Episode 177: Employer Best Practices to Ensure Compliance with California Equal Pay Act

Welcome to the Workplace, a podcast by Cal Chamber. I'm Matthew Roberts, the Labor Law Helpline Manager and Employment Law Council with the California Chamber of Commerce. Greetings listeners. As some of you may have seen, recently, the California Chamber of Commerce announced that it has signed the California's Equal Pay Pledge. Cal Chamber's support of the Equal Pay pledge highlights not only the legal obligations under the California Fair Pay act, but also the best practices for ensuring a workplace culture that prioritizes fairness and equality in the workplace as a means towards retaining quality workers, increasing productivity, and of course, reaping the profitability benefits that come with this type of work environment. So to discuss both the legal requirements of the Fair Pay act and the best practices for accomplishing all of these work culture goals, we welcome back Bianca Saad, Cal Chambers, Vice President of Employment Law, leading our training, content and advice department. Bianca, thanks for joining me today.

Absolutely, Matt, thanks so much for having me.

Well, Bianca, of course it wouldn't be a discussion with you and I unless we dug into the compliance arena first. So why don't we start with you providing a rundown of the basic legal standards under the California Fair Pay Act.

Yeah. So the Fair Pay act, it's also commonly referred to as the Equal Pay act, prohibits paying employees less than others of the opposite sex or another race, ethnicity or other protected category for substantially similar work. So what are we talking about when we talk about substantially similar? Basically, we're looking at work that is performed using similar skill, effort, responsibility and similar working conditions. One thing to note is it doesn't have to be the same job title or function. What we're looking at is the work that is involved. So just because two individuals don't necessarily have the exact title doesn't mean that they might not be in a situation situation where we would be comparing them for purposes of equal pay. So another component to the Fair Pay act is that employers cannot have workplace rules that are going to prohibit employees from discussing or disclosing their wages or salary. That includes not just whether an employee is going to disclose their own wages or discussing those wages with co workers. Or it can include again, not prohibiting them from asking or otherwise discussing those wage rates with co workers. And lastly, employers cannot prohibit employees again from exercising their rights under the Equal Pay Act. So that would include again, not just discussing their wages with other employees, but exercising their rights under the act. Meaning if they see something and they see an issue and they raise it, that is also protected.

Now what's important here, I think that we talk about is we Talk about equal pay, we talk about fair pay, but the law doesn't require that everybody who's performing substantially similar work is always paid the same. Right, Bianca?

Yeah, that's exactly right. So we can pay our employees differently for substantially similar work. But what we have to look at is what is the reason for that disparity. The disparity, if it's based on a bona fide factor other than sex, race or ethnicity is acceptable. But it's going to come down to what are we talking about with that bona fide factor.

Sure. So let's run down these bonafide factors because there's four of them that we have with under the law, and they all have kind of different standards and different ways that they might work.

Yeah, absolutely. So one of the bona fide factors could be a seniority system. So this is something basically where the compensation is determined according to the length of employment only. This is pretty straightforward and rigid in terms of how it's going to impact the compensation decisions. And any deviations or exceptions would need to be clearly communicated again or explained. Right. Because really what we're focusing on there is, it's just straight and forward. How long has the employee been there? Then we've got a merit system. So this is something that can be based on objective measurements or subjective criteria. Now, if we're looking at the subjective criteria, it still needs to be adequately supported. So what does that mean? If we're talking about somebody's performance and the quality of their performance, we need to, you know, what is our evaluation system? How are we documenting that? How are we again justifying the fact that if we're claiming that this disparity in pay is based on a difference there, we need to be able to explain and demonstrate how that is. So.

Then we have some other system that could measure earnings by the quantity or quality of work. Again, this is something that's pretty straightforward, but we do need to make sure that we know what that system is. Right. We're basically just again, talking about what are the rules. And the key there is, again, making sure those rules are uniformly applied. Right. We're not just selective in terms of when and how we are going to apply those. And then lastly, there can be a bona fide factor other than sex, race or ethnicity. These are other factors that include things like education, training, experience, geographic location, shift times. Even during our webinar that we had on this today, you talked about shift differentials and the fact that the night shifts are less desirable. So then we're paying more during those times because we need to attract those workers. So the key there when we're looking at those other factors is it still needs to be job related and consistent with business necessity in order to be justifiable. So what are we talking about with the business necessity? That means there's some overriding legitimate business reason, a purpose for that factor to fulfill the need that we have and how it's intending to serve. So I think that is one piece that does tend to get overlooked when we're talking about what these bonafide factors are, is it's not just having that extra degree or, or another additional skill set that maybe the next person doesn't have, but how is that actually adding value? What is the business necessity for that?

Right. And I think what's important as we kind of close the discussion on this is that whichever factor you are going to rely upon, if there's going to be a pay disparity between two people doing substantially similar work, is the factor needs to account for the entire disparity. Right. If we're paying somebody $20,000 more a year to do the same job and we rely upon education, right. Maybe they have a related education, it's good. Is that enough to justify 20 grand difference between the two? Or is that gap just way too wide and we can't justify the entire gap with that bona fide factor. So Bianca, now that we've got those legal standards set out and really we can distill it down pretty simply pay people the same for substantially similar work. And if you're not going to do that, make sure you've got a bonafide factor to justify that entire disparity. But what's really important for employers, I think, is the kinds of steps we can do organizationally to put our best foot forward and ensure that our compensation decisions are actually mattering. So let's talk about some of the practical ways that, you know, that we can do to improve compliance and improve our compensation decision making.

Yeah, absolutely. So first, one of the things that many may be looking into and comes to mind and is a great practice is audits. Now when we say audits, just generally there are a couple of different ways we can talk about audits. There's auditing your own organization's practices around pay and compensation decisions. Just in terms of looking at what are our practices currently and what are we doing. Then we also have an audit that is in the sense of a true compensation audit, meaning we are doing a thorough audit of what individuals are making so that we can find where if at all we have any sort of pay, pay disparities. So going to the audit around the actual pay, I will say that that is definitely can be a tricky area. And if somebody is taking that particular audit where again where they're looking at the, the compensation specifically to find the disparities, absolutely. Working with legal counsel is going to be imperative because there's a lot that goes into that, around things like maintaining confidentiality, privilege, how that might come into play. If you're in litig the road, all of that, you're going to want to be working with council. But there are benefits to that, right? Because if you find the disparities then you can, you can remedy them. And again, working with council on how to go about doing that. The other audit though, that I mentioned, which is more sort of the organizational practices audit, I think that is a great place for any organization really to start because you're just evaluating what is it that we're doing, who's making these compensation decisions, what, what's contributing to those compensation decisions, what are the criteria that the decision makers are relying upon, is there any discretion and then really getting a sense of how these decisions are made. Because if you find that there are inconsistencies maybe in how things are done, that might indicate that there could be problems down the road. And the idea is that you really want to improve your overall processes to prevent any pay inequities in the future.

Right. And I think it's really important on that second part that you're talking about to recognize organizationally who contributes. Something that we've talked about is, you know, you're my boss, of course, and you get to review my performance, you get to tell me when I'm great, you get to tell me when I'm not great. You don't have the final say over how much I get paid. Right. But those who do have the decision making process listen to you, right? You have a lot of weight because you're the one who's directly supervising what I do. You're the one who can justify should we pay him more, should we not pay him more? And so it's important to know who's going to have influence over these decisions, even if they don't make the ultimate decision, because that will impact what ends up happening with our compensation decisions. And you know, identifying who has that influence is going to be really good for another practice that we're talking about here shortly. But that's what we're talking about, about the practices, who is all involved in this. It doesn't necessarily need to be the ultimate decision maker. There's a lot of people in it. Okay, Bianca, what's another thing that we can look at?

Alright, so another great thing to look at is your job descriptions. Remember all of the equal pay issues that we've been talking about. This all revolves around whether comparable employees are doing substantially similar work. So our job descriptions are going to play an important role with that. We want to make sure that they're accurate and up to date and are reflecting appropriately what those individuals are doing so that we know that we're comparing the right people. Right. Because again, we're not going to just be comparing apples to oranges. We need to look at who's doing substantially similar work. And so really being clear on which categories of employees that we're looking at, our job descriptions can help with that. But not only for purposes of the pay disparity itself in terms of who it is that we're looking at just for performance in general. It's also a great place because if we're tying our performance reviews to those accurate job descriptions and we have stark contrast between one similarly situated individual and their, you know, their job description, they're not meeting the requirements, let's say, or they're maybe lagging in areas where you have somebody else who is outperforming. Again, that's going to justify a disparity, if there is one.

Absolutely. And that kind of dovetails into the next thing that we talk about, documentation. Of course, anybody who's attended one of our seminars or webinars or listened to us talk at all knows that we love documents. That's because we're attorneys. Right. And most of the important part of this is that memories fade, stories change. People are self interested when they testify. Bianca, I know when you and I conduct depositions, when we were litigators back in the day, you'd ask a question of somebody and they'd be like, yeah, you know, we paid Matt less because he was just not a great employee. And what's the next question? Why was he not a great employee? Give me examples. And that's when we start to see people kind of fumbling over their story. Because by the time you get to a claim and litigating this, it's two years ago that we made these compensation decisions. So what are the kind of documentation that you would be looking for for an employer to keep in place to ensure that they've got good compensation? Decisions that are justified?

So yeah, in terms of what to look for, for the documentation? Well, the job description is one that we just talked about. And then also having that performance review which should be tied to the job description. Right. So again, if there are.

Differences in the performance that are justifying that we're on solid ground there. The other things to look at would be any sort of documentation from the hiring process that would substantiate those bona fide factors. If there's a difference in, again, skills training, education, any of that experience that somebody has, again, it still needs to be tied to the business necessity of that current position. If there are things along the way. Right. Pay increases, what is the reason for somebody's pay increase? That you're documenting all of these things so that when you're comparing and you can see a trend on one side differing from a trend on another, you can sort of look at or show those justifications as to why those pay disparities exist.

Yeah. And just kind of follow up on that. Especially when we're talking about performance reviews and why, you know, we're doing something when we fill out performance reviews. Bianca. Right. It's this metric that we have to identify whether they're doing well or not on that. And if you just say, yes, they're doing well, that's one step towards it. But what I always find is it's really important. Yes, they're doing well because they are doing this right. Like highlighting specifically how they are exceeding expectations or meeting them. And what that actually really means in terms of the actual work that they're doing. And I think as the equal pay pledge kind of highlights that we talked about at the outset of this episode is one of the most important aspects is training. I think that kind of wraps everything up because as we've talked about, a lot of different aspects in compensation decisions, and who's making these decisions could involve a ton of people in your organization. So what can we do from a training perspective to help ensure compliance here?

Yeah, training is a big one because like you said, you have certain decision makers, but you can still have a lot more people who are influencing or contributing to the overall process and decision making around pay. So it's really important for all of those individuals to understand, well, what are the laws around equal pay in California and what are our obligations? We didn't touch on it in this podcast, but one of the obligations that we have now is for all of our employees to provide a pay scale upon request. So it's important for, of course, not just HR professionals, but supervisors, managers to know about that and to know what are they going to do. What is the organization's practice in terms of handling those requests when they come in? So really making sure that people understand another easy one, that sometimes people still don't realize that it's unlawful to prevent employees from talking about their wages. Right. That could actually be coming from a good place where maybe one employee gets a bonus or some, you know, added something that the other employee is not. And we're saying we don't want their feelings to be hurt, so don't say anything because that could really impact their morale or whatever. Well, we can't do that, unfortunately.

Yeah. And I think these are all great points to highlight and something you can take away from the episode to just get started immediately. Right. Like, of course, if you want to audit and you need to audit, get an attorney and do that kind of stuff. But there's a lot we can do without attorneys that we can just look at the rules and look at our practices and say, how do we need to update these kinds of things? So, Bianca, thank you so much for taking the time to talk through equal pay issues with me today. I thought this was a wonderful conversation.

Thanks so much for having me, Matt. It's always a pleasure.

And thank you listeners for joining this discussion on the workplace. Please comment, share and subscribe to Cal Chamber's podcast by visiting calchamber.com Sam.