Equal Pay Act: A Cautionary Tale

One California appellate court opinion highlights risk under the state's recently expanded Equal Pay Act ("EPA"). The EPA requires equal pay for employees who perform “substantially similar work” when viewed as a composite of skill, effort, and responsibility. Initially applied to differences in sex, the law has been expanded to include race and ethnicity as well.

Unlike federal law, which has stricter requirements, the state law applies to 'similar' (rather than nearly identical) work. It also requires equal pay among different establishments, prohibits retaliation, and requires that any 'bona fide' justification account for the entire difference in pay. The law is discussed on the Labor Commissioner's website here.

In the recent opinion, Allen v. Staples, Inc., a female employee argued that she had not been paid the same for substantially similar work performed by male employee(s). The trial court had dismissed her claims on the basis that men and women had made more or less than one another, without apparent bias toward women. The appellate court noted that, during Allen's employment, "women were among the highest earning" in her position and "at least six men earned less than" her.

Unfortunately, however, there was one male employee who made more than Allen in the same position. The court reversed the trial ruling, reinstating the case, on the basis that "a plaintiff claiming gender-based pay disparity may establish a prima facie case by showing that she was paid less in salary than a single male comparator." The case will be sent back to the lower court for trial even though the appellate court agreed that Allen had not shown evidence of actual discrimination or harassment, upholding dismissal of most of her claims.

The employer will have an opportunity to justify the difference with legitimate factors (such as tenure at the company), but it will have to present that defense at - or settle with Allen before - an expensive trial.

This case may not remain published or could be reviewed by the Supreme Court. Other appellate courts might also disagree. But Allen is a strong cautionary tale for employers who pay too little attention to differences in salary between employees.

Allen v. Staples, Inc. can be viewed here.

NLRB and Ninth Circuit Expand Potential Unfair Labor Practice Liability

The relationship between employers and unions has never been easy.

Over the past century, federal labor law has replaced actual battles (see a good discussion of this issue here) with tools allowing "economic warfare" when disputes cannot be resolved. These tools traditionally included acts by one party that could pressure the other such as strikes (withholding work by employees), lockouts (withholding work by employers), and picketing (advertising that could hurt an employer's reputation and generate support for workers).

The National Labor Relations Act also provides remedies for violations of labor law ("unfair labor practices") such as refusal to bargain in good faith, refusal to recognize a lawfully certified representative, or worker intimidation. These remedies usually attempt to eliminate the effect of a party's unfair labor practice, even sometimes requiring back pay.

Both sides traditionally funded their own legal costs even when only one party violated the law. This is consistent with both the "American Rule" (where parties typically bear their own legal costs) and the fact that unfair labor practice proceedings technically are prosecuted by the National Labor Relations Board's General Counsel - who does not charge either side for its services.

This traditional relationship is changing. In September 2021, the NLRB General Counsel issued a memorandum titled "Seeking Full Remedies" recommending "a new make-whole remedy to those traditionally ordered" including all "consequential damages" suffered as a foreseeable result of an unfair practice. This might include hard costs by an employee who suffered discrimination or - on a much larger level - lost potential benefits due to an employer's failure to bargain immediately. It may also include the remarkable step of awarding attorneys' fees for costs caused by an alleged unfair labor practice. (The General Counsel memorandum can be viewed here.)

Our Ninth Circuit Court of Appeal recently upheld this broad power even though other courts, particularly the District of Columbia Circuit (which decides far more NLRB issues than any other), had found such awards to be 'punitive' and beyond the NLRB's agency power. Crafting a distinction between "litigation" and "bargaining" costs, the Ninth Circuit panel approved fees incurred by the union during collective bargaining (even though attorneys are not required in bargaining or any other NLRB proceeding). (The Ninth Circuit opinion can be viewed here.)

This poses a radically increased potential cost should an employer disagree with the local NLRB Region's decision in a local election - or in any other situation.

It remains to be seen whether this theory will be adopted by other federal Circuits or survive U.S. Supreme Court review. In any event, employers are well advised to consider the potentially much greater costs likely to be imposed by the NLRB over the coming months, factoring them into their overall risk assessment during any union interactions.

Waiting-Time Penalties Suffer Another Setback

Plaintiff-side employment lawyers often leverage an unusual part of California law, “waiting-time penalties,” which allows employees to recover 30 times an average day's wages for failure to pay any amount of wages due upon termination. Unpaid wages could include hourly pay, overtime premiums, or even unused vacation. The penalties accrue under Labor Code section 203, which can be viewed here.

These penalties can be remarkable. Common examples might include claims by a former employee not paid for a single one-hour training meeting. Such a claim might seek $15.00 for unpaid wages (one hour) but $3600.00 in penalties - 240 times the alleged lost wages. Courts have no discretion to reduce the penalty when due.

The penalty applies only when failure to pay is ‘willful,’ namely where there is no good-faith dispute as to whether wages are owed.

Some courts and the state Labor Commissioner have taken a sweeping view of ‘willful’ conduct, finding that – in almost all cases – even an honest dispute over an employee’s status (such as whether an employee should have been classified as hourly rather than overtime-exempt) counts as ‘willful’ failure to pay.

The federal Ninth Circuit Court of Appeals just dealt a serious blow to this broad interpretation of ‘willful.’ (And in doing so, the court dealt an even greater blow to an issue discussed earlier in this blog: serial claims by freelancers such as the plaintiff, actor/model Bijon Hill, who sued companies after completing assignments even when they had been fully paid. In one case, despite admitting she had already been paid the $2,000.00 agreed rate, Ms. Hill sought $60,000.00 in penalties following a single-day photo shoot.)

The court held that, while there was evidence of some control over the plaintiff’s activity, various other factors supported a reasonable argument for independent contractor status such as the parties’ agreement, lack of a W-2, work done by the plaintiff for other clients, and the fact that modeling was not a regular part of the defendant’s business.

This decision was made under the state’s common-law independent contractor standard (the "Borello" test) but may easily apply to other issues such as whether an individual falls outside the state’s recent Dynamex standard or whether an employee was properly classified as exempt from overtime.

Time will tell how this case is treated by California state courts, which are not bound by the federal appellate holding. It is nonetheless a welcome win for employers and meaningful progress against unreasonable interpretation of California employment standards.

The decision, Hill v. Walmart Inc., can be viewed here.