The right to equal pay between women and men for equal work or work of equal value has been a founding principle of the European Union since the Treaty of Rome. Although the requirement to ensure equal pay is set out in the Recast Directive (Directive 2006/54/EC), which has been complemented in 2014 by a Commission Recommendation on pay transparency, the effective implementation and enforcement of this principle in practice remains a challenge. The lack of pay transparency has been identified as one of the key obstacles to ensure equal pay.
The Pay Transparency Directive aims at ensuring that the right to equal pay is upheld across the EU, by establishing pay transparency standards to empower workers to claim their right to equal pay. These objectives are pursued by introducing, inter alia, reporting obligations for larger employers on pay equality, the right for workers to request information from their employer on their individual pay level and on the average pay levels and mechanisms that improve the enforcement of the principle of equal pay.
The Pay Transparency Directive concerns all employers in the public and private sectors, workers who have an employment contract or employment relationship and job applicants.
Key elements of the Pay Transparency Directive
The Pay Transparency Directive leads to several important obligations for employers, that aim to establish pay transparency within organisations and strengthen enforcement mechanisms for workers. Besides the introduction of definitions that are specifically related to the right of equal pay, which facilitate the application of the key concepts relating to equal pay, including ‘pay’ and ‘work of equal value’, several important obligations can be derived from the Pay Transparency Directive:
To ensure that workers have the necessary information to engage in balanced and fair negotiations regarding their salaries when they enter into an employment relationship, employers are required to indicate the initial pay level or its range to a future worker for a specific position or job and, where applicable, the relevant provisions of a collective labour agreement that is applied by the employer. Furthermore, the Pay Transparency Directive prohibits that employers ask prospective workers about their pay history of their former and current employment relationship.
Employers are required to make accessible to workers a description of the criteria used to define their pay, pay levels and pay progression (i.e. career progression). Employers with fewer than 50 workers may be exempted by a member state from the obligation to make accessible to workers a description of the criteria used to define their pay progression.
Workers shall have the right to receive information on their individual pay level and the average pay levels, broken down by sex, for categories of workers doing the same work as them or work of equal value to theirs. This information should be provided within a reasonable period of time once requested and in any case within 2 months from the date on which such request is made. Employers are obliged to inform all workers, on an annual basis, of their right to receive this information. To address the fear of reprisals by the employer on the part of workers, the information can also be requested through representatives. Workers shall not be prevented (e.g. through a confidentiality clause) from disclosing their pay for the purpose of enforcing the principle of equal pay. On the other hand, employers may request that the use of any information by a worker, other than that concerning a worker’s own pay or pay level, remains limited to the enforcement of the right to equal pay.
Employers with more than 100 workers need to report certain information on salary differences, such as the pay gap (i.e. the difference of average pay levels between female and male workers, expressed as percentage of the average pay level of male workers), between female and male workers in their organisation. The publication of this information allows for a certain comparison between employers, which creates incentives for employers to prevent potential pay gaps and stimulates debate around pay equality. The accuracy of the information should be confirmed by management, following consultation of workers’ representatives who should have access to the methodologies applied.
The frequency of the reporting depends on the size of the employer. Employers with at least 250 workers need to report annually. Employers with 100 to 249 workers need to report the information every three years. Employers with less than 100 workers may decide to voluntarily provide the information on the pay gap, unless this is made mandatory by a member state. The information should be reported to a monitoring body designated by the members states that gathers certain data to monitor pay inequalities and the impact of the pay transparency measures. The employer may publish the information on its website or otherwise make it publicly available, provided that information on the pay gap, broken down by ordinary basic salary and complementary or variable components can be left out as this information is more sensitive. The employer is however required to provide its workers with this information and to the aforementioned monitoring body.
Should the pay gap reporting of employers reflect a difference of average pay between female and male workers of at least 5 per cent in any category of workers doing the same work or work of equal value, which has not been justified by objective factors and has not been remedied within 6 months after the pay reporting, the employer is required to carry out a pay assessment in cooperation with workers’ representatives. The employer should designate one or more workers for that purpose if formal workers’ representatives are absent in the organisation.
The joint pay assessment is carried out to identify, remedy and prevent differences in pay and shall include, among other things, (i) an analysis of the proportion of female and male workers in each category of workers, (ii) identification of any differences in pay levels between female and male workers in each category of workers, (iii) measures to address such differences if they are not justified on the basis of objective and gender-neutral criteria and (iv) a report on the effectiveness of any measures mentioned in previous joint pay assessments. The employer is required to remedy the situation within a reasonable period in cooperation with the workers’ representatives, which action shall include an analysis of the existing gender-neutral job evaluation and classification systems or establishment where it is missing to ensure that any direct or indirect pay discrimination on grounds of sex is excluded.
The Pay Transparency Directive provides for several protective provisions and enforcement mechanisms. We have highlighted a few below.
For example, workers who have suffered harm as a result of an infringement of any right or obligation related to the principle of equal pay have the right to compensation for the loss and damage sustained, whereby the worker shall be placed in a hypothetical position of the worker as if no infringement had taken place. This includes the full recovery of back pay and related bonuses or payments in kind, compensation for lost opportunities, moral prejudice, any harm caused by other relevant factors which may include intersectional discrimination, as well as interest on arrears.
In addition to the aforementioned right to compensation, the Pay Transparency Directive introduces a 'shift of burden of proof' in cases of alleged pay discrimination. This means that when workers, who consider themselves wronged because the principle of equal pay has not been applied to them, present facts before a court that suggest direct or indirect discrimination, the defendant (i.e. the employer) will be required to prove that there has been no direct or indirect discrimination in relation to pay. Consequently, the burden of proof is reversed, providing workers with stronger legal support in their pursuit of equal pay.
Furthermore, the Pay Transparency Directive provides for protection of workers against victimization and less favorable treatment. Employers will be prohibited from taking adverse actions against workers who exercise their rights under the Pay Transparency Directive or supported another person in the protection of their rights.
To ensure compliance, Member States will be required to introduce, among other things, effective, proportionate, and dissuasive penalties for employers who violate the provisions of the Pay Transparency Directive (e.g. penalties that are based on the gross annual turnover of the employer). Furthermore, a claimant (worker) should be able to request courts or other competent authorities to issue an order to stop the infringement and/or an order to take measures to comply with the rights or obligations regarding the principle of equal pay.
Next steps and preparations
Following the adoption of the Pay Transparency Directive by the European Parliament, the Council will have to formally approve the agreement before the text is signed into law and published in the EU Official Journal. The new rules will come into force twenty days after their publication. Member states are obligated to implement the Pay Transparency Directive into their national laws, regulations, and administrative provisions within three years after the Pay Transparency Directive's entry into force. Employers will therefore need to be prepared to comply with the new requirements once they are implemented at the national level.
Please note that the deadline to first comply with the pay gap reporting obligations for larger employers, depends on the size of the employer. Employers with more than 150 workers need to report the pay gap information within one year after the date of implementation. Employers with 100 to 149 workers need to report the pay gap information within five years after the date of implementation.
In anticipation of the Pay Transparency Directive's implementation, employers may take several proactive measures to ensure compliance and promote pay equity within their organizations:
- Conduct a thorough pay audit to identify any existing gender pay gaps, the underlying factors contributing to these disparities and the methodologies that are used. This will help employers to address pay inequalities proactively and develop a solid understanding of their current pay practices.
- Review and update pay policies, job evaluation systems, and classification structures to ensure they are gender-neutral and based on objective criteria. It is important to involve the workers' representatives timely to ensure a fair and transparent evaluation process, but also to comply with any existing applicable rules on the involvement of workers' representatives.
- Introduce and/or update systems that enable you to easily retrieve information on salary differences, such as the pay gap and have reporting procedures in place to be able comply with the Pay Transparency Directive.
- Establish a clear policy and procedure for addressing pay discrimination complaints and ensure that workers are aware of the steps they can take to raise concerns and seek redress. This may include setting up an internal reporting mechanism for handling pay-related inquiries.
If you have questions about the Pay Transparency Directive and/or its practical implementation, we will of course be happy to help.