Wage Discrimination & Unequal Pay: Navigating Federal and California Laws
Although it has been over 50 years since the enactment of the federal Equal Pay Act, closing the wage gap between men and women remains a focal point for state and federal legislatures alike, with varying degrees of success. Measures such as the Paycheck Fairness Act have been repeatedly introduced to the United States Congress (and have failed to advance as recently as last month). In contrast, California has pushed ahead in recent years with sweeping changes to its own version of the Equal Pay Act. Employers navigating the ever-changing laws regarding pay differentials should note the key differences between federal and state labor laws governing wages to employees, as well as federal and state antidiscrimination laws.
The federal Equal Pay Act (EPA), which is a part of the Fair Labor Standards Act (FLSA), prohibits employers from paying employees of one sex lower wages than employees of another sex within an establishment, for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions. There are exceptions to this prohibition when such payment is made pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earning by quantity or quality of production; or (iv) a differential based on any other factor than sex. 29 U.S.C. § 206(d). Put another way, the EPA provides for “equal pay for equal work.” An employee who has been underpaid in violation of the EPA may recover back wages equal to the difference between the employee’s pay and the pay of employees of the opposite sex received for performing equal work, as well as liquidated damages.
California employers should be aware that the EPA’s state equivalent, the California Equal Pay Act (CEPA), is broader in scope and has a lower evidentiary burden for employees seeking redress for perceived wage differentials. Specifically, the CEPA provides:
(a) An employer shall not pay any of its employees at wage rates less than the rates paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions, except where the employer demonstrates:
(1) The wage differential is based upon one or more of the following factors:
(A) A seniority system.
(B) A merit system.
(C) A system that measures earnings by quantity or quality of production.
(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 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.
(2) Each factor relied upon is applied reasonably.
(3) The one or more factors relied upon account for the entire wage differential.
(4) Prior salary shall not justify any disparity in compensation. Nothing in this section shall be interpreted to mean that an employer may not make a compensation decision based on a current employee’s existing salary, as long as any wage differential resulting from that compensation decision is justified by one or more of the factors listed in this subdivision.”
Prior to 2015, CEPA was almost identical to the EPA. However, beginning in 2015, the California legislature passed multiple amendments to Labor Code § 1197.5 and enacted Labor Code § 432.2, thus diverging from the EPA in several key aspects that are more favorable to the employee:
- CEPA requires equal pay for employees who perform substantially similar [not “equal”] work, when viewed as a composite [not “equal”] of skill, effort, and responsibility.
- There is no requirement under CEPA that employees who are being compared (i.e., “comparators”) work at the “same establishment.” This allows for the examination of more comparators across different locations nationwide.
- Unlike the EPA (which only prohibits wage differentials based on sex), race and ethnicity are now also protected categories under CEPA. Thus, wage differentials based on race or ethnicity are also prohibited. See Cal. Labor Code § 1197.5(b).
- Unlike the EPA, an employee may bring a class action on behalf of all similarly situated employees under CEPA.
- It is now more difficult for employers to justify wage differentials based on sex, race, or ethnicity. Under CEPA, an employee merely has to prove that he or she was paid less than employees of another sex, race, or ethnicity who performed substantially similar work. If the employee meets that burden of proof, the employer must then demonstrate that the wage differential was based on seniority, merit, a system that measures production, or a “bona fide factor other than sex, race, or ethnicity” (such as education, training, or experience). In addition, the employer must show that it applied the factor(s) reasonably and that the factor(s) accounts for the entire wage differential. (Compare with the federal EPA, where an employer has a lower burden of proof and can rely on “any factor other than sex” to justify the wage differential.)
- Effective January 1, 2019, Labor Code § 432.3 was enacted to prohibit employers from inquiring about an applicant’s prior salary history or rely on it as a factor in determining whether or not to offer employment to the applicant or what salary to offer that applicant. Further, upon the request of the applicant, employers must supply pay scales for the position.
- CEPA prohibits employers from retaliating against employees who assist other employees in bringing CEPA wage claims.
- Under CEPA, employers may not prohibit its employees from disclosing their wages, discussing the wages of others, or inquiring about others’ wages. (Employees, however, are not obligated to disclose their wages.)
- Under CEPA, employers are prohibited from relying on an employee’s prior salary to justify any disparity in compensation. (The employer can still make a compensation decision based on that current employee’s existing salary, as long the employer can justify the wage differential on seniority, merit, a system that measures production, or a bona fide factor other than sex, race, or ethnicity.)
Employers should likewise note that wage disparities between members of protected classes and members of non-protected classes (which go beyond sex, race, and ethnicity) are also subject to federal and state antidiscrimination laws, including Title VII of the Civil Rights Act of 1964 (Title VII) and the California Fair Employment and Housing Act (FEHA). Title VII and FEHA present a greater evidentiary hurdle for the employee – although the employee does not have to prove “equal work” (as required by the EPA), he or she must show that the employer intended to discriminate on the basis of a protected characteristic. Other key differences include the following:
- Title VII and FEHA present a broader range of damages available to the employee, such as punitive damages and compensatory damages (including emotional distress), although liquidated damages are not provided for as they are in EPA and CEPA claims.
- Unlike the EPA or CEPA, Title VII and FEHA require that the plaintiff first exhaust his or her administrative remedies by filing a complaint with the Equal Employment Opportunity Commission (EEOC) or the Department of Fair Employment and Housing (DFEH), respectively, within a certain time period and obtaining a “right to sue” letter. (Under the EPA and CEPA, filing an administrative complaint with the EEOC or California Division of Labor Standards Enforcement is an option but not a requirement.)
- Compensatory and punitive damages under Title VII are capped, although front pay is not.
- The statues of limitations for bringing these claims under Title VII and FEHA vary from the 2-year statute of limitations (or 3 years, where there are “willful” violations) for bringing EPA or CEPA claims.
In sum, not only is it a good business practice, but it is also legally required for California employers to pay their employees fairly and without regard to their sex, race, ethnicity, or any other protected characteristic. Employers with pay disparities between employees of different sexes, races, or ethnicities – no matter how inadvertent – should be prepared to justify that wage differential beyond “any reason other than sex” or employees’ prior salaries. They should be able to show that their salary decisions were made after careful and reasonable considerations of the factors specified in CEPA.
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