California Legislature Passes Bill That Would Break New Ground on Pay Transparency Requirements

California’s legislature has passed a game-changing bill that would impose significant new requirements on employers in that state. The bill, which seeks to up the ante on pay transparency, is now headed to Governor Gavin Newsom who has until September 30, 2022, to sign it, veto it, or allow it to pass into law. Through Senate Bill (SB) 1162, California would:

• (for employers with fifteen or more employees) join Colorado, Washington, New York City, and other municipalities in requiring employers to disclose pay scale in job postings;
• add a requirement to provide the pay scale to current employees upon request;
• impose first-of-their-kind (in the United States) requirements for employers with one hundred or more employees to report to the state “within each job category, for each combination of race, ethnicity, and sex, the median and mean hourly rate;”
• in a similarly unprecedented move, require employers that retain one hundred or more workers through labor contractors to submit a pay data report covering those workers;
• require employers to submit these pay reports regardless of whether they are required to file an EEO-1 report, and the filing date would be pushed from March to May; and
• maintain a record of each employee’s job title and wage history during employment and for three years thereafter.

California employers with at least one hundred employees are already required to submit pay data to the state annually for existing employees and to disclose the pay scale to applicants upon reasonable request. Those requirements would continue under the new law.

The bill would provide penalties for failure to file the required reports or to make required disclosures.  It would allow people who are aggrieved by a violation of the law to file a complaint with the Labor Commissioner or a civil action for injunctive relief or other relief as the court deems appropriate.

This move in California could tip the scales for some employers, particularly those in industries like tech, with a heavy presence in California, to move to routinely include pay scales in job postings. The bill does not specify how or if it will apply to postings for remote jobs that may or may not be performed in California.

Through the mean and median pay reporting requirements, California would be the first jurisdiction to require employers to look at the distribution of employees throughout an organization by demographics. This requirement is not an “apples to apples” analysis of compensation, but rather a metric focused on whether certain demographic groups are represented in the higher paying roles within an organization.

With these changes, California law would address pay equity from all fronts, including prohibiting discrimination in pay for substantially equal work, prohibiting consideration of salary history in pay decisions, equipping applicants with equal information from which to negotiate starting pay, looking at metrics that could identify barriers to advancement to higher paying roles, and requiring reporting of compensation to the state.

Ogletree Deakins will continue to monitor the bill’s progress and will post updates on the firm’s California and Pay Equity blogs as additional information becomes available. Important information for employers is also available via the firm’s webinar and podcast programs.