California Legislature Serves Up a New Take on an Old Dish: Preparing for the New California Fair Pay Act On October 6, 2015, Governor Brown signed into law the California Fair Pay Act. Prior law (Cal. Labor Code §1197.5(a)) generally prohibited an employer from paying an employee at wage rates less than the rates paid to employees of the opposite sex in the same establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions. Effective January 1, 2016, several changes were made to this law. The California Fair Pay Act amended Labor Code Section 1197.5 to expand the reach of California’s fair pay law, and took effect on January 1, 2016.
Shifts Burden of Proof to the Restaurateur Employer The new law shifts the burden to prove equal pay to the employer. Whether a server, cook, or manager, an employee no longer has to prove that a pay disparity is unlawful. Instead, when sued under this Act, the employer must now prove that pay disparities are justified. Previously it was the employee who initiated the lawsuit who had to prove the pay disparities were because of gender. This is a very big change and employers should proactively look at pay disparities to meet their obligation.
The employer must demonstrate that any pay differentials are entirely attributable to one or more of the new law’s specified factors. Those factors are:
a seniority system,
a merit system, or
a system that measures earnings by quantity or quality of production.
An employer may also rely on a bona fide factor other than sex, such as education, training or experience. However, the new law makes clear that the employer can only reply on the bona fide factor if it can prove that the factor is job related to that specific position, and “is consistent with business necessity.”
Even then, the new law provides the employee another line of attack. Even if the restaurateur employer satisfies the standard, the employee can overcome it by showing there is an “alternative business practice” that would “serve the same business purpose without producing the wage differential.”
Lowers Standard from “Equal Work” to “Substantially Similar Work” Previously, Labor Code Section 1197.5 required equal pay for jobs that required “equal skill, effort and responsibility, and which are performed under similar working conditions...” This was previously known as the “equal work” standard. Significantly, the new law lowers the equal work standard and prohibits an employer from paying 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.” In our restaurants this means that pay comparisons will not necessarily be limited to employees in the same job titles or with nearly identical duties. For instance, unanswered questions will be if a host’s work will be viewed by the courts as substantially similar to a busser, or whether an expeditor’s work is substantially similar to that of a server. In addition, for multi-unit operators, comparisons among employees in different locations may be allowed.
More record retention requirements California Labor Code §1197.5(d) required that employers maintain records of wage rates, the wages paid to employees, job classifications, and other terms and conditions of employment of the persons employed by the employer for two years. California’s new Equal Pay Act extended this records retention requirement to three years. If they have not already done so, restaurant employers must adjust their record retention policies and practices to comply with this lengthened amount of time.
Employees Can Ask About Wages The new law also includes a provision to protect employees inquiring about the wages of other employees, so called “pay secrecy.” Specifically, the new law informs employers that they cannot prohibit an employee from disclosing the employee’s own wages, discussing the wages of others, inquiring about another employee’s wages, or aiding or encouraging any other employee to exercise his or her rights under this section.
New anti-retaliation cause of action The new law also makes it illegal for any employer to discharge, discriminate or retaliate against any employee for invoking or assisting the enforcement of this section. The law permits an employee to bring a civil action seeking reinstatement and reimbursement for such discrimination or retaliation. The law provides that a claim under this section must be brought within one-year of the retaliatory act.
Where Will I Encounter this New Law? Employees can file complaints with the Division of Labor Standards Enforcement (DLSE) for violations of the equal pay and retaliation provisions of the law. Those complaints will be investigated on a confidential basis. The DLSE can then decide to pursue a court action to recover the pay shortfall and liquidated damages on behalf of an individual employee or group of employees, unless the employee(s) request otherwise.
During the DLSE investigation stage, an employee can also not consent to the enforcement action by the DLSE. If the employee does not consent to the enforcement action by the DLSE or if the DLSE dismisses the action, the employee(s) may bring a civil action to recover the pay shortfall and liquidated damages. For claims of retaliation, the employee may proceed directly to court.
Under the new law, the employee can recover the amount by which the employee was underpaid. In addition, the new law provides that the employee could obtain liquidated damages in an equal amount as the underpayment, if she/he can provide the violation was willful. This can result in a doubling of the recovery. A successful plaintiff can also recover interest and attorneys’ fees for bringing the lawsuit.
If retaliation is found, the employee may be entitled to be reinstated and receive reimbursement of lost wages and benefits and other “appropriate equitable relief.” Interest and attorneys’ fees are also recoverable under this section.
What Should Restaurateurs Do Now? The number one thing a restaurateur should do as a result of California’s Equal Pay Act is not wait to get sued before addressing any pay differentials between genders. Where the burden of proof is now on the employer to fully explain that any pay differential is because of a limited number of factors specified in the statute, employers should proactively review the wages paid in their restaurants.
Restaurant owners should compare the compensation among employees in the same job title and job titles that require substantially similar work and see if there are any differences in compensation between genders. When looking at compensation, employers must look at, not only base salary or wages, but also include bonuses or other forms of compensation.
If the restaurateur discovers gender differentials in pay, you should see if they are fully explained by one or a combination of the allowable job related factors: a seniority system, a merit system, a system that measures earnings by quantity or quality of production, a bona fide factor other than sex, such as education, training or experience. Finally, the restaurateur should consider whether there are alternative means to satisfy the job related factor without creating a wage differential. If, through this process you cannot fully explain a pay differential between genders, then the employer should adjust compensation to comply with the new law.
After the company’s analysis of its current employees, it will be important to implement clear guidelines for setting compensation levels and adjustments based on the factors listed above. The criterial should then be used consistently and decisions regarding compensation should be documented. Training of mangers is also very important. Managers should be trained that the law allows employees to request information about the compensation of other employees. They should also be training that retaliation against employees who invoke the act or assist enforcement of the act is not permitted. Managers should be informed that the law does not require employers to disclose wage information in response to an employee request.
This report was reviewed for legal accuracy and updated in 2016 by Weintraub | Tobin.
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