On July 6, 2021, the Pay Transparency Act celebrated its fourth birthday. The aim of the Pay Transparency Act is to enforce the requirement of equal pay for women and men for the same work or work of equal value and thus to eliminate existing pay differences in connection with the much discussed "gender pay gap". The starting point is to de-taboo the issue of pay in the workplace, to make pay structures more transparent and thus to create the basis for enforcing the law. Even before it came into force in the last stages of the 18th legislative period, the law had been subject to great criticism. The first evaluation in 2019 also produced an ambivalent interim result, in which above all the low level of awareness of the law and the associated status in corporate reality were noted.
The law gained new attention in German labor law at the beginning of the year with a ruling in which the Federal Labor Court confirmed that the information obtained by employees under the Pay Transparency Act’s right to information can form the basis of the rebuttable presumption of gender-discriminatory remuneration. However, as Handelsblatt also reported on May 29, 2021, the application of the law has not played a major role in the day-to-day business of many companies to date. In other countries, though, e.g. in Great Britain or the USA, this topic receives significantly more attention. However, the issue of pay transparency is not very popular in Germany due to the often feared disruption of peace in the workplace. This could change in the future, because on March 4, 2021, the European Commission presented a proposal for a new Directive within the scope of the German Pay Transparency Act, which in many places contains stricter requirements than the current German law.
The new directive proposal
On March 4, 2021, the European Commission proposed a Directive to strengthen the application of the principle of equal pay for men and women for equal work or work of equal value through pay transparency and enforcement mechanisms (EntgTranspRL-V). The proposal still requires the approval of the European Parliament and the Council of the European Union. To date, the European Union has only issued a non-binding recommendation for pay transparency regulations from 2014.
Contents of the Directive and Differences from the Pay Transparency Act
In many places, the Directive tightens up regulations that are also contained in the Pay Transparency Act. In some cases, however, it also creates entirely new requirements.
Wage transparency for job applicants
Article 5 of the Directive provides that job applicants shall have the right to receive information from future employers on the starting salary for the position in question or its range. This information must already be provided in a published job advertisement or otherwise be made available to applicants without request prior to the interview. On the other hand, the popular question in job interviews about the salary in the previous employment relationship is to be explicitly prohibited. The Directive thus has a broader scope in terms of both time and content, which already extends into the phase before the employment relationship is established and can have a significant impact on the recruiting practices of companies.
Individual right to information
The Pay Transparency Act also provides for an individual right to information. According to Art. 7 (1) of the Remuneration Transparency Directive (EntgTranspRL-V), employees shall in future have the right to demand information on their individual income and on the average income, broken down by gender and for the employees in the comparison group. It is unclear whether the current German regulation, which provides for the notification of median average salaries, is already sufficient in this respect. In the definitions, the Directive distinguishes between "average income" and "median income". Pursuant to Art. 7 (2) of the Directive, employers are also obliged to remind employees annually that they have such an entitlement. This means that there is a new obligation to actively work towards ensuring that the entitlement is actually exercised.
Reporting on the gender pay gap
Art. 8 of the Directive also stipulates that employers with at least 250 employees must report annually on the pay gap between male and female employees on their website or in another publicly accessible form. Whether this obligation is complied with is to be monitored by a body to be appointed by the respective member states. In Germany, the Federal Anti-Discrimination Agency (Antidiskriminierungsstelle des Bundes) is a possible candidate. However, information on the wage gap between employees according to groups of employees performing the same work or work of equal value only has to be provided internally. Again, employers are required to provide considerable transparency in wage determination.
If the report shows a difference in average income of at least five percent and the employer is unable to provide an objective and gender-neutral justification, then according to Art. 9 of the Directive a joint pay evaluation is to be carried out with the employee representatives. In addition, remedial action must then be taken by introducing a gender-neutral job evaluation and occupational classification.
Strengthening of equal treatment bodies and employee representations
In addition, the proposed Directive also plans to strengthen the support options of recognized equal treatment bodies and employee representatives. According to Art. 13 of the Directive, these bodies are to act on behalf or in support of affected employees with their consent. This shall also apply with regard to several affected employees at the same time. According to the explanations of the proposed Directive, this is intended to overcome procedural and cost-related obstacles with regard to taking legal action for affected employees.
If employees have suffered damage due to the violation of rights or obligations in connection with the principle of equal pay for equal work or work of equal value, they shall be entitled to compensation according to Art. 14 of the Directive. That this claim essentially goes beyond the claims already provided for in Section 15 AGG is rather unlikely. It should be noted, however, that the Directive prohibits the limitation of the claim by means of a cap - such a cap has so far only been provided for in German law in the case of non-recruitment due to (gender) discrimination.
Reversal of burden of proof
The reversal of the burden of proof provided for in Article 16 of the Directive could be important and interesting for employees in the future: If there is prima facie evidence of pay discrimination, it will be up to the employer to rebut this presumption. The same applies if employers violate rights or obligations in connection with pay transparency.
While the requirements of the Pay Transparency Act have so far provided little incentive for companies to implement them and actively promote equal pay, this could change as a result of the sanctions provided for in Art. 20 of the Pay Transparency Directive. Violations of rights and obligations in connection with the equal pay requirement are to be subject to fines. In case of repeated violations, the withdrawal of public benefits or the exclusion from the granting of financial incentives for a certain period of time shall follow. According to Art. 21 of the Directive, the Member States are also to examine how compliance with the principle of equal pay can be ensured in the performance of public contracts and concessions. In this respect, exclusion from participation in award procedures may also be considered.
Conclusion – what companies need to be prepared for
As has been shown, there is a need for improvements in the Pay Transparency Act in relation to the requirements of the proposed Directive. Employers should therefore already prepare themselves for the fact that in the foreseeable future they will be faced with more obligations with regard to the establishment of pay transparency and the enforcement of equal pay. In addition, the possible sanctions in the event of violations must be taken into account when considering how to deal with these issues in the future. In addition, not only will the risk of litigation increase, but also the burden of proof will be on the employer.
At the same time, however, companies currently have the opportunity to act with foresight, to put their own compensation systems to the test in good time before amended statutory regulations take effect, and thus to identify any need for adjustment. We conduct such "pay audits" on a regular basis. Apart from the legal side, this also offers opportunities to position oneself on the market as an attractive employer.