New California Law Demands Racial Pay Equity

Avoiding discrimination lawsuits as a California employer is similar to trying to avoid getting in a car accident if you drive on California’s freeways — no matter how good a driver you are, eventually you are going to get into an accident. It also makes an accident more difficult to avoid when the rules of the road keep changing.

All California employers are aware that they cannot discriminate in the terms or conditions of employment based on any protected classification, such as race or ethnicity. Both federal law (Title VII of the Civil Rights Act of 1964) and California law (the Fair Employment and Housing Act) prohibit discrimination on the basis of race or ethnicity.

These laws are well known, have had decades of interpretation in the courts, and are baked into the employee handbooks and employment practices of all California employers. However, just when California employers thought they had finally mastered the discrimination freeways, the Legislature dropped a metaphorical interchange into the middle of the I-5 freeway which has cars backing up from Sacramento to San Diego.

Wage equality based on race

That new hazard is the “Wage Equality Act of 2016.” This law, which goes into effect next month, follows on the heels of 2015’s Fair Pay Act, which was the strictest gender pay equity law in the nation, but has yet to be interpreted by the courts. This new law, similar to the Fair Pay Act, amends Labor Code section 1197.5, prohibiting employers from paying employees of one race or ethnicity less than employees of a different race or ethnicity for “substantially similar” work. In addition, AB 1676, which was passed concurrently with SB 1063, prohibits employers from using prior salary as the sole justification for a pay disparity.

One major issue with the Wage Equality Act is that it doesn’t take into account the demographic diversity in California. The citizens of California are – through no fault of employers or alleged institutional racism – not evenly spread out based on race or ethnicity.

Geographic disparity

If a business has offices in say, Marin County, but has a regional office in Bakersfield, the managers in Marin are likely going to be less Hispanic than the managers in Bakersfield, and are likely being paid more primarily due to the cost of living in Marin. To the casual reader of SB 1063, however, it looks like the company pays 80% of its Caucasian managers considerably more than what it pays 80% of its Hispanic managers.

The courts are going to have to interpret the new law and decide whether extreme geographic differences (abundant in California) are a bona fide defense to a race or ethnicity discrimination claim based on the new law.

Conduct a pay audit

Just like one routinely checks the tires and keeps up on recommended maintenance, California employers should assess any pay disparity among their employees (particularly with respect to gender and race/ethnicity) before someone else does it for them. Any such self-assessment should be done in conjunction with competent counsel who can review and offer guidance (just like a good mechanic — except more expensive but with attorney-client privilege).

Companies should also review their written policies and practices with respect to hiring, promotion and compensation, to ensure compliance with the new Wage Equality Act.

Navigating the employment laws in California may sometimes feel like fighting traffic on the freeway, but with a little preventative maintenance and planning of the route, California employers can dramatically reduce wasted time and the chance of a costly accident.