Californian businesses are now required to demonstrate 'equal pay for similar work' among their employees. The state's Fair Pay Act, which came into effect on 1 January, is designed to close the gender pay gap in California. Where previously the onus of proof fell on employees to demonstrate unequal pay practices, it is now the job of business managers (and their lawyers) to demonstrate that their company complies with the Act by maintaining equal remuneration for 'substantially similar' work between male and female employees. The shift from 'equal' to 'similar' work is significant, as it was felt that the Fair Pay Act's predecessor, the Equal Pay Act of 1963, left too much wriggle room around the narrow definition of 'equal' jobs.

The challenge of 'similar'

Many are praising the new Act as a step in the right direction for ensuring fair remuneration for women. However, recent coverage in The Wall Street Journal has raised some troubling red flags for lawyers, compliance officers and management. First, there is uncertainty about what constitutes 'similar' work in legal terms. According to University of California Davis School of Law professor Martha West, statistical pay disparities are more often the product of 'male- or female-dominated job categories' than of unequal pay between individuals holding the same position. 'It will take several court decisions and agency decisions to work out how broadly the term 'similar' will be defined,' Ms West suggested. 

Statistical hurdles

In-house counsel are also likely to face challenges around data collection and calculation when proving that their companies comply with the Act. In situations where a pay disparity is identified, companies will need to subject pay data to rigorous statistical testing in order to determine whether the disparity is caused by, or merely correlated with, employee gender. Retraining of human resources staff to ensure that there is sufficient data to prove compliance may also be required.

Litigation boom

According to several labour lawyers, the new law may have an adverse effect on business in California. 'It's going to lead to lots more litigation, which further weakens the business climate in California,' commented labour attorney J. Al Latham Jr. Other lawyers have suggested that the added compliance burden may deter businesses from setting up shop in the state. Sources: Wall Street Journal; Los Angeles Times