New California law seeks to erase gender pay gap. Will it work?

California is about to implement the toughest law in the nation Jan. 1, making the state a testing ground for progress on wage fairness.

Starting Jan. 1, equal pay will be under a microscope in the place that’s home to Hollywood, Silicon Valley, and more jobs than any other state.

California is about to implement the toughest law in the nation, making the state a testing ground for progress on wage fairness.

What’s new is that the law allows women to challenge pay differences between jobs that are “substantially similar,” but not necessarily the same. Legal experts say it will put much more pressure on employers than laws which require “equal pay for equal work” – a standard by which cases are often sidelined because it’s hard to prove that two jobs are identical.

The law, known as the California Fair Pay Act, promises to bring some paycheck rebalancing between the sexes – which supporters say could be a major step toward erasing longstanding gender gaps in various professions. But it won't be easy for companies to implement or courts to enforce.  

Gray areas are bound to become controversial. (Is a managerial job in marketing "substantially similar" to one in operations? Does a sales job in Sacramento deserve the same pay as one in San Francisco?) And conservative critics cast the law as an instance of liberal policymaking run amok, imposing costly legal burdens on employers to fix an overblown problem.

Even actress Patricia Arquette, who became a prime booster behind the law's passage when she used her 2015 Oscar acceptance speech to call for gender equity, acknowledges the shades of complexity to be resolved. But this week, with the law about to take effect, she said the act is what's needed to dislodge entrenched bias.

“In general, [employers] are going to have to make a radical readjustment, and they know that, because they know for decades they have been paying unfairly,” Ms. Arquette said at a Los Angeles press conference Wednesday.

She was referring to the film business. But supporters hope the law's reach will be widespread across industries and pay levels.

Millions of Americans – men as well as women – agree on the need for change. Although the size of the pay gap is a matter of debate, the issue of “equal” or “fair” pay was volunteered as the top issue facing working women by 41 percent of women and 37 percent of men in a 2014 Gallup poll. That far outpaced other responses, including work-life balance, access to child care, and sexual harassment. A related concern, equal promotion opportunities, ranked second.

The California law not only affects the nation’s largest state, but could ripple nationwide in a couple of ways. First, it’s possible that compliance will force firms employing workers in the Golden State to reset their pay practices nationwide. Second, it’s not unusual for actions in California to influence legislative agendas in other states.

The law puts a new onus on employers to examine the gender differences in pay and either fix imbalances or justify them based on exceptions spelled out in the law. The act allows for variances based on things like a seniority system, a merit system, or a system based on quantity or quality of output. It also says workers can’t be barred from discussing their pay or asking coworkers about their pay levels or raising questions about pay differences.

Legal experts say what’s coming is a period of greater litigation – and related transparency – surrounding wages, as companies are forced to examine and justify their pay scales under the law.

“The new law ...  provides a rather easy standard for employees to satisfy to get into court,” the law firm Fisher & Phillips said in an October analysis, as Democratic Gov. Jerry Brown signed the bill into law. “These changes are likely to trigger a rash of unequal pay lawsuits in coming years.”

As the law takes effect, legal experts say companies may need to check that job descriptions explain legitimate reasons why worker pay may vary, while also fixing imbalances that are not allowed under the law.

To critics, it’s an overbearing solution to a problem of questionable proportions.

“What California’s Fair Pay Act will do … is make the state, already notorious for regulation and red tape, a more difficult place to do business,” Sarah Ketterer, founder of Causeway Capital Management, opined recently in The Wall Street Journal.

She said much-publicized estimates of the pay gap, such as that women earn 77 to 79 cents per dollar earned by men, narrow once mitigating factors are taken into account. Compared to men, women tend to work fewer hours, to choose lower-paying careers, and are more likely to have careers broken up by child-rearing, Ms. Ketterer said.

Others say that, while all these factors are valid, a gender pay gap as high as 7 percent remains.

The Pew Research Center reports that women are about twice as likely as men – 18 percent versus 10 percent – to say they have been discriminated against at work because of their gender.