Federal, state and local employment laws are regularly evolving. Predictably, it can be difficult for startup companies to keep up with the emerging legal requirements in the employment law context. Entrepreneurs immersed in the business development aspects of their young enterprise are not likely to view emerging employment regulations as a top priority. However, the very nature of entrepreneurship invokes employment considerations. Human capital is an essential aspect of business growth and expansion. Thus, it is vital that entrepreneurs remain in tune with emerging government regulations in this particular area of law.

The wage inequality problem, which remains prevalent across many industries, has been the subject of an evolving doctrine of employment law at the local, state and federal levels. Particularly in the context of gender pay inequality, and further in the context of pay inequality on the basis of race and ethnicity. Further, the broader wage inequality problem is particularly salient in emerging industries. This is highlighted by the wage disparities between men and women in Silicon Valley, where women with an undergraduate degree earn $0.75 for every dollar similarly situated men earn.

California, which already had one of the most stringent wage law doctrines in the country, recently enacted more expansive legislation in this realm. Given the trend in major cities nationwide, it is likely more states and localities will follow California’s lead in enacting more stringent wage laws in response to persistent problems in wage inequality. Thus, it is important for entrepreneurs, particularly those who rely on human capital, to be familiar with and understand how to comply with this emerging doctrine of law.

 

California’s Fair Pay Act

California’s Fair Pay Act (CFPA) provides a sweeping example of the type of employment law doctrine states and localities might adopt in order to solve the persistent societal problem of wage inequality. The CFPA strengthened existing protections available to employees under California’s Equal Pay Act, which prohibits gender-based wage inequality.

The CFPA amended the Equal Pay Act in several ways, including:

 

1.) Eliminating the requirement that the jobs that are compared must be located at the same establishment. Now the pay comparisons will extend to employees at all of an employer’s locations.

2.) Replacing “equal” with “substantially similar” work. The new lower standard only requires aggrieved employees to prove their work was “substantially similar work when viewed as a composite of skill, effort, and responsibility.” Thus, miniscule differences in duties or a different job title would not preclude a comparison of wages between employees performing “substantially similar work”.

3.) Making it more difficult for employers to justify unequal pay between men and women. When there is a claim under the CFPA, an employer bears the burden of proving that the entire pay differential is based on one or more of the following four factors:

  • (a) a seniority system;
  • (b) a merit system;
  • (c) a system that measures earnings by quantity or quality of production; or
  • (d) a bona fide factor other than sex, such as education, training, or experience.

 

4.) Adding new express anti-retaliation protections for workers that assist employees with bringing claims under the Act.

5.) Holding that an employer cannot prohibit workers from disclosing their wages, discussing the wages of others’, or asking about others’ wages.

 

The CFPA also provided that disparities in compensation could not be justified by prior salary history alone. However, California recently passed legislation that altogether prohibits employers from asking prospective employees about their prior or current salary history. This legislation is aimed at preventing the continuance of historical pay inequality by removing past compensatory history, which may itself be reflective of gender discrimination or gender bias, out of employer’s salary determinations for prospective employees. Similar legislation has been enacted in Delaware, Massachusetts, Oregon, New Orleans, Pittsburgh, New York City, San Francisco, and Philadelphia.

Additionally, new amendments to California’s Fair Pay Act now extend the Act’s wage protections to race or ethnicity. Under the new legislation, California employers are prohibited from paying employees of another race or ethnicity lower wage rates for “substantially similar work.” These new amendments effectively lower the standard for proving discrimination in wage rates, and thus increase the burden on employers.

 

How can Employers Comply?

Even if your business is not located in California or one of the cities/states that has enacted such legislation, it is likely more cities and states will adopt more expansive wage laws to address the wage inequality problem. Further, beyond just complying with employment laws and regulations, entrepreneurs that wish to attract and retain the top talent would be well advised to take proactive measures to ensure they are providing fair and equal compensation.

 

These measures include:

  • Identifying “substantially similar” job positions:
    • California employers will need to identify those job positions that amount to “substantially similar” work by assessing the common features, responsibilities, skills and requirements of different positions.
  • Creating Compensation Grades:
    • Ensuring compliance with wage equality laws and avoiding liability starts with having a comprehensive formal compensation scheme with clear salary ranges. Once job positions and categories are sorted out, employers can create salary ranges and schemes to ensure equality in pay practices.
  • Properly Classifying Employees:
    • Properly classifying employees, interns and independent contractors is a necessary precursor to complying with employment laws.
  • Employment Policies and Procedures:
    • Enact explicit written polices specifically prohibiting pay discrimination.
    • Emphasize in employee handbook or other written materials that employees are not prohibited from discussing wages if they so choose, and that they will not face any retaliation or discrimination for discussing wages with others.
    • Train supervisors to ensure understanding on the policies regarding freedom of discussion of wages and policies on discrimination in pay.
    • Review interview procedures and interview questions, and make sure interviewers do not solicit prior salary history from job candidates.
    • Train management and supervisors to ensure understanding of applicable employment laws and regulations and understanding of stated employer policies and procedures.
  • Review and update job descriptions
    • Ensure job descriptions clearly and accurately reflect the position, skills and responsibilities of the employment position.
  • Records:
    • The CFPA requires all employers covered under the act to keep at least 3 years of records.
    • Those records should include employees’ job classification, duties and responsibilities and wage rate.

 

Employment statutes and regulations in employment law are likely to continue to expand. As this particular area of law expands, and requirements become more exacting, adopting measures like those listed above will provide startups with the structural foundation necessary to limit liability in the context of employment law and to positively contribute to narrowing the gender and racial/ethnic wage gap.