Equal pay: From a privilege to a duty

Background

The obligation to pay men and women equally for equal work or work of equal value has long been enshrined in EU law and Sections 3 and 7 of the German Pay Transparency Act (EntgTranspG) – supported by the case law of the European Court of Justice and the Federal Labour Court (BAG). In practice, however, violations of equal pay often went unpunished. That is now changing.

The directive introduces new obligations, the tightening of the EntgTranspG is being called for independently of the directive, and, last but not least, case law is becoming stricter.

The new EU directive on pay transparency obliges companies to systematically analyse, document and eliminate existing pay differences. The aim is to effectively close the gender pay gap across Europe.

Challenge for companies

The directive obliges companies to:

• regularly report on pay structures
• conduct pay analyses for comparable jobs
• justify pay differences
• make specific adjustments in the event of unequal pay

In future, violations will be punishable by substantial fines and claims for damages, including in the context of class action lawsuits. Companies bear the full cost risk.

Although the directive has not yet been transposed into German law, there is little room for manoeuvre. Companies must prepare for far-reaching changes, regardless of the legislative process. German labour courts are already tightening the rules.

Act now – don’t wait

In view of the short implementation period and the foreseeable legal risks, early action is advisable. Companies should systematically review their remuneration structures and adjust them if necessary.

Four key areas of action:

1. Analysis and documentation of existing salary and job structures
2. Assessment of the comparability of jobs and positions
3. Adjustment of remuneration structures and salaries, taking into account co-determination rights
4. Active management of the new remuneration structure
5. Expansion and adjustment of the reporting system

The areas for action mentioned above show where employers need to start. Ideally, these requirements should be implemented in a three-step process. This ensures transparency, legal certainty and long-term effectiveness.

Three steps to legally compliant equal pay implementation

Step 1: Analysis of the remuneration structure

The first step towards compliance with the Remuneration Transparency Directive is the systematic collection and analysis of the current remuneration structure. A glance at monthly or annual salaries is not sufficient.

All remuneration components must be recorded, including bonuses, allowances, benefits in kind and variable components. The comparability of the activities is also crucial. This is not measured solely by job titles, but by actual requirements such as responsibility, workload, qualifications and working conditions. What matters is equivalence, not complete identity.

Only when all relevant data is available – including data on former employees – can a legally compliant statement be made: Are there any unlawful pay differences? And if so, to what extent?

Stage 2: Adjustment of remuneration

If the analysis reveals significant differences in comparable jobs, measures must be taken to align them. This does not always necessarily lead to salary increases – in many cases, structural adjustments or objectively justified differentiations may be sufficient. It is crucial that every deviation can be justified in a comprehensible manner.
Particularly challenging:

• The directive applies across the entire group, not just at the location or in the company.
• Former employees may also have to be taken into account.
• The system must be transparent and documented in an audit-proof manner.

Stage 3 – Sustainable remuneration management

Once a non-discriminatory remuneration structure has been established, it must be maintained, implemented and actively managed on an ongoing basis. This is because the introduction of the directive significantly increases the legal risks:

• Reversal of the burden of proof in favour of employees
• Sanctions and fines for violations
• Class action lawsuits supported by digital litigation platforms
• Obligation to disclose the remuneration structure to applicants and employees

A functioning, continuously reviewed remuneration system enables employers to effectively defend themselves against lawsuits, avoid claims for damages and establish legal certainty – even in international structures.

Conclusion: Act in good time – implement in a legally compliant manner

The upcoming obligations arising from the EU Pay Transparency Directive are complex and have significant legal and organisational implications for companies – and for employers with more than 100 employees, they also entail a massive expansion of reporting obligations. Successful implementation requires time, sound planning and legal certainty.