United States: California Superior Court Grants Class Certification In Equal Pay Case

On April 30, 2020, Judge V. Raymond Swope of San Mateo Superior Court granted plaintiffs' motion for class certification in Jewett et al. v. Oracle America, Inc. In doing so, the court certified a class of more than 4,100 female employees who work within three of Oracle America, Inc.'s 15 job functions: Information Technology, Product Development, and Support, in the state of California.¹ Plaintiffs filed their class action complaint in June 2017 alleging violations of the California Equal Pay Act (EPA), Unfair Competition Law, Business & Professions Code §17200 (UCL), and later through amended complaints, Private Attorneys General Act, and related Labor Code violations.    

Plaintiffs alleged that defendant violated the California EPA and UCL when it paid female employees less than male employees in the same job function for performance of substantially similar work. Plaintiffs further alleged that the pay disparities at issue arose primarily from defendant's alleged use of prior salary in setting employee compensation. Importantly, however, defendant disputed that it relied on prior salary in setting employee compensation in the manner alleged.

Ultimately, in certifying the class, the court determined that-even for a large class of employees who perform work within three different job codes-common questions predominated such that the issues as alleged by plaintiffs were susceptible to generalized classwide proof. If upheld on appeal, the decision could have significant implications for California EPA class actions.

The Substantially Similar Standard and Job Classification Systems as Sufficient Classwide Proof

To establish a violation of the California EPA, a plaintiff must establish that there exists a pay differential between the plaintiff and an alleged comparator for the performance of "substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions."² If the plaintiff meets this initial showing, the burden shifts to the employer to prove that the disparity is excused by one of the four available statutory affirmative defenses.³ The preliminary issue examined by the court was whether there was sufficient common proof from which plaintiffs could establish that class members within each of the three job codes performed "substantially similar work" to that of their male comparators.⁴

Predictably, plaintiffs argued that those employees within a particular job code performed substantially similar work for purposes of their EPA claim. They further claimed that female employees were paid less than their male counterparts for work performed within the same job codes, and that an annual average wage differential of $13,000 existed between class members and their alleged male comparators.⁵

The court acknowledged that it was a question of fact for the jury to determine whether the work performed by the putative class members was, in reality, substantially similar to that performed by the alleged comparators. The court determined, however, that, for purposes of class certification, plaintiffs had provided sufficient common evidence from which a jury could reach this conclusion.⁶

In concluding that the case was appropriate for class treatment, the court first relied on the job codes themselves. The court emphasized that defendant utilized a "centralized and systematized" manner to organize its employees and, used these systems to determine employee compensation through assignments to the company-wide job codes. Within each job code, defendant grouped employees by "job function, job specialty, job family and responsibility level, and assign[ed] each job code a specific salary range."⁷ The court further highlighted that defendant's Person Most Qualified (PMQ) deponent confirmed that employees within their assigned job codes shared "basic skills, knowledge and abilities and similar levels of responsibility and impact."⁸ From this evidence, the court concluded "[t]his substantial evidence supporting a top-down, centralized system makes Plaintiffs' pay claims particularly appropriate for classwide resolution."⁹

In response, defendant emphasized that individualized issues predominated, thus making class treatment inappropriate. Indeed, defendant argued that the evidence established that there were compensation variations within job code classifications that related to the specific job duties of each individual employee "that render comparison at the job-code level improper."¹⁰  The court disagreed, pointed to the broad definition of the California EPA's "substantially similar" standard, and concluded that "purported differences in job duties do not defeat class certification."¹¹ 

The Bona Fide Affirmative Defense: Consistent Application

As stated above, an employer may excuse a pay disparity between substantially similar employees where it is based upon one of the four affirmative defenses permitted by the statute.¹² The fourth, and most commonly used of these exceptions, provides that a "bona fide factor other than sex, such as education, training, or experience" can excuse a pay disparity so long as it is job-related, not based on or derived from a sex-based differential in compensation, consistent with business necessity, reasonably applied, and accounts for the entire wage differential.¹³

In arguing that class treatment was inappropriate, defendant emphasized the lack of common issues between the putative class members and stressed that variations in job duties of individuals, even those grouped within the same job code, precluded compensation comparisons because the compensation provided to each employee was based on individualized determinations, typically driven by individual hiring managers.¹⁴ Defendant further highlighted that in defending any alleged pay disparity between a female class member and a male comparator, defendant would be required to rely upon "individualized inquiry and proof."¹⁵

The court disagreed and determined that defendant was not "entitled to present individualized evidence with respect to each and every class member to attempt to establish that some 'bona fide' factor is responsible for that woman's lower pay as comparted to every man in the job code who is paid more."¹⁶ Instead, the court concluded that defendant's affirmative defenses were susceptible to common evidence in the form of expert statistical analysis of employee compensation data.¹⁷ The court further determined that defendant's argument-that individualized proof would be required to legitimize class member pay disparities because individual class members within the same job codes performed different job duties and were compensated based on individualized determinations-lacked merit. It concluded that defendant's argument amounted to little more than an attempt to find post-facto justifications sufficient to excuse the alleged pay disparities. The court held that such efforts were inconsistent with the text of the statute itself. The court cited secondary sources and federal case law to support its position that in order to be "bona fide" under the statute, the factor must have been consistently applied by the employer in making compensation decisions.¹⁸ "[I]t is not reasonable or consistent with the purposes of the EPA to permit an employer to pick and choose factors inconsistently and idiosyncratically to justify disparate pay decisions for employees performing substantially similar work . . . [i]f the factors are not used consistently to determine pay, they are not 'bona fide.'"¹⁹

Ultimately, the court held that the jury could decide "using common evidence from the opposing [statistical] experts which expert is more persuasive, and whether Defendant has established that bona fide, job-related factors account for the entire gender pay gap."²⁰

Alleged Reliance on Prior Salary

In analyzing the EPA, and especially, the UCL claims, the court made much of plaintiffs' contention that defendant relied on employee salary history in making compensation decisions. According to plaintiffs, defendant had a "policy or practice" of using prior pay to "set starting salary" and this policy or practice had a disparate impact on women.²¹ For purposes of class certification, the court concluded that plaintiffs presented sufficient common, generalized evidence from which a jury could determine whether defendant had, in fact, utilized such a system in making compensation decisions.

In support of its conclusion, the court cited the "substantial common evidence" provided by plaintiffs "that Defendant had a policy or practice of using prior pay to set starting pay."²² This evidence included documents that suggested that, prior to October 2017, hiring managers solicited salary history information from job applicants during the hiring process, declaration evidence that defendant made efforts to "match" lateral employee salaries based on prior pay at previous employer, declaratory evidence from a former employee who stated the prior pay was the "primary factor" she used when setting pay for new hires, and expert analysis that showed that prior pay was "highly predictive" of salary in defendant's employ.²³ Indeed, the court and plaintiffs frequently referenced plaintiffs' labor economist expert-even though he concluded that there was only a correlation between employee prior salary and the compensation they received at Oracle. This type of correlation proves only that employees' prior salary was associated with their offered compensation, not that prior salary caused the observed association, or stated differently, that defendant actually relied upon prior salary in setting employee compensation.

It is important to note that defendant disputed that it maintained any such "policy or practice" of relying upon employee prior salary in setting compensation and that defendant's own expert disputed that it relied on prior pay in setting employee salary.²⁴ Nevertheless, the court determined that the contrasting expert opinions, taken together, constituted sufficient common and generalized evidence. "A jury can weigh this contrary common evidence and determine whether or not Defendant had a policy of using prior pay to set salaries, and whether or not that policy had a disparate impact on women."²⁵

What This Ruling Means for California Employers

The case could have significant implications with respect to how other putative California EPA class actions are prosecuted and how employers defend against such actions. For example, one way in which employers may seek to eliminate pay disparities between comparable employees is to streamline compensation systems and policies. In short, employers can deploy a top-down approach-to remove individual hiring manager or recruiter discretion-to ensure that compensation decisions are implemented in a consistent manner across the organization. Such a uniform approach may have the effect of eliminating, or limiting, pay disparities between employees of opposite protected categories who perform substantially similar work, as it removes individualized decision-making, which often drives variations in comparable employee compensation. Unfortunately, the Oracle decision suggests that the more organized and streamlined an organization becomes in terms of compensation policies and practices, the easier it may be for plaintiffs' counsel to argue that class treatment is appropriate as theoretically more easily susceptible to generalized, common proof.  

Similarly, the court suggests that individualized variations in compensation between employees within the same job codes, even if based on legitimate, job-related reasons, may not be relied upon to avoid liability unless the employer can establish that it applied these job-related factors in a consistent way. The statute itself does not specifically require that "bona fide" factors be consistently applied.²⁶  That said, assuming other California courts adopt this standard, concerns of consistent application of bona fide factors may further incentivize employers to adopt a strictly uniform compensation policy, and ensure that the policy applied consistently to employees across the organization. The effect of such a streamlined approach would, again, potentially bolster an argument by plaintiffs' counsel that class treatment is appropriate.²⁷

The Oracle decision also presents potentially concerning precedent with respect to the validity of expert statistical analysis in analyzing EPA claims. The court relied principally on plaintiffs' limited circumstantial evidence that defendant had, in fact, relied on prior pay in setting employee compensation. Plaintiffs established that the employer solicited prior salary information from job applicants, when this practice was lawful, and that there was a correlation between a job applicant's prior salary and the compensation offered. This correlation does not prove that defendant relied upon prior salary in setting employee compensation. Neither does this correlation constitute evidence that defendant engaged in compensation discrimination in violation of the California EPA or UCL. For example, if the defendant class members all independently decided to change jobs whenever they received a job offer that was 10% above what they were paid at a current employer, the result would be an extremely high correlation between starting pay and prior salary, but that would not mean defendant based its offer on prior pay.

Moreover, from a manageability perspective, the verdict forms for the trial in this matter could be quite voluminous. Should the case proceed to trial, a jury will be forced to return a verdict regarding each job title within each of the three job codes. For example, a jury likely would need to determine as to whether each job title, within each job code, performed substantially similar work as defined by the statute. A jury could not conclude that women in one job title should be presumed to be underpaid simply because that was true of women working in another job title, or even for all women on average within the class. As such, a jury would have to reach separate decisions regarding women employed in each and every job code.

The court's decision to certify the case as a class action is not a final judgment and, therefore, is not subject to immediate appeal.²⁸