Don’t Look Back: California Restricts Use of Salary Histories

October 24, 2016

By Erica Parks

In August, we alerted you to  several measures around the country that may indicate a trend towards restricting employers from seeking or relying upon applicants’ wage histories, including then-pending California Assembly Bill (“AB”) 1676. Recently, Governor Brown signed AB 1676 into law. Fortunately, unlike earlier drafts of AB 1676 and the Massachusetts statute discussed in our August Alert, the new California law does not prohibit employers from seeking wage history; rather, the new law, which can be read in full here, will amend California’s Fair Pay Act (“CFPA”) to preclude employers from relying on an applicant’s salary history as the sole justification for a wage disparity, stating that “prior salary shall not, by itself justify any disparity in compensation.”

The Governor has also signed into law Senate Bill (“SB”) 1063, the Wage Equality Act of 2016, which expands the CFPA’s prohibitions beyond gender-based wage differentials to encompass wage differentials based on race and ethnicity. SB 1063, which can be read in full here, mirrors the gender-related provisions of the CFPA, and prohibits employers from paying “employees at wage rates less than the rates paid to employees of another race or ethnicity for substantially similar work when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.” Similarly, employers bear the burden of establishing that any wage differentials is based upon a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or “a bona fide factor other than race or ethnicity, such as education, training, or experience.” Like the gender-related provisions, a “bona fide factor” must not be based on or derived from a race or ethnicity-based differential and must be job-related and consistent with a “business necessity,” defined as an “overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve.” Similarly, one or more of the factors relied upon must account for the entire wage differential. The new law also incorporates the amendments made by AB 1676, such that employers are precluded from relying on an applicant’s salary history as the sole justification for a race or ethnicity-related wage disparity. Finally, the SB 1063 includes an anti-retaliation provision nearly identical to the CFPA’s gender-related anti-retaliation provisions, including significant protections for employees who disclose, inquire, or discuss their wages.

These new laws go into effect on January 1, 2017.  Before the new year, businesses that operate in California  should take steps to ensure that their hiring practices conform to the CFPA, as amended by AB 1676 and SB 1063.

Please contact MSK if you would like to discuss whether changes to your recruiting or pay practices are advisable for your business.

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