The Bill California Governor Newsom signed into law on the last day of the California’s 2020 legislative session is SB-973. Continuing California’s open fight with the Trump Administration, the California Legislature stated the Bill’s intent this way:

Section 1 (d): “(d) Recognizing that pay discrimination is difficult to detect and address, the Obama Administration announced a proposed revision to the Employer Information Report (EEO-1) to include the reporting of pay data by gender, race, and ethnicity beginning in 2018. However, in August 2017, the Trump Administration put a halt to the implementation of this new rule.

(e) It is the intent of the Legislature, in enacting this bill, to ensure that this pay data will continue to be compiled and aggregated in California.”

She’s Back

The bill amends Section 12930 of the California Government Code to add a new Section 10 beginning at Section 12999 and to authorize the California Department of Fair Employment and Housing (“DFEH”) to collect an “Annual Pay Data Report.” DFEH enforces the state of California’s employment and housing non-discrimination laws. Its Chief Counsel is Janette Whipper, who was briefly OFCCP’s Regional Director for the San Francisco-based Pacific Region during the middle of the Obama Administration and one of the several architects of OFCCP’s strategy to attack federal Government contractor compensation practices, primarily as to the pay of professional women.

SB-973 also allows DFEH to share its content with the California Division of Labor Standards Enforcement (“DLSE”) within the California Department of Industrial Relations. The DLSE is the state enforcement arm of California’s wage and hour laws. Section 1(f) of the Preamble to SB-973 describes the intended use of the data to allow these two state agencies to undertake “targeted enforcement of equal pay or discrimination laws, when appropriate:”

“(f) Further, it is the intent of the Legislature in enacting this bill for data collection purposes to allow for the designated state agencies to collect wage data to more efficiently identify wage patterns and allow for targeted enforcement of equal pay or discrimination laws, when appropriate. [emphasis added] Therefore, it is the intent of the Legislature that this pay data will be kept confidential and not available for disclosure, except as necessary for administrative enforcement or through the normal rules of discovery in a civil action.”

Key Requirements of SB-973: Annual Pay Data Report

  1. On or before March 31, 2021 (and on or before March 31 of each year thereafter) Section 12999(a) requires:
    1. a private employer (not public employers like state universities/colleges/utilities)
    2. which employs 100 or more employees
    3. and is required to file an annual EEO-1 Report pursuant to federal law
    4. to submit a pay data report to DFEH
    5. covering the prior calendar year (to be called the “Reporting Year”)
  2. Per Section 12999(b), the Annual Pay Data Report must include:
      1. the number of employees by race, ethnicity, and sex
      2. in each of 10 job categories (EEO-1 filers will recognize from the Component 1 report):
        • Executive or senior level officials and managers
        • First or mid-level officials and managers
        • Professionals
        • Technicians
        • Sales workers
        • Administrative support workers
        • Craft workers
        • Operatives
        • Laborers and helpers
        • Service workers.
      3. and reporting the number of employees by race, ethnicity and sex whose “annual earnings” (as reported on the employee’s W-2) fall within the “pay bands” the United States Bureau of Department of Labor Statistics (“BLS”) has devised and uses to collect data in its Occupational Employment Statistics Survey. The pay bands SB-973 seem to refer to are the 10 pay bands the BLS calls “wage ranges” you may see set out below as taken from a 2019 BLS wage survey report:
Under $9.25 $9.25 to 11.74 $11.75 to 14.74 $14.75 to 18.74 $18.75 to 23.99 $24.00 to 30.24 $30.25 to 38.49 $38.50 to 48.99 $49.00 to 61.99 $62.00 to 78.74 $78.75 &  Over

 

Like the federal EEO-1 Report (SF-100), California’s new law requires covered employers to “create a ‘snapshot’ that counts all the individuals in each job category by race, ethnicity, and sex, employed during a single pay period of the employer’s choice between October 1 and December 31 of the ‘Reporting Year.’” See Section 12999(b)(3)

Also like the short-lived federal EEO-1 Component 2 pay data report requirement, employers under the California law must “…calculate the total earnings, as shown on ***[IRS] Form W-2, for each employee in the ‘snapshot,’ for the entire ‘Reporting Year,’ regardless of whether or not an employee worked for the full calendar year. The employer shall tabulate and report the number of employees whose W-2 earnings during the ‘Reporting Year’ fell within each pay band.” See Section 12999(b)(4)

Also like the short-lived federal EEO-1 Component 2 pay data report requirement, the employer must “…include in the report the total number of hours worked by each employee counted in each pay band during the ‘Reporting Year.’”  See Section 12999(c)

In addition, employers with multiple establishments within the state of California must submit a report for each establishment and a consolidated report that includes all employees. All employer reports must also report the employer’s NAICS (North American Industry Classification System) code. See Section 12999(d)

The term “establishment” has a “fuzzy” (technical legal term!) definition in the new California statute: “’Establishment’ means an economic unit producing goods or services.” See Section 12999(m)(2)

“California employers will have to work with DFEH to arrive at a consensus as to how to treat employees who work remote out of their homes, particularly during a pandemic,” said Tony Perkins, VP of DirectEmployers Association in charge of its Taapestry affirmative action and EEO group from his remote office in his San Jose, California home. “If an employee working remote at his/her home and ‘producing services’ is an ‘establishment’ within the meaning of Section 12999(m)(2), a former headquarters office tower previously housing 5,000 employees (pre-pandemic) would now have to turn in reports for 5,000 ‘establishments,’” Tony observed. “Hopefully, DFEH will see the wisdom of allowing California employers to roll-up employees who work remote into the establishment where their primary manager would report for work in a pre-pandemic world, especially if DFEH hopes for these reports to assist the agency in comparisons of pay among employees in the same “establishment,” he noted.

While not required to do so, employers may also include a section to provide “clarifying remarks” regarding any information the employer provides. This is an invitation to the reporting employer to attempt to explain the non-discriminatory reasons which may explain non-problematic disparities in pay among Protected Groups.

Important Note: A common employer clarifying remark will be that the data are too highly aggregated and/or do not collect together for comparison similarly situated employees, and/or the data sets are too small to make for meaningful statistical analyses, and/or the data report only “current pay” and not any “pay decision(s)” as California (and federal Title VII law) require. These pay reporting design problems were among other explanations which led federal regulators to declare the short-lived federal EEO-1 Component 2 “hours worked” and “pay data” reporting not useful in any way to either EEOC or OFCCP investigations or even studies about pay data in America: in short, a colossal waste of time and money.

Editor’s Note: A major point of political divide between employers and regulators as to pay data analysis models has been driven for years by the reality that in the federal government, for example, all 2 million+ civilian employees of the United States government are HIGHLY aggregated for pay purposes. Indeed, those two-million + federal civilian employees share only 90 different pay levels [i.e. General Service (GS) Grades 1-15, with each Grade having 6 pay “Steps” (i.e. 15 x 6=90 pay levels)]. Of those 90 pay levels, over twenty of them are rarely used, even at that, and the federal government’s top managers–indeed the ones making the policy decisions–share only six different pay levels (GS-15 Step 1 through GS-15 Step 6). The GS levels thus include in the same pay grade scientists with teachers, with managers, with artists, with photographers, with analysts, with investigators, with lawyers, with librarians, with policy analysts, with statisticians, with computer programmers, etc. in a giant polyglot of federal employees similarly situated by “Grade level.” These large aggregations level pay between all employees within the same Grade and Step, regardless of differing job duties and performance (i.e. the GS Grade Levels do NOT collect together similarly situated employees as Title VII defines that term.)

Federal regulators, and now the California Legislature, have a difficult time understanding why a private corporation’s jobs are not aggregated, like all civilian jobs in the federal government (and in the California state government). Federal regulators, and now the California Legislature, believe that private companies disaggregate job duties and pay to hide discriminatory pay practices between what, for the regulators, are “similarly situated” employees for pay purposes, even if not for similar work duties or similar performance levels.

“Labor is the source of wealth and all culture, and since useful labor is possible only in society and through society, the proceeds of labor belong undiminished with equal right to all members of society”. Karl Marx, Critique of the Gotha Project (1875)

SB-793 will now force analyses of pay of employees artificially pushed into a few very large groups (to artificially make them large enough in number for statistical analyses), but with many different job duties and levels of performance now clustered together (cats and dogs, and hippopotamuses and cheetahs all in the same similarly situated GS-like “herd”). Despite Title VII and California law requirements that investigators and courts analyze the employer’s pay practices, and not create a different pay system, federal, and now California, regulators are creating pay analysis models which do NOT track the way the employer has paid its employees…by assuming, for example, that all employees in one of the 10 “wage ranges” within one of the 10 “Job Categories” are similarly situated:

(i.e. 10 Steps (“wage levels”) x 10 Grades (“Job Categories”) = 100 pay levels…like the federal government’s 90 pay levels!)

NOTE: There are over 100 million employees in the private sector in the United States. There are over 13,000 distinct job titles in the U.S. Department of Labor Dictionary of Occupational Titles, alone.

Section 12999’s command that dissimilar jobs be aggregated “… for data collection purposes to allow for the designated state agencies to collect wage data to more efficiently identify wage patterns and allow for targeted enforcement of equal pay or discrimination laws, when appropriate [see above first reference] makes the very same mistake Ms. Wipper made in recommending a “pay equity” case against Oracle Corporation headquarters while the Regional Director for the Pacific Region (San Francisco) of OFCCP.

As  DirectEmployers reported in its September 28, 2020 Week In Review, a USDOL Administrative Law Judge (Judge Clark) just last week dismissed in its entirety that lawsuit Ms. Wipper recommended for litigation amid great fanfare in 2016 and which OFCCP filed in early January 2017. The Court found many flaws in the OFCCP’s compensation case against Oracle. Chief among them was this very same issue of inappropriate aggregation of dissimilar jobs which OFCCP’s expert witness (Dr. Janice Madden) tried in vain to persuade Judge Clark to accept (but which concept the California Legislature has now bought lock, stock and barrel). Here are Judge Clark’s words addressing this foundational “job aggregation issue:”

“Dr. Madden’s analysis is highly aggregated and not attuned to potentially important differences between groups within job functions. Dr. Madden’s analysis does not (sic) similarly situate employees with respect to the work performed.”

*           *           *           *

“Dr. Madden’s measures of experience and education are very rough estimates and poorly capture the sort of education and experience that matters for compensation at Oracle. Dr. Madden’s analysis relies largely on assumption about aggregation and the view that it is unnecessary to control for variances between employees at a group level, but this assumes away the important question about potential explanations for the raw disparities and thus undermines the inferential power of the model.”

A technical note: Employers of California-based employees must submit their pay data and hours worked reports “…in a format that allows the…[DFEH]…to search and sort the information using readily available software.” (emphasis added) See Section 12999(f)

One Glimmer of Good News for Reporting Employers

For those employers which created electronic report writers to report the short-lived federal EEO-1 Component 2 hours worked and pay data, you may use those very same electronic reporting formats to report pay data and hours worked to the DFEH:

“If an employer submits to the department a copy of the employer’s …EEO-1 Report, containing the same or substantially similar pay data information required under this section [i.e. Section 12999 of the CA Gov’t Code], then the employer is in compliance with this section.” See Section 12999(g).

What Happens If You Do Not File California’s Annual Pay Data Report?

Section 12999(h) authorizes the DFEH to go into court to seek an injunction to compel the employer to file the report and to recover the DFEH’s costs to do so.

There are Strong Prohibitions on Disclosure of Individual Pay Data, Including Company Confidentiality, but DFEH May Publish and Publicize Annual “Aggregate Reports”

So, you know where this is going. Annual screaming news headlines reporting that this industry or that industry is paying similarly situated Hippopotamuses and Cheetahs entirely different wages in violation of “pay equity” laws.

The California Legislature has so decreed it in its opening sentence of the new statute:

“Despite significant progress made in California in recent years to strengthen California’s equal pay laws, the gender gap persists resulting in billions of dollars in lost wages for women each year in California.”

So, here are the new statute’s “Brakes,” and then its “Accelerator” stopping certain disclosures of the collected pay data, but then allowing other disclosures to nonetheless roar forward:

First, the “Brakes:”

“(i) It shall be unlawful for any officer or employee of the department [meaning DFEH] or the Division of Labor Standards Enforcement to make public in any manner whatever any individually identifiable information [emphasis added] obtained pursuant to their authority under this section prior to the institution of an investigation or enforcement proceeding by the Division of Labor Standards Enforcement or the department under Section 1197.5 of the Labor Code or Section 12940 involving that information, and only to the extent necessary for purposes of the enforcement proceeding. For the purposes of this section, “individually identifiable information” means data submitted pursuant to this section that is associated with a specific person or business.” [emphasis added] See Section 12999(i)

AND

“(j) Any individually identifiable information submitted to the department pursuant to this section shall be considered confidential information and not subject to disclosure pursuant to the California Public Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1).” See Section 12999(j)

“Now, the Accelerator:”

“(k) Notwithstanding subdivision (i), the department may develop, publish on an annual basis, and publicize aggregate reports based on the data obtained pursuant to their authority under this section, provided that the aggregate reports are reasonably calculated to prevent the association of any data with any individual business or person.” See Section 12999(k)

Like the federal tradition, too, of retaining EEO-1 reporting information for 10 years, Section 12999 requires the DFEH to maintain pay data reports for not less than 10 years.

Conclusion

There are now slightly fewer than 6 months for covered companies with California employees to pick a “snapshot date” for a particular payroll reporting period from within the coming three months (October, November or December 2020) and report the required “hours worked” and “pay data” to DFEH on or before March 31, 2021. Presumably, DFEH will soon develop and deploy an electronic data reporting portal and will let employers know the first date the portal will be available to receive confidential corporate data. The game is afoot.

THIS COLUMN IS MEANT TO ASSIST IN A GENERAL UNDERSTANDING OF THE CURRENT LAW AND PRACTICE RELATING TO OFCCP. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. COMPANIES OR INDIVIDUALS WITH PARTICULAR QUESTIONS SHOULD SEEK ADVICE OF COUNSEL.

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John C. Fox
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