Severance payments are part of remuneration
Severance payments are regularly agreed on an individual basis and vary both in terms of their amount and the basis on which they are calculated. However, according to the case law of the European Court of Justice (ECJ), they are not merely compensation payments, but form part of remuneration.
In the Barber and Seymour-Smith judgments, the ECJ had already made it clear that both statutory and voluntarily agreed severance payments are to be classified as remuneration. The decisive factor is that the entitlement arises from the employment relationship and that the payment is intended to provide financial compensation for the loss of employment.
For the Pay Transparency Directive, this means that severance payments may in future be taken into account when assessing whether women and men are paid equally.
Former employees are also relevant
Another aspect of the ECJ’s ruling is particularly far-reaching. According to this, the pay comparison is not limited to current employees. Rather, former employees may also be used as comparators.
For employers, this means:
- Remuneration data for former employees must, where necessary, remain available.
- Severance payments that have been made may also form part of an equal pay comparison.
- Documentation and record-keeping processes are becoming significantly more important.
Particularly when agreeing severance payments, it is therefore advisable to document the relevant assessment criteria in a transparent and gender-neutral manner.
New requirements for compliance and documentation
German practice has so far been based predominantly on comparisons with current employees. This approach is likely to change under the influence of the Pay Transparency Directive.
Companies should therefore assess at an early stage
- what remuneration data must be retained in the long term,
- how severance pay decisions are documented, and
- whether existing remuneration structures are designed in a non-discriminatory manner.
Careful documentation not only facilitates compliance with future disclosure and reporting obligations, but also reduces litigation risks.
Is there a risk that the scope of criminal liability will be extended?
Added to this is another point that has so far received little discussion: a possible extension of criminal liability under Section 266a of the German Criminal Code (StGB).
The Federal Labour Court has already ruled that claims relating to pay discrimination are aimed at securing back pay for remuneration withheld. In future, employers will also be obliged to actively review their remuneration structures, identify instances of discrimination and eliminate them.
This could make it more difficult to rely on a mistake of law in the event of a dispute. The Pay Transparency Directive thus also takes on considerable significance for compliance systems and internal control processes.
Conclusion
The Remuneration Transparency Directive has implications that extend far beyond traditional transparency obligations. In particular, the classification of severance payments as part of remuneration and the potential inclusion of former employees significantly broaden the scope of scrutiny. Companies should adapt their remuneration and documentation processes at an early stage and review existing compliance structures to minimise legal and criminal liability risks.
Key points in brief
- Severance payments may in future form part of equal pay audits.
- Former employees may also be used as comparators.
- Companies should adapt their documentation, remuneration structures and compliance systems to the Pay Transparency Directive in good time.
