmative defense significantly more difficult to prove and, in particular, will in many cases foreclose the potential for summary judgment based on an affirmative defense that the pay differential was based on a factor other than gender.

In addition, new subsections (a)(2) and (a)(3) state:

“(2) Each factor relied upon is applied reasonably.
(3) The one or more factors relied upon account for the entire wage differential.”

New subsection (a)(2) invoking reasonableness is especially likely to result in a finding of an issue of fact which precludes summary judgment on these new claims and requires trial.

New subsection (a)(3) appears, by its terms, to make it not an affirmative defense to an equal pay action if an affirmative defense does not justify the entire wage differential. Thus, a partial affirmative defense justifying a part of the difference in wages would not result in a reduction in damages. This is an issue which will no doubt be litigated extensively in the future.

Cases like Hall v. County of Los Angeles (2007) 148 Cal.App.4th 318 (finding nondiscriminatory the use of an auxiliary legal services firm, mostly female and less highly compensated, in addition to a mostly male county counsel office.) and Green v. Par Pools Inc. (2003) 111 Cal.App.4th 620 (Evidence of superior experience on the part of male employee and need for education on the part of female employee sufficient to defeat wage differential case.) are probably no longer the law under the new statute; substantially more facts must be shown to establish the affirmative defense of an alternative basis for pay.

Thus it is an open question whether or not the Federal McDonnell-Douglas burden shifting framework remains applicable to California equal pay cases in light of the burden-shifting elements of the new statutory framework.

In light of the changes to Labor Code §1197.5(a), documentation of the basis for employee compensation will become critical to defeating civil actions and DLSE proceedings based on this statute.

The other significant change in law is the addition of a robust and far reaching retaliation provision in new subsection (j) of Labor Code §1197.5. In addition to prohibiting retaliation for invoking or assisting the invocation of rights under this section, it prohibits employers from preventing employees from discussing their own wages or those of fellow employees, inquiring about same, or from encouraging fellow employees to invoke their rights under this section.

A whole category of workplace speech ordinarily prohibited or discouraged in order to prevent employee jealousy and protect employee morale by many employers in California (and elsewhere) is given the protection of law and such employer policies and discouragement are now prohibited retaliation. This will require immediate action by California employers with regard to their policies, procedures, and manager/supervisor training.

Less substantive, but also important, the new law extends the statute of limitations for Equal Pay claims – and therefore the extent of any back pay award – from two years to three. (new Labor Code §1197.5(d).) Causes of action for retaliation are subject to a new, one-year statute of limitations.

The changes to the California Equal Pay Act are important and substantive and have the potential not only to result in substantially more litigation on this issue, but to increase the costs of both settlement and trial in those cases as well. Employers in California will need to be prepared for this law to go into effect with new policies, procedures, and supervisor training to reflect the new legal reality; that California Equal Pay law may be substantively decoupled from Federal Equal Pay standards.

Graham Cridland is an attorney in the Sacramento office. He can be reached at 916.483.5181 or .