What’s the Pay Range? Practical Considerations for Employers in the Advent of California’s Pay Transparency Law

THE LAW

Under California’s current law, Labor Code Section 432.3 requires employers to provide candidates for employment with the pay scale applicable to the position they are applying for only upon reasonable request, meaning only after an initial interview has been completed. Employers are prohibited from asking about the candidate’s historical pay data or relying on such information for purposes of determining whether to make an offer of employment or what the offered salary should be.

Effective January 1, 2023, SB 1162 expands California employer pay transparency requirements in the following ways:

• Pay scales in job postings: Employers with 15 or more employees must provide the pay scale in any job posting. If the employer utilizes a third-party vendor to upload job postings, the employer must convey pay scale information to that vendor and the vendor shall include the pay scale in its posting. “Pay scale” refers to the salary or hourly wage range that the employer “reasonably expects” to pay for the position.
• Pay scale for current employees: Employers of any size must also provide current employees with the pay scale for the employee’s current position at that employee’s request.
• Retention of records: Employers must retain records of job titles and wage rate history for employees during the course of their employment and for at least three years after that employee’s separation from employment. The California Labor Commissioner is given authority to inspect these records.

PENALTIES FOR VIOLATING SB 1162

SB 1162 provides for an individual cause of action brought within one year after a person who claims to be aggrieved by a violation of the law learns of a violation, with remedies including injunctive relief and any other relief a court deems appropriate. The Labor Commissioner may also issue civil penalties for noncompliance with either the pay scale disclosure or record retention requirements ranging from $100 to $10,000 “per violation.” The actual citation amount will depend on several factors, including whether the employer has previously violated the law.

With respect to the pay disclosure requirement, the law provides for a “safe harbor” for first-time violations where the employer can demonstrate that all job postings for open positions have been updated to include the pay scale as required. However, failure to comply with the records retention requirement creates a rebuttable presumption in favor of any employee bringing a claim under the law.

BIG PICTURE: THE TREND TOWARD GREATER PAY TRANSPARENCY

With SB 1162, California joins the burgeoning trend as just the latest jurisdiction to require more pay transparency in job postings and to employees. In a departure from tradition, California is not the first in this space; several laws have already been enacted across the country in the last three years that require varying levels of pay range disclosures, including in the City of Ithaca, New York City, Westchester County, Jersey City, Colorado, Nevada and Washington.

SB 1162’S UNSETTLED QUESTIONS

As has been the case for many state and local pay transparency laws, SB 1162 leaves several open questions as to its interpretation. Until the California Department of Industrial Relations may publish additional guidance on its interpretation of the new law, the following questions remain unanswered:

• Remote Workers: Notably, SB 1162 does not restrict its application to businesses based in California. Thus, it remains unclear whether the new law would apply to businesses that operate outside of California but that have employees, including remote employees, in California, or that post open roles that can be performed remotely including from California.
• Pay Scale: While SB 1162 defines “pay scale” as the salary or hourly wage range that an employer “reasonably expects to pay” for a particular job position, the law does not further define “reasonably expects to pay.” It is yet to be seen how specific or precise a reported pay scale must be relative to the employer’s wage and salary records as applicable to its present workforce.
• Violations: The new law imposes potential penalties up to $10,000 per “violation;” however, it is unclear how the state will count a “violation” and whether each noncompliant job posting constitutes a separate violation, whether the same job posting may constitute multiple “violations” if posted on multiple job boards or whether one “violation” is each instance the state notifies an employer of its group of noncompliant job postings.
• Aggrieved Person: Although the statute generally utilizes the terms “applicant,” “applicant for employment” and “employee,” Section 432.3(d)—which establishes the private right of action for violations of this section—provides that a “person” who claims to be aggrieved may file a complaint with the Labor Commissioner or otherwise bring a civil action. Thus, the law leaves the open question of whether anyone browsing for jobs online can bring a claim over noncompliant job postings, or whether, at minimum, that person must have applied for a job to have standing to bring a claim.
• Statute of Limitations: SB 1162 provides that an aggrieved person may file a complaint with the state within one year of learning of the violation, but it does not expressly place an upper limit on when the violation must be discovered.
• Unionized Workforces: The National Labor Relations Act already provides for protection of discussions involving compensation as concerted activity. It remains to be seen how pay disclosure laws such as SB 1162 will interface with the National Labor Relations Board’s current direction and goals.

PREPARING FOR COMPLIANCE UNDER SB 1162

California is just one of many states and municipalities joining the recent trend toward pay transparency laws nationally. Accordingly, employers with operations (or with the potential for remote workers) in California may consider the following:

• Review all current job descriptions, job postings, promotion prospects and prospective transfers to determine the pay range to be reasonably set for an applicant or employee in those scenarios. Consider the pay range for those currently in such roles as part of this process.
• Conduct a privileged pay equity audit with counsel and implement any appropriate adjustments in advance of the January 1, 2023, effective date.
• Review applicable collective bargaining agreements or proposals in the process of negotiations.

Please reach out to your McDermott lawyer if you have any questions.

Note: SB 1162 also updated California’s current pay data reporting law, Section 12999 of the Government Code, to require that employers that have retained 100 or more workers through labor contractors to report median and mean hourly pay rates by job category and “each combination of race, ethnicity, and sex” for that group of workers. This requirement goes into effect May 10, 2023, and is not the subject of this alert.