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Why managers should care about California’s new pay law — and not just in California

At a glance, the California Fair Pay Act (SB 358), effective on January 1, 2016, looks a lot like every other equal-pay statute in the U.S., including the federal version. But look a little more closely, and it’s clear why employment law firm Fisher & Phillips calls this “the most aggressive equal pay law in the nation.”

The main reason: Instead of equal compensation for men and women doing equal work, the new law calls for pay equity among employees whose jobs are “substantially similar,” meaning roughly equal “when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.”

No longer having to prove they’re paid less than someone else doing an exactly identical job “provides a rather easy standard for employees to satisfy” to file a suit or a complaint with state regulators, notes James McDonald, a managing partner at employment law firm Fisher & Phillips in Irvine. Not only that, but the new law makes it harder for employers to justify unequal pay. Although a company can defend its policy of paying some people more than their coworkers based on a short list of exceptions — a formal union-style seniority system, for instance, or a sales commission program — the employer now has to show that any other disparity in what it pays men and women is based on a “business necessity.”

Under the old law, companies could simply point to differences in education, training, or experience. “Say, for example, that one employee has a master’s degree and another doesn’t,” says McDonald. “That used to be enough to explain a gap in compensation. But now, the burden is on the employer to show why a master’s degree is a necessity for the job. That hasn’t been explicit until now. It’s a much higher standard.”


Interesting, you may be thinking, but if you don’t happen to work in California, why should you care? There are two reasons. First, the new law lets employees compare their pay to others’ doing “substantially similar” work anywhere in the same company — not just under the same roof, as under the old law, but in any location where the company does business. It’s not yet entirely clear whether that includes all 50 states, but many employers operating nationwide are assuming it will.

So, if you work for a big company that has any employees in California, don’t be surprised if your HR department suddenly starts asking for a lot of detailed information about who is doing precisely what, how each employee is paid compared to his or her peers, and the “business necessity” behind differences in what people make in comparable jobs. Legal departments are asking managers to spell out “the actual day-to-day content of each job, not just what the formal job description says,” observes McDonald.

They’re also requiring meticulous documentation of hiring managers’ pay decisions. Offering a new hire with hard-to-find skills $10,000 a year more than the going rate, for instance, is okay — as long as you document exactly why you decided on $10,000 instead of, say, $5,000. You’ll have to explain it in writing, and in such a way that you, and whoever has your job after you, can defend the “business necessity” of your new hire’s premium pay.

The second reason to know what’s in California’s new law is that it might be coming soon to a state capital near you. With the gender wage gap persistent and apparently widening, legal experts expect the Golden State’s new statute to serve as a model for legislatures elsewhere.

“Efforts to get something like this through Congress have so far gotten nowhere,” notes McDonald. “So more states are likely to consider adopting laws similar to California’s.” It wouldn’t be the first time.