American women face two types of wage discrimination: unequal pay for equal work and unequal pay for work of equal value. The California Equal Pay Act (CEPA) of 1949 addresses the former type of discrimination. Yesterday, Gov. Jerry Brown addressed the latter by signing the California Fair Pay Act (CFPA) during a ceremony at Rosie the Riveter Park in the Bay Area city of Richmond. Effective January 1, 2016, California will ditch the CEPA in favor of the CFPA and prohibit an employer from paying an employee at a lower rate than the employer pays to employees of the opposite sex for “substantially similar” work, regardless of whether they work in the same establishment or even in the same county – a radical departure from the CEPA. Ironically, California’s new look is an old hat – the Canadian “pay equity” principle.
I. The California Fair Pay Act: An Overview
The CEPA prohibited an employer from paying any employee at a rate lower than the rates the employer paid to employees of the opposite sex in the “same establishment” for “equal work.” That meant an employer generally had to pay male and female employees the same wage if their jobs required “equal skill, effort, and responsibility” and “similar working conditions.” For example, a steward and a stewardess, though not a stewardess and a pilot, were entitled to equal pay. The employer could overcome a lawsuit for wage discrimination by showing that the wage gap stemmed from a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a “bona fide factor other than sex.”
Much of the old law is about to change – and the impact on a woman’s wages is going to be tremendous. Effective January 1, 2016, the CEPA will give way to the CFPA and prohibit an employer from paying any employee at a rate lower than the rate the employer pays to employees of the opposite sex for “substantially similar” work – regardless of whether the employees work in the same establishment or even in the same region.1 The CFPA requires an employer to determine whether a male employee’s job and a female employee’s job are substantially similar by comparing a “composite” of the skill, effort, and responsibility that the jobs require and the working conditions under which the employees work.2
II. Oh, Canada! California Resuscitates an Old Canuck Idea: “Pay Equity”
Most observers have commented that the term “substantially similar work” is so vague that employers won’t be able to comply with the CFPA. But “equal pay for substantially similar work” is just a new take on an old idea: the Canadian concept of “pay equity,” also known as “equal pay for equal value.” In fact, the California Legislature appears to have based the CFPA on Section 11 of Canada’s Human Rights Act (CHRA) of 1977. Canada, eh? Yes. Like the CFPA, the CHRA requires employers to assess a “composite” (i.e., the total value) of four factors to determine whether a female employee’s job is of equal value to a male employee’s job and thus requires equal pay: skill, effort, responsibility, and working conditions.3
If you appreciate the difference between comparing applies and oranges and comparing apples and hot wings, you’ll appreciate why the CFPA is such a dramatic departure from the CEPA. The CEPA’ “equal pay for equal work” principle aims to equalize wages between men and women who have the same jobs – e.g., a waitress and a waiter. The CFPA’s Canadian “equal pay for equal value” principle, however, aims to equalize wages between men and women whose jobs might be different from each other but of comparable value to the employer – e.g., a waitress and a cook. Thus, a cook’s job might require more skill than a waitress’ job, but both jobs might be of comparable value if the waitress’ job has more value in the three other factors. Oh, Canada!
III. Exceptions to the “Equal Pay for Substantially Similar Work” Requirement
The CFPA permits a wage gap to open up where: (1) the wage gap stems from at least one of four acceptable “factors” – a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a “bona fide factor other than sex” (e.g., education, training, or experience); (2) the employer “reasonably applies” the factor(s); and (3) the factor(s) account for the “entire” wage gap. For example, a law firm can claim its fifth-year male associate attorneys earn more than a first-year female associate because the former have more seniority. But the firm must be able to show that it pays or has paid fifth-year female associates the same as the fifth-year male associates. Even then, the seniority factor must fully explain the wage gap.
But the last of the four factors – education, training, experience or some other bona fide non-sex factor – can explain a wage gap only if the employer shows: (1) he is not basing that factor on or deriving it from a “sex-based differential in compensation”; and (2) the factor is “job-related with respect to the position in question” and “consistent with a business necessity” (i.e., an “overriding legitimate business purpose such that the factor the employer relies on “effectively fulfills the business purpose it is supposed to serve”).4 For example, an employer can’t claim that a male software developer earns more than a female counterpart only because the former has a law degree, as that degree isn’t related to the position and probably doesn’t serve a business purpose.
Even if an employer makes it across the CFPA obstacle course, he still stands a huge chance of losing. The employee can defeat the “business necessity” defense by merely pointing to an “alternative business practice” that would serve the same business purpose as the employer’s business practice, without producing the wage gap.5 Moreover, the CFPA doesn’t require an employee to show that the employer knew about the “alternative business practice” or that it would serve the same business purpose as cost-effectively as the employer’s business practice. Ironically, an employee might win even if the “alternative business practice” she proposes would have forced her employer to lay her off.
Incidentally, an employer can’t just reduce a male employee’s pay to cover up an unlawful wage gap. Under Labor Code section 1199.5, any employer or other person, whether acting individually or as an officer, agent, or employee of another person, is guilty of a misdemeanor and is punishable by a fine of up to $10,000 or and/or up to six months in prison if he willfully reduces any employee’s wages to comply with the CEPA.6 Because the CFPA doesn’t change that, Section 1199.5 also prohibits an employer from willfully reducing an employee’s wages to comply with the CFPA. The new “equal pay for substantially similar work” principle will only incentivize panicky employers to do just that. Now employers are really between a rock and a hard place.
Like the CEPA, the CFPA permits any employee who receives less than the wage to which she is entitled to file a civil action to recover the balance of the wages, including interest thereon, and an equal amount as liquidated damages, together with the costs of the suit and reasonable attorney’s fees, even if the employee agreed to work for a lesser wage.7 The employee doesn’t have to exhaust administrative remedies before she sues her employer, but she must commence an CFPA action no later than two years after her cause of action “occurs,” unless her cause of action arises out of a “willful” violation of the CFPA, in which case she may commence an action up to three years after the cause of action “occurs.”8
The CFPA further prohibits an employer from firing, discriminating against, or otherwise retaliating against an employee because she “invokes or assists” the enforcement of the CFPA.9 Furthermore, the CFPA helps an employee gather evidence for an CFPA or sex discrimination lawsuit by prohibiting an employer for imposing a gag rule in the workplace. Specifically, the employer can’t prohibit an employee from (1) disclosing her own wages; (2) discussing the wages of others; (3) inquiring about another employee’s wages; or (4) aiding or encouraging any other employee to exercise his or her rights under the CFPA.10 (That, of course, doesn’t mean an inquiring employee has the right to know what his co-workers are earning.11)
If an employer retaliates against an employee for engaging in any activity that the CFPA protects (e.g., “invoking” the CFPA, asking a co-employee how much he earns, etc.), he will face harsh consequences. In a CFPA retaliation action, the employee can seek reinstatement in her old job and reimbursement for whatever wages and/or benefits that she lost through her employer’s retaliatory acts.12 Moreover, retaliation will almost always support a claim for punitive damages, and nothing in the CFPA precludes an employee from seeking an award of punitive damages for retaliation. The time for bringing an CFPA retaliation action, however, is short: one year after the employee’s cause of action “occurs.”13