By Stacy L. Fode, Esq. and Rachel H. Khedouri, Esq.
Fueled by efforts to address gender and racial wage gaps, the California legislature has acted on a number of occasions since 2017 to shine the light on pay disparity by enacting wage disclosure obligations. Thirteen other jurisdictions across the country likewise have in effect or have recently enacted some form of compensation disclosure requirement, commonly referred to as “pay transparency” laws, including six other states (Colorado, Connecticut, Maryland, Nevada, Rhode Island, and Washington) and six localities (Cincinnati and Toledo, Ohio, Ithaca, New York City, and Westchester County New York, and Jersey City, New Jersey). The New York State Legislature has recently passed similar legislation that is awaiting the governor’s signature. To date, the California pay transparency requirement has been limited to responding to requests from applicants to provide the pay scale for the position to which the applicant is applying without any affirmative obligation to disclose salaries and has excluded current employees. New legislation greatly expands employer obligations on both of these points.
On September 27, 2022, Governor Newsom signed Senate Bill 1162, which requires employers with more than 15 employees in California to include the pay scale – that is, the salary or hourly wage range the employer reasonably expects to pay for the position – in any job posting, including those made through a third party. The new legislation also requires all employers (regardless of size) to provide the pay scale for positions to applicants upon reasonable request and to provide existing employees, also upon request, with the pay scale applicable to their current position. Additionally, the new legislation requires all employers to maintain records of job title and wage rate history for each employee for the duration of their employment plus three years and to provide these records for inspection by the Labor Commissioner as requested.
Annual reporting obligations
In addition to revising pay transparency obligations, Senate Bill 1162 also expands the state’s annual pay data reporting requirements. Since September 2020, California employers with at least 100 employees have been required to report the number of their employees by race, ethnicity, and sex in each of the 10 EEO-1 job categories. Starting May 10, 2023, and annually thereafter, covered employers will be required to include the median and mean hourly rate for each combination of race, ethnicity, and sex within each job category reported. The bill further expands the compensation data reporting requirements to include employers with 100 or more workers hired through contractors who perform labor within the employer’s usual course of business. An earlier version of the bill would have required the state to publish each private employer’s pay data report, however, this provision was removed prior to passage.
Failure to comply with the new pay transparency and reporting obligations could result in significant financial penalties. Senate Bill 1162 provides a private right of action for injunctive and “any other relief” a court determines is appropriate, provides for $100 to $200 penalties for failure to file pay data reports, and also grants authority to the Labor Commissioner to investigate and assess a civil penalty between $100 and $10,000 per violation of the pay transparency provisions. Employers can avoid the Labor Commissioner’s penalty for a first violation by demonstrating that they have updated all job postings for open positions to include the required pay scale.
Next steps for employers
Some open questions remain, such as whether the pay scale disclosure requirements apply to remote positions that could be performed in California and whether bonuses or other benefits should be included in pay scale calculations. We anticipate further guidance on these issues from the State. In the interim, employers should take steps to comply with these new requirements by ensuring job postings for California positions include a pay scale (for employers with more than 15 employees in California) and establishing a process to provide such data upon request (for all California employers). In light of the rapid expansion of pay transparency rules across the country, multi-state employers may wish to consider whether to disclose pay information in all postings — even in those jurisdictions that do not yet require it — for consistency and ease of administration. Employers with more than 100 employees should update their process for preparing pay data reports to include median and mean hourly rate breakdowns. And finally, all employers should update their record retention policies to maintain job title and wage rate history for current California employees and for three years after the end of employment. Failure to retain the required records results in a rebuttable presumption in favor of an employee’s claim of a violation under the law.
If you need assistance preparing compliant job postings, drafting or revising record retention policies, or have any other questions on pay transparency or pay data reporting laws, please reach out to the NFC Attorney with whom you typically work or call us at 619.292.0515.