Navigating California’s Pay Equity Enforcement Act: What Employers Need to Know

California has long been a leader in workplace equity, but the recent passage of S.B. 642—the Pay Equity Enforcement Act (“Act”)—marks a significant turning point for employers and employees alike. Signed into law by Governor Gavin Newsom on October 8, 2025, the Act went into effect January 1, 2026. It introduces new requirements for pay transparency and expands the rights of workers to sue and recover damages for pay discrimination. Understanding how the law is changing, and implementing steps to comply, is essential for businesses operating in California.

Historical Background: The Evolution of Pay Equity Laws in California

California’s efforts to address pay discrimination are anchored in two key sections of the State’s Labor Code: Section 432.3 (pay transparency) and Section 1197.5 (pay discrimination). The Act amends both sections.

Pay Transparency Requirements (Section 432.3)

Historically, Section 432.3 required employers with 15 or more employees to post a pay scale in job postings, but it defined “pay scale” to include the salary or wage range an employer expected to pay “for the position” generally. Practically speaking, this resulted in some listed pay ranges being large. The new law amends that definition and requires employers to provide a “good faith estimate” of salary or wage range “upon hire.” This means employers must now disclose what they reasonably expect to pay a new hire on day one, rather than offering an estimate for the position. The goal is to force employers to include more compressed ranges in their job postings that are more akin to what an employee may be offered upon hire.

Pay Discrimination Protections (Section 1197.5)

Before enactment of S.B. 642, California Labor Code Section 1197.5 prohibited employers from paying an employee less than another employee of the “opposite sex.” The Act amends the law to prohibit a pay disparity between an employee of “another sex” rather than the “opposite sex.” Through this change, the new law expands protections to encompass non-binary genders.

Additionally, previously Section 1197.5’s definition of “wages” for assessing discrimination claims was primarily limited to direct pay, such as base salary or hourly wage, leaving other compensation types less scrutinized. The new law broadens the definition of “wages” to align with federal law and includes all forms of pay (e.g., bonuses, stock, stock options, expense allowances, etc.), unless there is a business necessity or other meritorious reason justifying the disparity.

Finally, the Act amends the statute of limitations for bringing a pay discrimination claim under Section 1197.5. While the old law required employees to bring such claims within two years, the new law gives employees three years within which to bring a claim. This is the same statute of limitations that applies to most other wage-hour claims. Further, under a continuing violations theory, employees will be able to recover lost pay for up to six years of an unlawful pay practice, doubling the previous three-year limit. 

Practical Compliance Tips for Employers

With these sweeping changes, California employers should consider taking proactive steps to comply and mitigate legal risk. Some steps to consider include:

1. Updating Job Postings and Pay Structures

• Action: Review all job postings to ensure pay ranges reflect a good faith estimate “upon hire” rather than the broader historical range.
• Tip: Collaborate with hiring managers and HR to develop clear, accurate salary bands for each role. Document the rationale for the ranges and update as market conditions change.

2. Conducting Comprehensive Pay Audits

• Action: Audit pay practices across all job categories, considering all forms of compensation (not just base salary).
• Tip: Use analytic tools or third-party experts to identify disparities based on sex, race, or ethnicity and assess whether steps need to be taken to remedy unjustified differentials.  It is advisable for any such analysis to be done in consultation with legal counsel under privilege.

3. Enhancing Recordkeeping Practices

• Action: Extend payroll and compensation record retention to at least six years, covering the new damages period.
• Tip: Implement digital recordkeeping systems to ensure secure storage and easy retrieval of historical pay data.

4. Training HR and Management

• Action: Provide regular training to HR professionals and managers on the revised requirements, including the expanded definition of “wages” and inclusive language.
• Tip: Emphasize the importance of documenting pay decisions and ensuring transparency throughout the hiring and compensation process.

5. Reviewing and Updating Policies

• Action: Update internal policies and employee handbooks to reflect the new law, as applicable.
• Tip: Clearly state the organization’s commitment to pay equity and outline procedures for employees to raise concerns.

The Act represents another shift in California’s pay equity landscape, with proponents contending the amendments will help to ensure fair compensation for all workers. Employers should look at whether they need to enhance their compliance efforts, as proactively addressing pay transparency, conducting pay reviews, and strengthening recordkeeping are becoming more critical.

This article is featured as part of HR Daily Advisor’s HR Compliance week, Jan. 19^th-23^rd. Join us for a full week of online events and digital resources that will help you grow and develop in your role. Register here!

Emily Burkhardt Vicente co-chairs the labor and employment group at Hunton Andrews Kurth LLP. ebvicente@hunton.com.

Stephen P. Kopstein is an associate with the firm in Washington, D.C. skopstein@hunton.com.

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