October 05, 2022

California Set to Up Wage Transparency Laws

4 min

Changes are on the horizon for California employers. Beginning January 1, 2023, California employers will be required to disclose pay scales for positions published in job postings, which follows from California's recently enhanced pay transparency legislation (SB 1162), signed into law by Governor Gavin Newsom on September 27, 2022 (the "Law").

Prior to the Law's enactment, employers were merely required to provide a salary range to applicants upon reasonable request. The new Law, which applies to employers with 15 or more employees (including part-time employees), affirmatively requires such covered employers to:

  • Include in all job postings, including those posted by third-party recruiters engaged by the employer, the salary or hourly wage scale that the employer reasonably expects to pay for the position.
  • Provide current employees, upon request, with the pay scale for the position in which the employee is currently employed.
  • Maintain records of the job title and wage rate history for each employee for a "specified timeframe." Notably, the failure to maintain such records creates a rebuttable presumption in favor of the employee if an employer fails to keep such records.

The Labor Commissioner is authorized to investigate complaints alleging violations of these requirements and, upon a finding of a violation, could order a covered employer to pay a civil penalty of between $100 and $10,000 per violation. The Law also provides a private right of action for an individual to seek injunctive or other relief.

Additionally, under this new Law, on or before the second Wednesday of May of each year, private employers with 100 or more employees must submit a pay data report to the California Civil Rights Department that discloses the median and mean hourly rates, within each listed job category, by race, ethnicity, and sex. Moreover, any private employer with 100 or more workers hired through staffing agencies must submit a separate pay data report for these workers. The failure to submit this required report could result in court-imposed civil penalties of $100 per employee for an initial violation and up to $200 per employee for any subsequent violation.

The Law leaves open several questions as to its interpretation. Although the California Department of Industrial Relations may provide additional guidance, the following important questions remain unanswered:

  1. The Law does not purport to restrict its application to businesses based in California. Thus, it remains ambiguous whether this law applies to employers that operate outside of California but that have employees, such as remote workers, located in California.
  2. The Law is unclear as to whether the pay scale disclosure requirements relate to job postings for California employers with remote workers outside of California.
  3. The Law defines "pay scale" as the salary or hourly wage range that an employer "reasonably expects to pay" for a particular position. The law does not provide clarity on what this means, and thus it is yet to be determined how specific the reported pay scale must be relative to the employer's wage and salary records.
  4. The Law provides that an aggrieved person may file a complaint with the state within one year of learning of the violation, but it fails to expressly place an upper limit on when the violation must be discovered.
  5. The Law is unclear regarding the time frame in which relevant records should be maintained by employers.

California's new pay transparency law aligns with a national trend of requiring significant disclosures by employers of pay-related information in the hiring and recruiting process. To prepare for these requirements, California employers should consider conducting an internal pay audit to ensure that compensation for employees, including new hires, is fairly and consistently determined and complies with existing pay equity laws. California employers should also review their recruiting, hiring, and pay-related policies to confirm that pay disclosures are included in their job advertisements and that their hiring practices meet the new law's requirements.

Given the variations in pay equity laws among several states across the country, employers in multiple jurisdictions should carefully consider which laws apply to them and consult counsel to ensure compliance.