Is California’s New Law a Step Towards Lasting Fair Pay?

Zev J. Eigen, September 18, 2020

Last week, the California legislature passed Senate Bill 973, and Governor Newsom is expected to sign it into law. The bill is authored by Senator Hannah-Beth Jackson who also worked on the California Equal Pay Act. SB 973 will require employers with at least 100 employees in California to report compensation data for certain job categories by gender, race and ethnicity to the Department of Fair Employment and Housing (DFEH) and the Division of Labor Standards Enforcement (DLSE) every year, starting on March 31, 2021. The stated goal of the law is to “strengthen California’s equal pay laws,” because “the gender pay gap persists, resulting in billions of dollars in lost wages for women each year in California.”

What Does the New Law Require?

1. Employers with at least 100 employees located in California (regardless of where the employer’s HQ is located) will have to submit pay data reports to the DFEH and DLSE for the prior calendar year.

2. Reports will include the number of employees in each of 10 categories listed below by race, ethnicity and sex over the previous reporting time period, and the total hours worked by each employee in each pay band.

  1. Executive or senior level officials and managers
  2. First or mid-level officials and managers
  3. Professionals
  4. Technicians
  5. Sales workers
  6. Administrative support workers
  7. Craft workers
  8. Operatives
  9. Laborers and helpers
  10. Service workers

3. The report will also show the number of employees by race, ethnicity and sex whose annual earnings fall within each of the pay bands used by the Bureau of Labor Statistics Occupational Employment Statistics survey found HERE.

Is This a Step in the Right Direction?

It is difficult to get pay equity laws right. And it is good that California is working hard to figure this out.  Employer groups lobbied strongly against SB 973, hinging most of their arguments on the financial burden required to gather and analyze data- a challenge readily surmountable with pay equity software.

There are two big challenges that law-makers face: 

First, it is hard to tell employers how to group employees in a way that is meaningful and useful. One size (grouping schema) does not fit all, and different employers could easily interpret the list above very differently. Lawmakers want standardized comparisons across employers so data are easily reviewed, but they must weigh that interest against the legitimate need for flexibility in generating meaningful reasonable comparison groups–employees and employers don’t benefit from comparing apples to oranges when it comes to getting pay equity right.

The second big challenge for legislatures is the need for safe harbor rules. Employers must be encouraged to find and fix issues—not discouraged to do so for fear of being hit with lawsuits. While mandating submission of data to the government is a step in the right direction and shifts the regime from a “wait and see”, to an “all employers must pay attention to this” approach, pay equity laws should balance the interests of the state, employees, and employers.

The Three Critical Components of Optimal Pay Equity Laws

 1. Transparency:  Optimal pay equity laws balance the legitimate right to confidentiality with the right to know that protected categories like gender and race do not explain variation in pay for similarly situated workers. I applaud Senator Jackson and California for taking steps to balance these rights by requiring employers to disclose information. The data would be maintained in an aggregate “data lake” for 10 years, and only disclosable on an employer level “as necessary for administrative enforcement or through the normal rules of discovery in a civil action.” Along these lines, laws should also require employers to provide job group level ranges accounting for legitimate job-related neutral explanatory factors for new hires and upon request for internal movements.

2. Safe Harbor Rules: Balancing the concerns for transparency, employers should be encouraged to find and fix problems, not to hide or obfuscate them. This is a big deal. Sometimes laws enacted without this key feature run the serious risk of converting well-intentioned employers interested in correcting problems into ones that have to hide problems to avoid liability, bad press or both. Laws should permit employers to craft reasonable remediation plans like the kind described here vetted by neutral reliable groups or state designees that confidential. While executing such plans, employers should be “safe” from pay equity law suits.

3.     Flexible Groupings and Controls: Instead of a one-size-fits-all regime like SB 973 sets forth, which is on its face inconsistent with California’s Equal Pay Act, lawmakers should require submission of data with the aid of technology, so it may easily be vetted and reviewed by the state or designated vetting organizations or agencies. For instance, the state could authorize not-for-profit groups like the Fair Pay Workplace Alliance or others to sign off on employers’ submissions of grouping schemas and controls (neutral job related policies and practices on which employers rely for varying compensation levels within groups) for the purpose of state review.

Employers with at least 100 employees in California are wise to begin gathering and analyzing pay records now to avoid rushing to comply or submitting data to the government that have not been sufficiently internally vetted and reviewed. 

Getting ahead of compliance requirements also demonstrates to employees and, for public-facing brands, customers, that pay equity is a real priority, and showcases an organization’s focus on fairness and equity.

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