Background
Women still do not receive the same remuneration as their male colleagues. In Germany, the gender pay gap, i.e. the average difference in earnings between men and women, was 18% in 2022 according to the Federal Statistical Office. Although this figure drops to 7% when comparable qualifications, occupations and work experience are taken into account, Germany still has a lot of catching up to do when it comes to matters of equal pay. However, since this is true not only for Germany but also for many other European countries, the European Union has made it its task to address this inequality. The European Parliament and the Council of the European Union have adopted Directive (EU) 2023/970 “Strengthening the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms” (the “Pay Transparency Directive” or the “Directive“), which entered into force on 6 June 2023. In 2017, the Entgeldtransparenzgesetz (“German Pay Transparency Act” or the “Act”) came into force in Germany with a view to addressing the gender pay gap in Germany. However, the Act has failed to close the gender pay gap until now. The measures in the Pay Transparency Directive go significantly beyond the requirements in the German Pay Transparency Act in certain respects.
Although the Directive has yet to be transposed into national law before it will apply directly to private companies, since the Directive provides the framework for national legislation, it is foreseeable what companies will have to prepare for in the future. We set out below an overview of the requirements in the Directive as compared with the Act.
Provisions of the Pay Transparency Directive
- Pay transparency for job applicants and no right for employers to ask questions
Unlike under the German Pay Transparency Act, the regulations in the Directive will affect the job application process.
Job applicants will have the right to obtain from their prospective employer information about the “initial pay level or its range, based on objective, gender-neutral criteria”. The company can meet this requirement either by including this information in the job vacancy notice or otherwise by providing it prior to the job interview. This is to ensure informed and transparent negotiations on pay.
The question as to whether companies may ask job applicants about their pay history, which has been disputed under German national law up until now, has been settled by the Directive. Based on an explicit provision in the Directive, companies are not allowed to ask job applicants about their pay history during their current or previous employment relationships.
- Right to information for employees
Although the German Pay Transparency Act provides individual employees with the right to information on average income within the company, the preconditions to this right have meant that the German Pay Transparency Act has so far proved to be a toothless tiger. The Directive will remove several of the preconditions and provide for a more comprehensive right to information. In future, the right to information will no longer be restricted to companies with more than 200 employees and it will no longer be necessary for there to be at least six employees of the opposite sex at the same level. Furthermore, the subject of the information should no longer be the median wage in the company, but the average income of employees performing the same or equivalent work.
According to the Directive, employers are required to inform all employees annually of their right to information and of the steps employees must take to exercise this right.
- Reporting, information and remedies
Companies with more than 100 employees will be obliged to report on their gender pay gap in the future. The date of the first reporting obligation and the frequency of subsequent reports will depend on the number of employees in the company. For example, employers with more than 250 employees should report annually from 7 June 2027. The information required in the report, as described in more detail in the Directive, must be submitted to the competent national authority for publication.
The reporting obligation is accompanied by a right to information for employees, employee representatives, labour inspectorates and equality bodies established pursuant to the Directive, which can request additional clarifications and details from employers on all data provided, including explanations on any gender pay gaps. Should it become apparent that gender pay gaps are not justified by objective, gender-neutral criteria, employers will be required to remedy the situation within a reasonable period of time in close cooperation with the abovementioned stakeholders. In the case of a pay gap of at least 5%, companies will also be obliged to carry out a joint pay assessment with their employee representatives.
- (Collective) law enforcement
There is currently no provision under the German Pay Transparency Act for interest groups to participate in judicial or administrative procedures on equal pay in support of affected employees, or even to act on behalf of employees. This will change in the future as a consequence of the Directive. Access to judicial review will be simplified and representation of the interests of employees is to be guaranteed.
Furthermore, law enforcement will be made easier by shifting the burden of proof. In future, employees will no longer have to prove that they are subject to pay discrimination. Instead, employers must prove that no such discrimination exists. This requirement also forces companies to document their remuneration structures in a transparent manner that can be understood on the basis of objective criteria.
- Compensation, damages and sanctions
If employers violate the rights or obligations set out in the Directive and employees suffer harm as a result, they will be entitled to full compensation or reparation. This should include full recovery of back pay and related bonuses or payments in kind, compensation for lost opportunities and moral prejudice. A similar provision can be found in German law in section 15 (1) and (2) of the Allgemeines Gleichbehandlungsgesetz (Equal Treatment Act).
Until now, there have been no penalties due to violations of obligations under the German Pay Transparency Act. This will also change with the implementation of the Directive, which obliges EU member states to introduce penalties which are effective, proportionate and dissuasive – the Directive explicitly mentions fines.
Practical advice
As mentioned above, there is currently no immediate need for companies to take action with regard to pay transparency, as the provisions of the Directive still need to be transposed into national law within the next three years.
Nevertheless, in view of the inevitable changes in national legislation, companies are advised to review their existing remuneration structures now in order to assess the need for adjustments as a consequence of the Directive. In particular, careful documentation of remuneration structures, including any objective criteria that would allow for differences in remuneration, should be taken into account. This could already be relevant if companies are to be able to meet their future information requests.
For more information on how the Linklaters Diversity Faculty can help you stay abreast of legal and regulatory developments in the field of Diversity, Equity & Inclusion, please contact Matthew Devey, Yukiko Hitzelberger-Kijima, Sophie Kruppa and/or your usual Linklaters contact.
For further information, please contact:
Matthew Devey, Linklaters
matthew.devey@linklaters.com
