briefing regarding california’s new fair pay act
TRANSCRIPT
California’s New Fair Pay Act: What You Need to Know
Presenters: Amanda Sommerfeld
Kiffany Hoover
Today’s eLunch Presenters
Amanda Sommerfeld Partner, Winston & Strawn
Los Angeles
Kiffany Hoover Client Services Director, RGP
Los Angeles
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The Fair Pay Act Amendment to California’s Equal Pay Act
Amendments to Labor Code Section 1197.5
• Effective 1/1/16, California’s amended Equal Pay Act requires employers to pay employees the same wage rate for “substantially similar work” when viewed as a “composite of skill, effort, and responsibility, and performed under similar working conditions” • “Skill” refers to experience, ability, education, and training • “Effort” refers to the physical/mental exertion needed for the job • “Responsibility” refers to the degree of accountability or duties
required in performing the job • “Working conditions” refers to the physical surroundings (temperature,
fumes, and ventilation) and hazards
• “Wage Rate” means not only salary, but other compensation and benefits 6
Amendments to Labor Code Section 1197.5 (cont.)
• Employees in different roles and different departments and different locations may be used as comparators by an employee • Unresolved issue: do cost of living disparities in different cities
constitute different “working conditions,” sufficient to justify a pay disparity? • DLSE FAQ Sheet does not identify this as a type of relevant “working
condition”
• Under the new law, an employee must only show that he/she is being paid less than an employee of the opposite sex who is performing substantially similar work. The employer must then show that it has a legitimate reason for the pay difference
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Amendments to Labor Code Section 1197.5 (cont.)
• An employer can escape liability only if it carries its burden to establish that the wage differential is based upon (a) a seniority system; (b) a merit system; (c) a system that measures earnings by quantity or quality of production; or (d) a bona fide factor other than gender, such as education, training, or experience • An employer may only rely upon this last defense, however, where it
can demonstrate that the factor (a) is not based on or derived from a sex-based differential in compensation; (b) is job-related with respect to the position in question; and (c) is consistent with business necessity
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Amendments to Labor Code Section 1197.5 (cont.)
• What does “business necessity” mean? • It means “an overriding legitimate business purpose such that the
factor relied upon effectively fulfills the business purpose it is supposed to serve”
• This business necessity defense will not apply if the employee demonstrates that an alternative business practice exists that would serve the same purpose without producing the wage differential
• To escape liability, an employer must also affirmatively demonstrate that the factor relied upon was reasonably applied and that the factor actually accounts for the entire wage differential
• How will this work?
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Other Provisions of the Fair Pay Act:
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• Allows the recovery of “unpaid” wages, interest, attorneys’ fees, $10,000 penalty, and liquidated damages—double the wages and interest
• Prohibits retaliation against employees who seek to enforce–or assist in any manner in the enforcement–of the EPA: question their pay
• Prohibits employers from barring the discussion or disclosure of wages, or inquiring about another employee’s wages. The law does not require an obligation to disclose wages
• Requires employers to keep records of wages, wage rates, job classifications, and other terms and conditions of employment for three years. (Previously, the record requirement was only two years)
Cases Brought Under the Equal Pay Act
Cases Brought Under the Equal Pay Act
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• There are roughly 15 Equal Pay Act claims pending in California • Ribeiro v. Sedgwick, LLP (class action on behalf of female lawyers)
• Recent class action settlements: • Wellens v. Daiichi Sankyo, Inc. ($8.2M for 1,500 female sales reps)
• Qualcomm Pre-litigation Settlement: ($19.5M for 3,300 female tech workers)
• Coates v. Farmers Insurance et al. ($4.1M for 300 female lawyers)
• Target industries: pharmaceutical/medical device companies, law firms, and accounting firms
Recommendations
Recommendations
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• Handbooks: • Remove any prohibitions about discussing compensation
• Remove any reference to equal pay for “equal work”—the standard is “substantially similar work”
• Job descriptions: • If they are specific about specifying distinct duties, responsibilities,
experience level, expectations, and working conditions, you may be in a better position to defend different wage rates for potentially similar jobs
• Update record retention policies/practices • Management training:
• Make sure managers understand the consequences of giving more responsibilities without formally changing titles and pay
• Review and revise data tracking mechanisms in HRIS systems • Review/revise background check and screening processes
Recommendations (cont.)
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• Evaluate complaint resolution process • Ensure/create a process to escalate concerns/questions or complaints
and communicate it
• Investigations of pay should be a collaborative effort of HR & Legal
• Revise compensation criteria/practices • Who is making pay decisions for new hires and raises? Are those
decisions vetted through a process that ensures pay equality? Are those decisions based on prior compensation instead of work performed and merit?
• Evaluate your pay philosophy • How does this relate to your workforce?
• How does this relate to your culture?
• How is this attaining your risk tolerance goals?
Have a Discussion With Your Executive Team
• Decide on your course of action BEFORE you review/edit or audit your records
• Establish a steering committee or executive thought leadership team • Have a conversation with your executive team • Where do we stand on this issue? • Where do we want to stand on this issue? • How will this platform impact our culture and organization? • What is our risk tolerance? • Ensure that this work has not been started
• What has already been done?
• Who has been involved? 17
Have a Discussion With Your Executive Team (cont.)
• Assess your need to involve external counsel • Establish who is going to “own” this project (best practice:
have legal involved) • Evaluate your data
• How much validated data is available? • How deep do we want to go in our review?
• Depends on culture
• Risk Tolerance
• Evaluate your resources: Which resources are we going to dedicate to this? Do we have expertise? If working with 3rd party, who will be the internal champions?
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What is Involved in an Assessment?
• CHRO, CLO, CFO, CIO, CEO–everyone should be talking about this • Questions:
• Do you have documentation that is uniformly applied of substantially similar classifications?
• Have you reviewed job descriptions?
• Have you assessed across departments?
• Assessments create discoverable information • Have you protected the company during the process? • Who is doing the work? • How are you set up for sustainability? • How will you continue to monitor the process? • Is Talent Acquisition trained in on-going operations?
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What is Involved in an Assessment? (cont.)
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• HR Practice Documentation Job evaluation methodology Job grades/job bands methodology (and actual structure) Salary structure methodology – history of adjustments, shift differentials?
Geographic differentials used? Documentation of performance management approach Annual salary increase process Entry salary guidelines/hiring salary determination approach Bonus/incentive plan designs Equity plan designs Promotion guidelines and process Benefits/perquisites provided on a select basis (i.e., not open to all employees) Career path documentation
• Job Documentation Job listing, by job family/function/grade Actual job descriptions/function matrices/etc. Job evaluation assessments, scores, etc. Organizational charts
What is Involved in an Assessment? (cont.)
Employee Company ID (unique identifier)
Supervisor Company ID
Gender
Grade
Salary Structure Range
Function/Family/Discipline
Full-Time/Part-Time
FLSA Status (exempt/nonexempt)
Most recent position effective date
(to calculate time in position)
Date of last promotion
Highest education level attained
Years of relevant work experience
Eligible for shift differential
Job title
Salary Structure Assignment
Business Unit
Company Department
# Assigned Hours / Week
Hire date (to calculate service length)
Certifications achieved
Total years of work experience
# of levels from CEO
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What is Involved in an Assessment? (cont.)
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• Compensation Data Base pay rate (specify if maintained hourly, weekly, monthly, or annually) Overtime pay earned (and # of hours) and paid Bonus eligibility Target bonus (% of base salary or target amount) Last bonus paid (amount) Date last bonus paid Target equity award (% of base salary or target amount) Last equity award (amount) Date of last equity award Other perquisites/benefits (not broad-based)* Most recent performance rating
*Examples include: company car/car allowance, cell phone, mortgage subsidies, club membership, professional organization membership, additional insurance, paid time off exceed company policy, business travel exceeding company policy, and other cash allowances
Questions?
Thank You.
Amanda Sommerfeld Partner, Winston & Strawn
Los Angeles
Kiffany Hoover Client Services Director, RGP
Los Angeles
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