An old idea now has a legal foundation
The issue of equal pay has long been a part of EU regulations. In future, it will be enforced via the Pay Transparency Directive (EntgTranspRL) from June 2023.
EU directives do not (yet) have any directly binding legal effect in member states – at least until the transposition deadline for the directive has expired. German lawmakers now have time until June 2026 to transpose the contents of the directive into federal law or to adapt existing laws.
Given that the legal adaptations are expected to involve burdens for employers, the implementation is likely to proceed slowly and will possibly take until after the federal elections in late 2025. At the same time, the directive is already so detailed that German lawmakers have been left with little leeway.
What needs to be done
The directive requires employers to take action to eliminate unequal pay for comparable tasks at their companies. In future, the principle of “equal pay for equal work” will apply consistently. This means that employers will have to define remuneration structures which eliminate unjustified, gender-specific pay differences.
In view of the fact that it is difficult to define whether an activity is the same or equivalent in practice, the directive primarily builds on four criteria: Competence, workload, responsibility, and working conditions. Determining these criteria will demand a comprehensive analysis of existing activities to avoid violating the directive.
New rights for employees
In future, applicants shall be entitled to obtain information about the starting salary to ensure transparent pay negotiations.
At the same time, employers will also be required to provide regular information about the average income of other employees who perform the same or equivalent tasks.
Furthermore, employers with at least 100 employees will be required to provide regular remuneration reports.
In the event of equal pay violations, employees will have the right to claim damages, including
- full pay compensation for at least the last three years as well as
- subsequent payment of the corresponding bonuses together with
- compensation for lost promotion opportunities and the associated loss of higher earnings.
Last but not least, companies may also face class action suits to enforce the right to equal pay in future employers may also be forced to bear the costs of these proceedings. At the same time, the corresponding burden of proof will be transferred to employers.
Effective sanctions for violations will also need to be anchored in federal law. Such sanctions can also include severe fines: Penalties ranging up to the gross annual turnover or the sum of all salary payments made by the employer shall be possible.
Employers need to take action
German law will likely need some time to be adapted to the requirements of the Pay Transparency Directive. Nevertheless, the far-reaching consequences alone mean that employers need to take action now. The regulations are coming and the directive will have to be implemented. In addition, this directive will provide employees with more opportunities for legal action.
In this respect, employers need to prepare for the future sooner rather than later. This means reviewing the company’s remuneration system and in making the necessary changes ahead of time. Above all, larger companies subject to reporting obligations are advised to be proactive. Because the clock is ticking.
What can we do for you?
Do you, as an employer, want prepare for the new world of pay transparency now and have your remuneration system reviewed? Do not hesitate to contact us!
Summary of the key facts:
- The EU Pay Transparency Directive came into force on June 6, 2023.
- German lawmakers now have to transpose the directive into German law by June 7, 2026.
- Employers are advised to review their remuneration systems for discrimination and be prepared ahead of time.
