California Raises the Bar on Pay Equity

The California legislature has presented S.B. 1162 (“the Bill”) to Governor Gavin Newsom. If the Governor signs the Bill into law, California will follow the lead of jurisdictions like Colorado and New York City by requiring many employers to include pay scales in job postings. The Bill would also impose pay equity reporting requirements, not just on large employers obligated to do so under federal law, but on any private employer with 100 or more employees, including those whose “employees” are hired through labor contractors. Those reports will also have to include breakdowns of aggregate data not previously collected.

New Wage Transparency Obligations

The Bill, if enacted, will modify California’s existing Equal Pay law by adding several provisions designed to promote pay equity through increased transparency of pay rates. Some of the new rules will apply to employers of 15 or more employees, requiring them to:

• Provide pay scale information in any posted position; and
• If using a third party, such as a recruiter or employment agency, to announce or advertise a job posting, provide the position’s pay scale, which the third party must include in any posting it disseminates.

There are also provisions in the Bill that will apply to all California employers, including:

• Record-keeping rules; and
• Required disclosures to current employees.

Specifically, all California employers will be required to maintain records of job titles and wage rate history for every employee for the duration of the employment, plus three years following the end of such employment. In addition, under the Bill’s provisions, any employer will be obligated to furnish current employees with the pay scale of any position in which the employee is currently employed, upon request of the employee.

The Bill provides for administrative remedies, including penalties of at least $100 and up to $10,000 per violation for non-compliance with the wage transparency provisions. It also creates a private right of action for any person who claims to be aggrieved by a violation.  An employer’s failure to keep records as required under the Bill’s provisions creates a rebuttable presumption in favor of an employee’s claim, meaning that the burden of proof in an administrative proceeding or lawsuit may fall to the employer.

Expanded Mandatory Pay Data Reporting

The Bill also addresses California’s pay data reporting requirements, changing the parameters of who needs to file, when filings are due, and what data needs to be included.

Who Will Need to File?

The Bill expands upon which employers must complete pay data reports, to require reports by all private employers with 100 or more employees, regardless of whether or not those employers are also required to file an annual Employer Information Report (EEO-1) under federal law. Currently, and similar to the law in Illinois, only those employers who must file EEO-1 reports are required to report pay data to the California Civil Rights Department. The law also already applies to any private employer with at least 100 employees, whether or not all of those employees work in California, if at least one employee works within the state. Guidance about the existing reporting requirement explains that employers must include their employees assigned to California establishments and/or working within California and may include other employees.

Another new requirement will obligate private employers with 100 or more employees hired through labor contractors to submit a separate report about pay data for those contracted workers. The Bill specifies that these reports must disclose ownership names of labor contractors that supply employees and that contractors must furnish employers with all pay data needed to complete the report. In addition, the Bill adds a new detail to the law, stating that employers with multiple establishments must “submit a report covering each establishment.” Whether this means that multi-site employers will have to prepare a single report that includes separate information for every location or a separate report per location is unclear for now.

What Must Be Reported, and When?

Currently, employers have to provide payroll data from a “snapshot pay period” of their choosing, including information about each employee’s job category (there are ten pre-defined categories), race, ethnicity, and sex (female, male or non-binary), hours worked, and pay band (of twelve pre-defined ranges). The Bill adds a provision soliciting new information that employers will need to analyze and disclose. Specifically, employers will have to break down median and mean hourly rates within each job category for “each combination of race, ethnicity, and sex.”

Under the timeline imposed by the Bill, starting in 2023, the expanded pay data reports will be due annually on the second Wednesday of May, instead of by the end of March, as has been the case for the last two years.

Lest an employer decide this extra data analysis is too cumbersome, it should consider that the Bill also adds tough enforcement provisions. Failure to comply with reporting requirements could lead to civil fines of up to $100 per employee for first-time offenders, and fines of up to $200 per employee for a subsequent failure to file.

A History of Pay Equity Legislative Activism

California has expanded its Equal Pay Act several times in recent years, starting in 2016, when the Fair Pay Act went into effect with the goal of closing the gender gap in compensation. Later that year, the legislature passed the Wage Equality Act, expanding pay equity concepts to address race and ethnicity-based wage differentials. Then, beginning in 2018, the state prohibited all California employers from asking job applicants about their salary history or from relying on such information to set compensation for a person. That iteration of the law also required employers to provide an applicant with pay scale information upon receipt of a “reasonable request,” but did not compel employers to disclose those details absent such a request.

Note that this Bill deletes statutory language that defined a “reasonable request” as one made “after an applicant has completed an initial interview with the employer.” Pragmatically, applicants for any jobs offered by employers with 15 or more employees will know the range without having to ask for it, since advertisements for such positions will have to include pay scale information. But smaller employers not obligated to comply with the new wage transparency should take heed: the removal of an explanation of what constitutes a reasonable request for a pay scale, coupled with a public policy generally favoring wage transparency, might indicate that any request for such information could be deemed “reasonable” and subject to enforcement.  And current employees must be provided with pay scale data upon “request,” with no explicit reasonableness requirement.

The Governor has until September 30, 2022, to sign the Bill, or veto it, or allow the Bill to become law without signature.  Please stay tuned for updates about enactment, effective dates, and any new guidance that may be forthcoming.