California Steps Up to Collect Pay Data, With Feds at Square One

California’s upcoming collection of worker pay data by race and gender is a harbinger for other states to do the same, as a federal workplace civil rights agency grapples with the best way to close the country’s wage gaps.

Gov. Gavin Newsom (D) signed a law on Wednesday that requires employers, including Silicon Valley companies, to report their pay information to the state. It’s modeled after a federal initiative spearheaded by the Equal Employment Opportunity Commission during the Obama years that became entangled in litigation.

The California legislation authorizes a collection of wage data, broken down by race, sex, ethnicity, and job category, on or before March 31, 2021. It also authorizes the state’s Department of Fair Employment and Housing “to receive, investigate, conciliate, mediate, and prosecute complaints alleging practices unlawful under those discriminatory wage rate provisions.”

California is taking this step as the federal government earlier this year ended the first, and only, round of employer pay reporting to the EEOC. The Trump administration halted the agency’s collection before it was scheduled to begin in 2018, until a federal judge ordered the agency to revive it last year.

But now the federal government is back to square one, studying how to proceed, while states like California push forward.

“As the largest local economy in the U.S. and the fifth largest in the world, most global and national firms will come to see this type of data collection as routine, substantially lowering the cost of compliance to other states’ or federal pay data collection mandates,” according to University of Massachusetts Amherst professor Don Tomaskovic-Devey, who focuses on the systems that generate workplace inequality.

California could be the first to gather and analyze this information, but states including New York and Rhode Island are considering similar requirements. Worker advocates are spurring them on, as attorneys who represent employers watch warily, they told Bloomberg Law.

“Seeing the pushback at the federal level, California has really stepped up to take the initiative,” Andrea Johnson, the National Women’s Law Center’s state policy director, said.

But like the federal edition of the pay data collection, privacy concerns about turning this information over to government agencies abound, former Labor Department official and Seyfarth Shaw senior counsel Lawrence Lorber said.

New York, Rhode Island Proposals

Legislation proposed in New York and Rhode Island also sought to require employers with 100 or more employees to report pay data to the state, although the bills have failed to win lawmakers’ approval so far.

The bills, initially filed in 2019, were written to piggyback off the federal reporting requirement by mandating that employers share the same report with state agencies. The Rhode Island bill passed the state Senate in 2019 but failed to clear the House. A pair of New York bills technically remain alive in the state’s 2019-2020 session, but neither has made it out of committee.

New York State Sen. Alessandra Biaggi (D) plans to refile her version of the bill in 2021, she said, describing it as a continuation of the progress made when the state passed her stronger pay equity bill into law in 2019.

“This is another example of states having to look at their laws and try to be as strong as possible,” she said, “while the federal government strips away protections.”

Data reporting is the latest in a trend of state mandates aimed at correcting persistent gender- and race-based pay gaps. A number of states have banned employers from asking for job candidates’ prior salary history—with the goal of preventing discriminatory pay levels following a worker from job to job. Another policy that’s spreading among the states bars employers from retaliating against workers who discuss their salaries with coworkers or bosses, such as the new pay transparency law that took effect in Virginia on July 1.

“We very well may see other states to follow suit” on the data reporting mandate “in the same way we saw other states follow suit in enacting more aggressive pay equity laws going back to 2016,” said Lynne Anne Anderson, a management-side employment attorney at Faegre Drinker Biddle & Reath LLP.

The EEOC declined to comment on California’s pay data initiative.

Privacy, Utility Concerns

The California pay data collection format is modeled after the EEOC’s annual workforce demographic survey, with the addition of the wage component. But the two are different, Lorber said, because the EEOC is prohibited from publicly disclosing certain sensitive information submitted by employers. The states “do not have similar prohibitions on disclosure,” according to Lorber.

The legislation, for example, says the data collection “shall include a section for employers to provide clarifying remarks regarding any of the information provided. An employer is not required to provide clarifying remarks.”

Lorber says this explanation “can become public and reveal information which would otherwise not be public.”

The California mandate, similar to the EEOC’s previous data collection, also raises concerns for employers about the reliability of the data and how state regulators will use it for tougher enforcement, Anderson said. For example, the reporting requirements call for forcing every job title into one of a list of categories, where some jobs might not fit neatly and some jobs that aren’t “substantially similar” might end up appearing that way in the data, she said.

“We have some of the same warts in terms of the process,” Anderson said.

Although the California law lets employers add explanatory notes, the state still seems likely to investigate employers based on a cursory data review when there’s a lawful justification for pay differences such as a seniority or merit system, said Cheryl Pinarchick, an attorney and co-chair of the pay equity practice at Fisher Phillips LLP.

“You may end up with what we call false positives. It looks like there’s a potential problem, but if you really did an analysis under the pay equity law, those things wouldn’t get flagged,” she said.

‘Targeted Enforcement’

Gathering the information to track patterns of wage disparities over time will help the DFEH “more efficiently use its limited resources for targeted enforcement of our equal pay and anti-discrimination laws,” according to Jessica Stender, senior counsel for workplace justice and public policy for Equal Rights Advocates.

NWLC’s Johnson said this format is the result of “rigorous analysis” conducted over “many years” to determine how pay data should be collected and studied.

“We feel that this is an incredibly important initiative and that it’s been calibrated to get the right data,” she said.

Aggregating the pay data for submission to the DFEH gives employers the opportunity to review their practices, and detect occupational pay bias, which is “critical,” Stender said.

California might already have legislation in place, but the federal government needs to come up with its own method of addressing wage gaps by collecting pay data in some form, Johnson said.

“You can’t fix what you don’t measure,” she said. “We still need to push at the federal level.”