California Expands Limitations and Recovery Periods for Equal Pay Act Claims

Effective January 1, 2026, all California employers will be subject to expanded potential liability for Equal Pay Act violations under Senate Bill 642’s “Pay Equity Enforcement Act.” SB 642 amends California’s Equal Pay Act (Labor Code section 1197.5) and pay transparency requirements (Labor Code section 432.3). The stated purpose of SB 642 is to enhance enforcement of California’s Equal Pay Act, promote greater pay transparency, further reduce wage disparities, and provide employees with additional mechanisms to ensure equitable compensation.

California’s Equal Pay Act prohibits wage disparities based on sex, race, or ethnicity. It forbids paying employees less than others performing “substantially similar work” unless the difference can be justified by a seniority or merit system, a system measuring productivity, or a bona fide factor such as education, training, or experience. Labor Code section 432.3 enforces the Equal Pay Act by requiring employers to disclose the pay scale for a position upon an applicant’s request, and employers with 15 or more employees must include the pay scale in all job postings.

The Pay Equity Enforcement Act amends section 1197.5 in three ways that will significantly expand employers’ potential liability. First, it extends the statute of limitations for pay equity claims from two years to three years after the last date the “cause of action occurred,” which is defined as when an employer adopts an unlawful compensation decision, or an individual is subjected to or affected by that decision.

Second, the act entitles an employee to obtain relief for the entire time an Equal Pay Act violation exists for up to six years, which significantly expands the recovery period. This also means California employers should preserve employees’ wage-and-hour and pay equity records going back at least six years.

Third, the act expands the definition of “wages” and “wage rates” to include all forms of pay — not just base pay — including “salary, overtime pay, bonuses, stock, stock options, profit-sharing and bonus plans, life insurance, vacation and holiday pay, cleaning or gasoline allowances, hotel accommodations, reimbursement for travel expenses, and benefits.” Thus, employers assessing their pay equity practices will have to compare not just hourly rates or salaries but also any of these other forms of wages. And plaintiff’s attorneys representing employees will have many more grounds for alleging wage disparities.

Finally, SB 642 amends Labor Code section 432.3 to effectively narrow the definition of “pay scale” to mean “a good faith estimate of the salary or hourly wage range that the employer reasonably expects to pay for the position upon hire.” This change is meant to prevent employers from posting excessively broad ranges that render the disclosure meaningless. Employers are expected to post realistic, good-faith ranges that accurately reflect anticipated pay.

Please contact Carlton Fields’ Labor and Employment Practice if you have questions about how to comply with this new California employment law.

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