Pay transparency and pay equity update - implementation of the EU Directive on the way

So far, it can be assumed that a corresponding law will essentially adopt the main features of the Directive. All employers will have to take measures to be prepared for this. The aim of the Directive is to create fair pay, particularly through transparency. The implementation of the relevant regulations may for the first time create transparency for some employers. Or can you judge and justify from the outset whether the work of a software engineer is equivalent to that of a senior controller or a master roofer? You will have to, and not just from the date the reporting obligations come into force, but from the day the law comes into force.

Essentially, there will be the following changes in the implementation of the employment relationships on the one hand and in the value analysis and reporting on the other:

1. Candidates:

It is forbidden to ask candidates about their previous salary. Conversely, candidates are entitled to be informed of the starting salary based on objective, gender-neutral criteria or a salary range and any collective agreements applied.

Practical tip: The previously popular reference to “competitive compensation” will be a thing of the past. Instead, the job to be filled must be categorised at the time of advertising. Remuneration can no longer be adjusted to the candidate, or only to a limited extent.

2. Employees

Strengthening employees' rights to information: the employer must provide information on the objective and gender-neutral criteria that apply to pay, pay levels and pay development. In addition, employees are entitled to written information on individual pay levels and average pay, broken down by gender and the groups of employees who perform the same or equivalent work. This entitlement must even be pointed out once a year.

Practical tip: The fulfilment of this right to information, which currently still exists in a much weaker form, has already been problematic in terms of determining what constitutes “work of equal value” and how variable remuneration components in particular are to be depicted. So far, however, this has not been generally recognised due to the many weaknesses in the enforceability of this right to information. This will change in the future.

An attempt to provide assistance in determining equivalent work can be found here: Antidiskriminierungsstelle - eg-check.de especially for entrepreneurs who like to read a lot and fill in tables by hand. It will be interesting to see whether the expected law will provide further assistance or leave it up to the employer to determine for itself what it considers to be equivalent - subject to judicial review, of course.

• Claims for damages and compensation by employees, with no upper limit. In case of doubt, damages will consist of an increase in pay, while “compensation” is to be “dissuasive and appropriate”.
• Possibility of representative action, i.e. bringing individual claims for information or damages, in particular by trade unions and other associations and organisations.

Practical tip: It should not be underestimated how much impetus this status of litigation - so far unknown to German employment law - is likely to give to lawsuits. This makes it possible to avoid the frequent reluctance to sue one's own employer, and a professional litigation representative will be able to bundle information and thus significantly improve the litigation situation compared to individual litigants.

3. Reporting

Reports must be made on the gender-specific (median) pay gap, including additional or variable components. This report is to be submitted to the “competent authority” and published internally and externally.

Practical tip: The effort and significance of this reporting will be considerable. At least in companies, the determination of jobs of equal value alone will involve considerable effort. In case of doubt, this also applies to collectively agreed pay systems, which by no means automatically remunerate work of equal value equally. The second complex is the determination of “remuneration”, i.e. the usual basic or minimum wages and salaries as well as all other remuneration that an employer pays an employee as a cash or non-cash benefit. How variable remuneration components are to be taken into account is an open question.

4. Remuneration assessment

In the event of a gender pay gap of more than 5% that cannot be justified by objective circumstances, the employer must carry out a pay assessment together with the works council - the results of which must be published - and develop measures to achieve equal pay.

Practical tip: With regard to the “objective” circumstances that can justify differences in pay, the case law of the Federal Labour Court must be taken into account, which has recently increasingly intervened in contractual freedom in favour of equal treatment. Of particular importance here was the decision that negotiating skills are not such an “objective” criterion (BAG of 21 January 2021 - 8 AZR 488/19).

5. Sanctions

Penalties include, but are not limited to, “dissuasive” fines. In addition, companies that do not establish equal pay can be excluded from the award of public contracts.

6. Conclusion

It is advisable to address the issues of pay transparency at an early stage, not only because of the possible financial consequences, but also because of the opportunity to present yourself as an attractive employer.