Aug. 2, 2017 Local Governments are Increasingly Using Contractual Leverage to Encourage Pay Equity Compliance

The San Diego City Council unanimously approved an “Equal Pay Ordinance” on Monday, July 31, 2017. The Ordinance seeks to complement and ensure compliance with non-discrimination laws and the California Equal Pay Act, as recently amended by the Fair Pay Act, by requiring City contractors and subcontractors to certify and otherwise demonstrate ongoing compliance. Our previous discussion of the California Fair Pay Act’s amendments to the Equal Pay Act is particularly relevant because the City’s Ordinance adopts the Fair Pay Act’s “substantially similar work” standard and similarly protects against gender, race, and ethnic wage disparity.

The Ordinance provides that all contracts the City awards, enters into, or extends on or after January 1, 2018 must require contractors to demonstrate compliance with California’s pay equity laws in the following manner:

1.    Recordkeeping: Contractors must create contemporaneous records that document wages paid to employees, wage rates, and job classifications. Contractors should retain these records for three years, and make them available to the City upon request. A contractor’s failure to create and retain these records will create a rebuttable presumption that the contractor is in violation of the Ordinance.

“Wages” is defined broadly and means all payments made to an employee, including, but not limited to, salary, profit sharing, expense accounts, monthly minimums, bonuses, a uniform cleaning allowance, hotel accommodations, use of a company car, a gasoline allowance, and any other fringe benefits provided.

2.    Certification of Compliance: Contractors must certify in writing that they will comply with the requirements of the California Equal Pay Act and Fair Pay Act for the duration of the applicable contract.

3.    Notice: Contractors must post a notice informing employees of their rights under the Ordinance in a conspicuous location at the workplace or on the job site.

The Ordinance defines “contract” to mean any agreement between the City and another party for the provision of goods, services, consultant services, grants from the City, leases of City property, or for the construction of public works. The Ordinance covers all work done by a contractor within the City’s geographic limits, as well as all contract-related work done by contractors within the state of California or on City owned or City occupied property.

The Ordinance explicitly does not apply to: (1) contractors who employ 12 or fewer full-time employees; (2) sole-source contracts (awarded without a competitive process); (3) cooperative procurement contracts (entered into by the City and another public or quasi-public entity); (4) public works contracts of $500,000 or less; and (5) intellectual property licensing agreements.

The Ordinance will be enforced by the City Manager, likely by responding to and investigating employee complaints. The exact procedures for handling complaints are yet to be determined. However, if the City Manager determines that a violation exists, it may issue written notice to the contractor. The notice shall provide a 30-day opportunity to cure. If the violation is not cured, the City may consider such violation to constitute a material breach of the applicable contract, and cancel, terminate, or suspend it.

What This Means

Businesses that are looking to contract with the City through a competitive bidding process should pay special attention to compliance with California’s Equal Pay Act, as recently amended by the Fair Pay Act. In many cases, this will include consideration of an equity pay audit. Potential contractors should also identify someone in their organization to prepare for and develop the procedures necessary to comply with the Ordinance’s recordkeeping and notice requirements.

Employers that don’t currently do business with the City should also take note because Equal Pay Act litigation is on the rise, and similar ordinances are increasingly popular. San Diego’s Ordinance is based in part on existing laws in both the state of Minnesota and Erie County, New York. Other municipalities have slight variations, for example San Francisco’s ordinance requires contractors to engage in up-front wage reporting while Albuquerque, New Mexico gives bidding preference to potential contractors with lower wage gaps.


This E-Update was authored by Meredith Grant.  For more information, please contact Ms. Grant or any other Paul, Plevin attorney by calling (619) 237-5200.