California Adopts New Pay Transparency and Pay Data Reporting Requirements

On September 27, 2022, Governor Gavin Newsom signed into law SB-1162, which will require most employers to disclose pay scale information in job postings beginning January 1, 2023. While California already requires employers to disclose pay scale information to job applicants upon request, the new law aims to increase and equalize disclosure by imposing an affirmative obligation on employers to reveal the pay range for open positions upfront, to all potential job candidates. In addition to this new disclosure obligation, SB-1162 amends California’s pay data reporting requirements, including by requiring certain employers to disclose pay data for contract employees.

Background

In recent years, a number of states have imposed heightened obligations on employers aimed at promoting pay equity. California has been at the forefront of this effort, by, for example, lowering the standard to establish equal pay violations (2016), prohibiting unequal pay based on race or ethnicity (2017), imposing a salary history ban (2018), and implementing pay data reporting requirements (2021).

Increasingly, pay equity advocates have focused on pay transparency and salary history bans in the hiring process, reasoning that the disclosure of salary ranges for particular positions, coupled with a prohibition on asking applicants about their current salaries, will help set expectations for job applicants and limit employer discretion to set pay based on a candidate’s negotiation skills and/or their salary history. California, along with a number of other states, have already imposed salary history bans and/or requirements to disclose pay scale information to applicants upon request. The push to establish an affirmative obligation to disclose pay scales in job postings is the next phase in this effort. While California is an early adopter of such an obligation, it is not the first. Colorado imposed a similar pay disclosure requirement effective January 1, 2021, and New York City’s pay disclosure requirement is set to take effect November 1, 2022. Washington passed a similar law that, like California’s, is set to take effect on January 1, 2023. New York’s pay disclosure law has passed the legislature and is awaiting signature by Governor Hochul.

Key Changes to California Law

SB-1162 amends California law primarily as follows:

• Pay Disclosure Requirements for Employers with 15 or More Employees:
  • Requires employers to disclose the pay scale for any position in a job posting. “Pay scale” is defined as “the salary or hourly wage range that the employer reasonably expects to pay for the position.”
  • Requires employers to disclose to current employees upon reasonable request the pay scale for their current position.
  • Requires employers to maintain records of a job title and wage rate history for each employee for the duration of the employment plus three years after the end of the employment.
  • Authorizes the Labor Commissioner to investigate alleged violations of the disclosure requirements and to impose civil penalties of between $100 and $10,000 per violation.
  • Authorizes any person aggrieved by a violation of the disclosure requirements to file a civil suit for injunctive relief.
• Pay Data Reporting Amendments: 
• Employers with 100 or more employees are already required to submit pay data to the California Civil Rights Department each year. SB-1162 adds the following requirements:
  • For employers with 100 or more employees, imposes a new requirement to include the median and mean hourly rate “[w]ithin each job category, for each combination of race, ethnicity, and sex.”
    • It is not yet clear what “combinations” of race, ethnicity, and sex must be included for each mean and median calculation. This could mean, for example, a calculation for each racial group, as well as a calculation for each combination of race and sex (i.e. the mean and median hourly rate for Asian men, as well as for Asian women, etc…). 
• For employers with 100 or more contract employees, extends California’s pay data reporting requirements to cover those contract employees. 
  • Contract employees include employees hired through a labor contractor, i.e. “an individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business.”
• Revises the deadline to submit pay data reports to the second Wednesday of May each year, beginning in 2023.
• Authorizes the California Civil Rights Department to seek civil penalties in court from employers who fail timely to submit the required pay data, of up to $100 per employee for an initial failure, and up to $200 per employee for any subsequent failure.

Considerations for Employers

In today’s world of remote work, a key consideration is whether a particular position is covered by the pay disclosure requirements of SB-1162. Unlike New York’s proposed pay disclosure law, which specifies that it applies only to jobs that can or will be performed at least partially in New York, SB-1162 is silent on this topic. At a minimum, employers should expect the new law to cover positions performed entirely or primarily in California and should consult with counsel on whether to include pay scale information in job postings for remote positions that could in theory be performed in California.

Another consideration is what pay information to include in job postings. As set forth above, “pay scale” is defined in SB-1162 as “the salary or hourly wage range that the employer reasonably expects to pay for the position.” Based on this definition, employers do not at this time need to include details regarding discretionary pay such as bonuses or equity grants. That being said, employers should be mindful that these other forms of compensation can be considered for equal pay purposes.

In preparing to comply with the law, employers should develop a protocol to ensure that job postings include accurate pay scale information going forward. This may require regular review and updating of pay scale or pay band information for accuracy, including a comparison of published pay scales to actual compensation.

With respect to pay data reporting, employers subject to the new requirement to report contract employee pay data may need to work with their labor contractor to prepare the necessary reports (notably, the law requires labor contractors to provide all necessary data to the employer).

O’Melveny will continue to monitor the developments on California pay disclosures and other employment issues closely. Please contact the attorneys listed here, your O’Melveny counsel, or a member of O’Melveny’s Labor & Employment team for help in navigating this evolving area of practice.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Apalla U. Chopra, an O’Melveny partner licensed to practice law in California, Eric Amdursky, an O’Melveny partner licensed to practice law in California, Susannah K. Howard, an O’Melveny partner licensed to practice law in California and New York, Adam Karr, an O’Melveny partner licensed to practice law in California, and Adam P. KohSweeney, an O’Melveny partner licensed to practice law in California and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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