Free Enterprise - The FindLaw Small Business Law Blog

California's Fair Pay Act Will Soon Cover Race, Ethnicity, and Gender

Starting January 1, 2017, employers in California will now face liability under the Fair Pay Act if they are found to have discriminated in setting wages based on race or ethnicity, as well as gender. When the Fair Pay Act initially went into effect on January 1, 2016, the act only applied to gender-based pay disparities. While prior state and federal laws did protect against this type of injury, the Fair Pay Act provides a more direct cause of action for aggrieved individuals, as well as tighter regulations for employers, in an attempt to eliminate this type of civil rights violation from even occurring in California.

For small to large business owners, this law means taking a look at your current employment policies to make sure you are in compliance, as well as reviewing your current payroll to make sure prior decisions did not run afoul of new rules. In addition to expanding the Fair Pay Act to also include race and ethnicity, the new law will also prohibit employers from using an employee's salary history to justify a current disparity in compensation.

The Legal Way to Pay Employees Differently

While employees all deserve to be treated fairly when it comes to compensation, fair pay does not actually mean equal pay across the board. The law requires that employees in the same categories receive equal treatment when setting their compensation. For example, it's fine to have a seniority, or merit -based pay system, so long as these systems' requirements are clearly defined in your company's policies. The act will not require employees with no or less experience to be paid the same as experienced employees, and the same goes for employees who under-perform versus those who consistently meet or exceed expectations.

However, be careful not to have policies that could inadvertently discriminate against employees unless there is a valid reason for the policy. An example of a valid policy that could be discriminatory might include requiring certain educational achievements to qualify for a pay increase. While a policy like this will generally be okay if the education can be considered relevant to the employment, but be aware that even then it could still be discriminatory if a high school diploma is valued more highly than a GED.

Salary History Cannot Be Used to Justify Wage Disparity

Frequently, employers want to know a potential employee's salary history prior to making an offer of employment. The new provisions of California's Fair Pay Act still allow a potential employer to ask, but will prohibit that employer from using the information as a sole factor to determine an employee's compensation. The purpose behind this prohibition is to remedy the centuries old systematic pay disparities between genders, races and ethnicities.

The best way to avoid wage discrimination is to have clear performance-based and seniority-based policies that determine wages for new hires, and wage increases for current employees. Additionally, reviewing management's decisions to make sure the policies are being applied non-discriminatorily should be done prior to advising employees of their wages, or wage changes.

If you have questions about whether your business's policies may get you in trouble, contacting an experienced business attorney with employment discrimination defense experience could set your mind at ease, allowing you to run your business worry-free (well, at least as far as any pay discrimination claims are concerned).

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