California’s Fair Pay Act, already the broadest in the nation, has now been expanded in two key aspects:

First, the Governor approved SB 1063, so that the Fair Pay Act now protects against race-based disparities in pay.  Specifically, employees who perform “substantially similar work” under similar working conditions, must be paid equally, unless the employer can demonstrate that the wage differential is based on either:

• A seniority system;
• A merit system;
• A system that measures quality or quantity of production; or
• A bona fide factor other than sex, race or ethnicity (such as education, training, or experience).

Second, the law already requires that each factor must be relied on reasonably and account for the entire wage differential.  That part of the Labor Code has now been amended by AB 1676, to clarify that “prior salary shall not, by itself, justify any disparity in compensation.”

Clearly, the idea here is that initial wage differentials in hiring become compounded over the years if each subsequent employer relies on that prior wage rate.  Why pay someone $50k, when you know she (or now he) would be happy with $40k based on her/his current salary?  Going forward, the applicant will need to be paid what the position is worth, not just that she/he will take based on prior salary level.  Sounds fair, right?

Well, sounding fair and ease of implementation are two very different things.  I can only imagine the questions that will arise for employers who try to justify why one applicant (someone they really want to hire) can’t be paid a premium without bumping up everyone else in a substantially similar position.  And as we have pointed out here, the burden of demonstrating fairness is entirely on the employer, and here, that logic really plays no role.

Quite frankly, what the Fair Pay Act really requires is an overhaul of hiring practices for HR professionals in California.  Gone are the days when management can exercise discretion to negotiate salaries based on an applicant’s prior salary history, or the applicant’s negotiation skills.  Whether that is a good or bad thing for business in California remains to be seen.

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