Pay-Equity Legislation Update

Question: There has been a lot of activity recently in the realm of pay-equity legislation. Can you please provide a recap of the current state of pay-equity legislation in California and New York, specifically? Can you also give some practical strategies/guidance for keeping companies in compliance?

By Keisha-Ann G. Gray

Answer: California has prohibited gender-based pay since 1949 under California Labor Code § 1197.5 ("Section 1197.5"). However, in 2014, the state legislature discovered that a 16 cents on the dollar wage gap differential existed between men and women. This wage gap collectively amounted to more than $33 billion in lost wages for women working full-time in the state. As a result, several changes that were aimed at better combating the gender pay gap were made to the law. These changes were enacted in October 2015 and took effect on Jan. 1, 2016.

The previous version of Section 1197.5 provided for exceptions to the law’s general requirement of equal pay for "equal work" when compensation was made pursuant to:

(i)             a seniority system;

(ii)            a merit system;

(iii)           a system which measures earnings by quantity or quality of production; or

(iv)          a differential based on any bona fide factor other than sex.

The first three exceptions remain unchanged, but the last exception -- the previously open-ended and general "any bona fide factor other than sex" exception -- was amended, made more specific and thereby narrowed to "any bona fide factor other than sex, such as education, training, or experience."  Cal. Lab. Code § 1197.5(a)(1)(D).

The law was also amended to clarify that the "bona fide factor" exception will only apply if the employer demonstrates that the bona fide 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 (defined as "an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve"). Id.

The new law also expressly clarifies that the employer bears the burden of justifying any wage differential under one of the four exceptions and makes clear that an employer’s "bona fide factor" defense will fail if the employee demonstrates that an alternative business practice exists that would serve the same business purpose without producing the wage differential.

Other Important Aspects of the New California Law

Additional aspects of the new law are as follows:

·         Claimants no longer have to show show they engaged in "equal work" as someone of the opposite sex. Instead, they now need only prove that their work was "substantially similar work when viewed as a composite of skill, effort and responsibility."  Cal. Lab. Code § 1197.5(a). This lower standard allows for comparisons between employees performing similar tasks, regardless of job title.

 

·         Claimants are no longer limited to making pay comparisons within "the same establishment," but rather can examine pay practices at any location the employer maintains.

 

·         The new law also seeks to promote employee free speech on the issue of compensation by prohibiting employer retaliation against employees who wish to enforce Section 1197.5 and making unlawful any employer prohibition on employees’ disclosure of his/her own wages, discussion of wages between employees, inquiries about other employees’ wages (although employers are not obligated to disclose such information), or aiding or abetting employees in exercising their Section 1197.5 rights.

 

·         Finally, Section 1197.5 increases employer record-retention requirements from two years to three.

New York

New York Labor Law Section 194 prohibits pay differentials based on gender in jobs requiring "equal skill, effort and responsibility" that are "performed under similar working conditions."  N.Y. Lab. Law § 194(1). This law was similarly amended to tighten and strengthen these protections. The new law was signed in October 2015 and took effect on Jan. 19, 2016.

Section 194 includes the same four exceptions as Section 1197.5 in California. Like the California law, the fourth exception -- "the differential based on any bona fide factor other than sex" -- was made more specific and replaced with "a bona fide factor other than sex, such as education, training or experience."  § 194(1)(d).

And, similar to California, the new law requires that the factor not be based upon or derived from a sex-based pay differential, and that it be job-related and consistent with business necessity (New York’s definition of "business necessity" is slightly less stringent than California’s, however, defining the term to mean "a factor that bears a manifest relationship to the employment in question"). § 194(1)(d), (2). Notably, the New York law also places the burden on the employer to prove the existence of this bona fide factor; it is not on the complaining employee to prove discriminatory motive (as in other types of employment discrimination).

There are, however, some differences between the New York and California laws which makes New York the slightly more employer-friendly jurisdiction in this area. For example, while Section 194 gives employees the right to inquire about, discuss and disclose their wages, unlike the California law, the New York law allows employers to "establish reasonable workplace and workday limitations on the time, place and manner" of such inquiries, discussions or disclosures. § 194(4)(a)-(b). [It’s worth noting, however, that any employer rule restricting employees’ right to openly discuss their pay must not violate workers’ rights under the National Labor Relations Act.] 

Additionally, unlike in California, claimants’ pay comparisons under the New York law must be with employees "in the same establishment" (although Section 194 states that "employees shall be deemed to work in the same establishment if the employees work for the same employer at workplaces located in the same geographical region, no larger than a county, taking into account population distribution, economic activity and/or the presence of municipalities").

Not all differences between the laws, however, favor New York employers. Successful claimants in California are entitled to damages in the amount of their gender-based deficit in wages (including interest), plus an equal amount as liquidated damages. Cal. Lab. Code § 1197.5(g). New York claimants, however, can recover liquidated damages of three times their gender-based wage deficit for a willful violation. N.Y. Lab. Law § 198(1-a).

Compliance Strategies & Guidance

There are several measures that employers should consider to address the new requirements imposed by these laws. Overall, employers should keep in mind that fairness and the appearance of fairness is the key. Therefore, employers should take care to make sure that if wage differentials exist for similar positions, such differentials can be clearly explained by seniority, merit, quantity or quality of production, or another bona fide factor other than sex. Employers should also document how such bona fide factors justifying wage differences are being reasonably applied, and add/reference the new laws in their policies, procedures and handbooks prohibiting discrimination and retaliation. Employers in California should also eliminate any policies prohibiting inquiry, discussion or disclosure of wages, and New York employers should ensure that any "time, place and manner" limitations on such activities are reasonable under the new law. Managers, supervisors and HR professionals should also be trained in compliance with the updated statutes.

Updating all job description documentation to clearly identify a position’s required knowledge, skills and abilities, minimum educational qualifications, licensure or certification, etc., is also key. This is because such documentation can serve as a primary tool to support job-specific pay differences. Finally, implementing salary range guidelines based on specific, objective and gender-neutral factors such as performance metrics, experience and/or education is another beneficial step that employers can take to lessen the risk of being non-compliant.

Keisha-Ann G. Gray is a partner in Proskauer’s Labor & Employment Department, resident of the New York office. Proskauer Associate Nicholas Joseph, also in the New York office, assisted with this article.

 

Nov 18, 2016
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