Pay transparency: Damages, compensation & class action lawsuits.

 How legal protection for employees is regulated for breaches of the Pay Transparency Directive.

Pay transparency: Damages, compensation & class action lawsuits.

The EU Pay Transparency Directive aims to ensure that equal pay becomes a real part of the labor market on a European level. To ensure that the directive does not simply remain a paper tiger, it includes provisions for claims for damages and compensation for employees as well as explicit rules governing legal enforcement and legal remedies.

EU Pay Transparency Directive: Requirements for German law

The EU Pay Transparency Directive came into force in June 2023 and must be transposed into German law by mid-2026 to ensure greater pay transparency and equal pay among employees.

The EU Directive itself is not directly applicable. However, the directive is so clearly formulated that employers can already anticipate how the Pay Transparency Act will be adapted.

EU Pay Transparency Directive in our blog

We examined various aspects of the Pay Transparency Directive in our blog in several posts in the last year:

Claims for damages and compensation

In addition to information and reporting obligations, defining terms, etc., the directive also stipulates sanctions and entitlements that are intended to make the rules on pay transparency more effective. The national legislators are responsible for ensuring that violations of the directive, for example with regard to reporting obligations, result in fines (Art. 16 of the directive).

In the event of unjustified pay discrimination in an employment relationship, for example, employees’ claims against employers for damages and compensation must also be enshrined in national legislation. The directive expressly states that the claim should be for “full” compensation for damages and that a predetermined upper limit for such claims is prohibited (Art. 18 Directive).

Distribution of burden of proof favors employees

In terms of enforcing claims for violations of the prohibition of discrimination, the directive favors employees by reversing the burden of proof:

Where employees previously had to prove pay discrimination by their employer, this is set to change in future. Employers will be required to prove that (in)direct pay discrimination had not occurred. As intended by the legislator, this will mitigate the obstacles and inhibitions to taking legal action against pay discrimination if necessary.

As a consequence, employers will have to document pay decisions comprehensively in future to ensure that they are able to prove that pay differences within the comparison group are justified, when necessary.

Arbitration, legal action & class action lawsuits

At the same time, the directive stipulates that employees must also be able to enforce their claims in court (Art. 14 of the directive): The Member States are required to ensure that all employees have access to legal proceedings to enforce the rights and obligations in connection following any arbitration – even after the employment relationship has ended. This also means that German legislators can stipulate mandatory arbitration before the dispute is brought before the courts.

Last but not least, the directive also states that national law must establish the basis for class action lawsuits. In future, associations and organizations, etc. will be able to provide legal representation in order to contest violations of employees’ rights or obligations before employers associated with the principle of equal pay (Art. 15 of the directive). In all likelihood, this will primarily involve cases in which employees themselves are wary of the litigation risk.

What can we do for you?

Would you like to know how you can lay the groundwork now for future rights and obligations? Do not hesitate to contact us!

Summary of the key facts:

  • The EU Pay Transparency Directive requires German legislators to enable claims for damages and compensation for violations of rights and obligations in connection with pay transparency and equal pay.
  • The legal process for enforcing such claims must be accessible.
  • In addition, the law must also allow class action lawsuits representing affected employees.