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EU: Deal Reached on New EU Rules for Adequate Minimum Wages and Gender Balance in Corporate Boardrooms

Author: Chris Van Olmen 

The European Parliament and the EU Council reached two critical agreements in the beginning of June that could lead to new and important EU legislative measures in the near future. These provisional agreements concern two major (and controversial) matters on the Commission’s agenda: adequate minimum wages and gender balance in corporate boardrooms.

Adequate Minimum Wages

The agreement follows the Commissions’ legislative proposal of October 2020. According to the agreement on the proposed directive, Member States will have to assess whether their existing statutory minimum wages are adequate to ensure a decent standard of living (taking into account the situation in each country). EU countries will have to strengthen sectoral and cross-industry collective bargaining as an essential factor for protecting workers, by providing them with a minimum wage. Member States in which less than 80% of the workforce is protected by a collective agreement will have to create an action plan, together with the social partners, to progressively increase this coverage. Member States will also have an obligation to enforce their minimum wages. The deal will now be submitted for approval in several subcommittees, followed by a plenary vote (and approval by the Council). It is still unclear how the new proposal manages to address the fierce criticism of Sweden and its social partners, as Sweden does not recognise the concept of a minimum wage and, in general, wages are laid down by direct sector level collective bargaining agreements.

Gender Balance in Corporate Boardrooms

This agreement follows a much older legislative proposal of the Commission from 2012, when Barroso was still the president of the Commission, and the EU was still in the midst of the financial and economic crisis. The agreement on the proposed “Women on Boards” Directive contains the following key elements:

  • At least 40% of the underrepresented gender must be represented in non-executive boards of listed companies or 33% among all directors.
  • These companies should have clear and transparent board appointment procedures with objective assessments based on merit, irrespective of gender. The following binding measures should be respected:
    • In companies where the target for gender balance is not achieved, preference shall be given to the candidate of the underrepresented sex where two candidates of different sexes are equally qualified.
    • Companies must disclose their qualification criteria should the unsuccessful candidate request it.
    • Companies must undertake individual commitments to reach gender balance among their executive directors.
    • Companies that fail to meet the objective of this Directive must report the reasons and the measures they are taking to address this shortcoming.
    • Member States’ penalties for companies that fail to comply with selection and reporting obligations must be effective, proportionate and dissuasive.
  • Small and medium-sized enterprises with fewer than 250 employees are excluded from the scope of the directive.

The EU Parliament (by plenary vote) and the EU Council still have to give their official approval. Today, only 30.6% of board members in the EU’s largest publicly listed companies are women, with significant differences among Member States (from 45.3% in France to 8.5% in Cyprus).

Key Action Points for Human Resources and In-house Counsel

  • The adequate minimum wages directive could lead to an increase of minimum wages in certain Member States, it could also support the importance of collective bargaining systems in Member States, where this instrument is currently underused or weak.
  • Listed companies will have to strive to achieve a healthy gender balance. In case of a current imbalance, it is recommended to start rethinking the appointment and recruiting procedures and to think ahead of the entry into force of the applicable legal obligations in order to avoid future sanctions.