Lawsuit Prevention for Employers

Effective January 1, 2016, California’s Equal Pay Act was amended to bring greater firepower to the state’s attack on an old nemesis: gender-based wage discrimination.  As laudable as the underlying goals of this legislation may be, its operative provisions appear to be ill-defined and over-broad, exposing many diligent employers to groundless lawsuits as “collateral damage.”

The new law, in effect, commissions a cannon to do a sharp-shooter’s job.

This statute, which amends Labor Code, section 1197.5, has added several provisions that create substantial new vulnerability for even those California employers who are aware of its sweeping changes.

As one example, the former law prohibited the payment of lower wages to members of the opposite sex performing equal work in the same establishment.   By contrast, the amendment eliminates the “same establishment” proviso, expanding the exposure of companies with multiple locations.

Further, the new law significantly modifies the term, “equal work” to “substantially similar work, when viewed as a composite of skill, effort and responsibility” which is performed under substantially similar working conditions.  (Emphasis added)

Obviously, these changes alone will make claims available to many more employees than was formerly the case, if for no other reason than the uncertainty of what is meant by the term, “substantially similar work,” as that term is defined.

But, unfortunately, there are many other reasons, starting with the fact that the four previously-recognized exceptions to the statute’s coverage have been substantially curtailed.  These formerly provided that wage differentials were immune from scrutiny if they were based on:  1) seniority systems, 2) merit systems, 3) systems measuring earnings by quantity or quality of production or 4) any other bona fide factor besides sex.

The new law substantially limits the last factor, by requiring the employer “to prove that a wage differential is not based on, or derived from a sex-based differential and is consistent with a “business necessity.”

Business necessity may be shown by such factors as differences in education, training or experience that is job related to the position in question.   However, the new law further raises the bar by altering the definition of “business necessity” to mean “an overriding legitimate business purpose, such that the factor relied upon effectively fulfills the business purposes it is supposed to serve.”

Moreover, the amended statute also provides that this defense is not available if the claimant-employee demonstrates that an alternative employment practice exists that would serve the same business purpose without producing the wage differential.

What’s more, the employer must now satisfy two new requirements once it has demonstrated the application of at least one of the four above-enumerated exceptions.  First, it must show that each factor relied on is applied reasonably.  Second, the employer must prove that the factor or factors relied on account for the entire wage difference. 

Significantly, the new law places the burden of proof on the employer to demonstrate the existence of legitimate factors, other than the sex of the employee, for any wage disparity.

It has been a long-standing tradition for employers to impose restrictions on the sharing of wage-related information among employees.  Disregarding this, the new law prohibits employers from restricting discussion of an employee’s wages with others, or the wages of other employees.  Similarly, employers may not prevent employees from inquiring about the wages of other employees, or encouraging or assisting other employees in the exercise of rights under the amended law.

The new law expands enforcement to include not only claims for wage discrimination, but for retaliation as well.  Employees alleging that they have been discharged, harassed, discriminated or retaliated against are provided the right to pursue a civil lawsuit for reinstatement and reimbursement of lost wages, in addition to seeking damages for retaliation, including those for emotional distress, punitive damages and the reimbursement of attorneys’ fees.

In recent years, employers have been encouraged to consider the inclusion of language in written policies which commits the employer, in advance, to complying with wage hour laws generally, and to rectify any failures to do so promptly upon receiving notice of any unjustified underpayment of wages.

This prior commitment justifies the inclusion of corollary language which requires, for example, that employees notify specific managers immediately of any request that they work off the clock.  Such policies can vastly strengthen the defense of wage claims by allowing evidence of an employee’s failure to notify management of the prohibited conduct, as required, to show that the subsequently asserted violation never occurred.

It is recommended that similar policies be considered for inclusion in employee handbooks, employment contracts and corresponding personnel forms specifically addressing the newly-amended Equal Pay Act.

The new law requires careful review of existing policies to delete provisions that are in conflict with it.  This would include the revision of some common policies, such as those which prohibit the viewing or discussion of other employees’ wage information or time cards.

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Jay G. Putnam is a Petaluma labor lawyer who has specialized in representing California employers for over three decades. His practice is devoted to preventing lawsuits against his clients, without sacrificing workplace authority or management prerogatives.

While no one can guarantee a future free of lawsuits, Putnam has compiled a remarkable record of success: Not one employer-client has been sued in 36 years with his system of precautions in place.

For those clients who have arrived with pending lawsuits, Putnam has established an excellent track record of success as well. 

You are invited to visit Mr. Putnam’s website, where you will find in-depth discussion of the most common mistakes made by California employers, and how to avoid them. www.jaygputnam.com/articles-by-jay-g-putnam/