No implementing legislation, but no legal vacuum either
Even without a national implementing act, the Pay Transparency Directive is not without consequences. The labour law principle of equal pay for equal or equivalent work is already enshrined in primary European law and in German law, and is already in force. Whilst the Directive does not have direct effect on private employers, it does oblige the German labour courts to interpret existing law in a manner consistent with the Directive – and this obligation has become considerably more stringent since the expiry of the transposition deadline. Public-sector employers are even directly bound by the untransposed Directive.
Some EU rules are already being applied by the employment tribunals without further ado: if a provision merely clarifies existing principles of equal treatment that are open to interpretation, the tribunals may base their decisions on the EU rules. For example, the new criteria for determining equivalent work may be applied: Skills, workload, responsibility and working conditions are already taken into account in the interpretation of the existing provisions of the Pay Transparency Act, the General Equal Treatment Act and Article 157 TFEU. Even the scope of the right to information is likely to be extended in line with the directive – for example, by using more meaningful average figures rather than mere median figures.
The situation is different where the Directive introduces new, detailed organisational, reporting and sanctioning systems, and with them an excessive amount of new red tape. Thresholds for reporting obligations, the exact frequency of joint remuneration assessments or a separate system of administrative fines cannot be established through judicial development of the law – and it is precisely in this regard that the trade associations and the government are rightly hoping for a relaxation of the EU Directive.
Pressure to act due to claims for compensation and criminal liability risks already exists today
Employers can afford to wait for reporting requirements to be relaxed. However, the question ‘Is our pay system already legally compliant?’ should not be put on hold. Anyone who cannot explain pay differentials on the basis of objective, gender-neutral criteria runs a risk that has already intensified in practice: recent case law from the Federal Labour Court significantly raised the bar for justifying pay differences as early as last year. Simply naming a better-paid comparator of the opposite sex can trigger a presumption of discrimination, which the employer must then rebut – or pay dearly for in the form of back pay, damages and compensation. We have already highlighted this in several blog posts.
Added to this is an aspect that has so far been given insufficient attention in the public debate: if variable or other remuneration components are incorrectly calculated or paid out via systems that are not free from discrimination, there is a risk of not only labour law consequences but also criminal law consequences, in particular due to the automatic failure to pay social security contributions correctly (Section 266a of the German Criminal Code). So anyone who had been hoping for a convenient transition period should abandon that hope once and for all – the review and rectification of one’s own remuneration structures can no longer be postponed.
Support through consultancy and digital tools
The good news is that companies do not have to tackle this project without support. In addition to traditional advice from BUSE’s employment lawyers or remuneration consultants, streamlined IT solutions are now also available to assist employers with the analysis, documentation and ongoing monitoring of their remuneration structures. For example, employment lawyers at BUSE have developed the web-based platform paychecker.eu in collaboration with the Austrian law firm Oberhammer. It offers employers practical, cross-border support in implementing pay transparency requirements.
Conclusion
The rules on equal pay have already been tightened as a result of the EU Directive – which has not yet been transposed – and through case law. The German legislature’s hope that the directive will be streamlined relates to the reporting obligations. Non-compliant pay systems already pose a risk today. Employers should urgently review their pay systems, rectify any existing errors and prepare for the heightened burden of proof in equal pay proceedings.
Key points in brief
- The rules on equal pay, which have been tightened by the EU Directive, are already in force today.
- Violations already carry the risk of substantial claims for compensation and criminal liability for company directors.
- A wait-and-see approach is only justified with regard to the bureaucratic reporting obligations.
