California already has the nation’s most progressive fair pay law, known as the “Fair Pay Act.” I blogged about that new law, which was passed in October 2015, here.
But now, with Governor Brown recently signing SB 1063, California’s Fair Pay Act is even more expansive. Whereas the original Fair Pay Act was aimed at ending gender-based disparities in pay, SB 1063 now prohibits race-based disparities in pay as well.
Under the new law, which becomes effective on January 1, 2017, employees who perform “substantially similar work” under “similar working conditions” must be paid equally unless the employer can affirmatively demonstrate that a pay differential is due to a:
(a) Seniority system;
(b) Merit system
(c) System that measures earnings by quality or quantity of production; OR
(d) Bona fide factor other than sex, race, or ethnicity (such as education, training, or experience).
Moreover, as required by companion bill AB 1676, which Governor Brown also signed, an employee’s prior salary shall not, by itself, justify any disparity in compensation. So employers cannot defend themselves by pointing to an employee’s salary history. In other words, if a new employer wants to hire a particular candidate, and that candidate came from an employer who pays less, the new employer will still need to equalize the pay of all its similarly situated employees. The new employer cannot pay the new employee less simply because he or she came from a prior employer who paid lower wages.
I can see how this new law, which sounds fair and reasonable on its face, is going to cause trouble for many employers. For example, in today’s hyper-competitive employment market, where good candidates have enormous leverage due to the limited labor supply, what if an employer decides to pay a premium to land a particular candidate? If that employer has other employees of different genders, races, or ethnicities, and if those other employees are performing “substantially similar work” under “similar working conditions,” won’t the employer have to give pay raises to all existing employees to match what was offered to the new hire? Quite possibly, unless the employer can point to a seniority system or merit system or some other objective system or factor that accounts for the pay differential.