Dear Human Resource Managers (and other interested management):
How many times has an employee complained to you that he or she was not being paid fairly? Certainly, at least once and possibly more. What was your impression of the complaint? Did you immediately disagree? Did you understand what the employee was actually complaining about? Did you believe the complaint to be accurate? Did you have any idea what to do?
Despite the California Equal Pay Act being enacted in 1949, unequal pay in the workforce is not a myth but a reality. (Yes, it was 1949.) Unequal pay is a problem for employers and employees even after nearly 70 years of laws against it. A recent report found that as of 2013, female employees in California earned on average 84 cents on the dollar compared to male employees. Women of color fare even worse with African-American women earning 64 cents on the dollar and Latina women earning 44 cents on the dollar. California’s working women lose $33 billion per year as a result of the wage gap. These are troubling statistics that should cause concern among human resource managers.
While wage and hour class actions and challenges to arbitration clauses continue to dominate employment litigation, the next wave of lawsuits could be unequal pay claims. Prior to the January 1, 2016 amendments to the California Equal Pay Act [Gov. Code, sec. 1197.5], the most recently published California appellate court decision regarding unequal pay was in 2003. Notably, only four cases that directly concern unequal pay claims have been published in California since 1968, which suggests that unequal pay litigation has not been significantly pursued. Moreover, in just one of the four published cases was the employee successful in proving an unequal pay claim.
At this point, you may be asking why then should employers be concerned when these types of claims are far and few between? The reason for concern is that the amended Act makes it easier for an employee to assert the claim and much more difficult for the employer to defend it. The California Department of Industrial Relations describes the major changes to the law as:
- Requiring equal pay for employees who perform “substantially similar work when viewed as a composite of skill, effort, and responsibility.”
- Eliminating the requirement that the employees being compared work at the “same establishment”
- Employers supposedly will have increased difficulty in satisfying the “bona fide factor other than sex” defense.
- Legitimate factors relied upon by the employer must be applied reasonably and account for the entire pay difference.
- Retaliation against employees seeking to enforce the Act is prohibited and employees are expressly permitted to discuss or inquire about a co-worker’s wages.
- Employers must maintain wage and other employment records for three years instead of two.
The majority of the factors are straightforward. The challenge for employers will be in defining “substantially similar work when viewed as a composite of skill, effort, and responsibility.” Prior to the amendment, the statute referred to “equal work” and now it is “substantially similar work.” What’s the difference? At this point, we do not know exactly what that difference will be when examined by a court since no appellate decisions have addressed the statute’s amendments. We can make educated predictions based upon interpretation of the previous language compared to the new language. An often cited example is to compare a hotel janitor to a hotel housekeeper. Under the previous language, the argument that the two positions are not equal likely would have withstood challenge because the skill, effort, and responsibility were not exactly the same. For example, a janitor may be required to lift heavy objects but the housekeeper does not. The “substantially similar work” is less restrictive and a reasonable argument could be made that the two positions are substantially similar enough to support an unequal pay claim.
The ostrich approach to dealing with these issues may sound appealing because employees rarely complain about unequal pay. A proactive approach in most circumstances, however, is better than a reactive one. In two recent settlements of unequal pay class action claims, one employer agreed to pay $19.5 million in back pay to 3,300 female engineers and another employer agreed to pay $4 million to 300 female claims litigators and $1.8 million to their attorneys.
So, what can you do to avoid these types of claims? Audit your pay practices, even if you have a set salary schedule. Placement on the salary schedule could establish an unequal pay claim if the male and female are equal but the female is placed in a lower step than the male. For example, a female employee with a county office of education learned a male colleague was earning $12,000 more per year than she was despite her having more experience, education, and seniority. Also, they performed the same work and she was hired four years before he was. When she discovered that she was placed on step one of the ten step salary schedule when she was hired and he was placed on step nine at the beginning of his employment—a significant disparity—she asked for the situation to be remedied. When it was not, she filed a lawsuit.
Review and make necessary revisions to job descriptions. Also, if you have not reviewed the salaries of higher level managers, it may be worth commissioning an outside agency to conduct a class and compensation study. Correcting errors before a lawsuit is filed will ultimately save the employer money. Also, having an understanding of your employer’s pay practices, such as seniority, merit, etc., will allow you to explain to employees how wages are determined and that the wages are in fact equal.