California Amends Pay Equity Law, Providing Clarity for Employers

California’s pay equity law has been amended to clarify certain ambiguities regarding proper interview questions, disclosure of pay scales, and the application of the law to existing employees.

The California Fair Pay Act, codified at California Labor Code section 1197.5, saw significant amendments in 2015 and again in 2016. The Act provides that “an employer shall not pay any of its employee at wage rates less than the rates paid to employees of the opposite sex,” or another race or ethnicity, for equal work on equal jobs.

In 2017, section 432.3 was added to the California Labor Code. This law prohibits employers from relying on job applicants’ salary histories, with certain exceptions.

Assembly Bill (AB) 2282, which was signed into law by Governor Jerry Brown on July 18, 2018, amends California Labor Code section 432.3, relating to salary history, and California Labor Code section 1197.5, relating to pay equity. The amendments will become effective on January 1, 2019.

Amendments to California Labor Code Section 432.3 (Salary History)

On January 1, 2018, California Labor Code section 432.3 took effect. Section 432.3 prohibits employers from relying on salary history in determining whether to offer employment to an applicant or deciding what salary to offer an applicant. “Salary” refers to both compensation and benefits. Section 432.3 also prohibits employers from asking applicants about their salary histories, but it does not prohibit employers from considering salary history if an applicant voluntarily discloses his or her prior salary. Additionally, section 432.3 requires employers to provide an applicant with the position’s pay scale if the applicant so requests.

AB 2282 amends California Labor Code 432.3 and attempts to clarify the statute. First, AB 2822 defines “applicant,” “reasonable request,” and “pay scale.” An “applicant” is defined as someone “who is seeking employment with the employer.” An existing employee who applies internally for a position is not an “applicant” for purposes of the statute. As per AB 2282, a “reasonable request” for a pay scale must take place after an initial interview. A “pay scale” is defined as “a salary or hourly wage range.”

Second, while the statute prohibits employers from asking about or “prompting” applicants to disclose salary history information, the amended statute expressly permits employers to ask about salary expectations. Of course, in responding to an employer’s question about salary expectations, an applicant may disclose his or her salary history. If so, the employer may rely on and/or consider the voluntarily disclosed salary history information in determining the applicant’s salary.

In sum, AB 2282 provides slightly more clarification to California’s statutory ban on asking about salary history. Nevertheless, employers may continue to struggle with questions regarding California Labor Code 432.3, perhaps prompting the legislature to step in once again.

Amendments to California Labor Code Section 1197.5 (Pay Equity)

Given the aforementioned prohibition against inquiring about salary history, employers have wondered whether they are permitted to consider an existing employee’s current pay level when making a compensation decision (such as for the purposes of giving the employee a pay increase or bonus).

The California Fair Pay Act recognizes that an employer may justify pay differentials based on a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a differential based on any bona fide factor other than sex, race, or ethnicity. California Labor Code Section 1197.5 elaborates on what qualifies as a “bona fide factor” other than sex, race, or ethnicity. A bona fide factor “shall apply only if the employer demonstrates that the factor is not based on or derived from a [sex-, race-, or ethnicity-based] differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity.” Each factor must be applied “reasonably.”

AB 2282 clarifies that an employer may consider a current employee’s existing salary when making a compensation decision. The amendment states: “Prior salary shall not justify any disparity in compensation. Nothing in this section shall be interpreted to mean that an employer may not make a compensation decision based on a current employee’s existing salary.” However, the amended law makes an important qualification. The employee’s existing salary may be considered, “so long as any wage differential resulting from that compensation decision is justified by one or more of the factors in this subdivision.”