EU: Upcoming EU Directive on equal pay and pay transparency to combat the gender pay gap

At the end of 2022 the European Parliament and Council reached a political agreement on the proposal for a directive to strengthen the application of the principle of equal pay for equal work or work of equal value between men and woman through pay transparency and enforcement mechanisms. This Directive aims to ensure that women and men in the European Union are paid equally for equal work.

The right to equal pay between women and men for equal or work of equal value has been a founding principle of the European Union since the Treaty of Rome in 1957. However, the practical implementation and enforcement of this principle in the European Union remains a major challenge. In 2021, according to the EU Commission the gender pay gap was still 12,7% in the EU, varying from 0.7 % in Luxembourg to 22.3% in Latvia. Therefore the EU Commission launched a Gender Equality Strategy in 2020 which resulted in the proposal.

The upcoming Directive focuses on two core elements of equal pay:

1. Measures to ensure pay transparency for employees and employers.
2. Providing better access to justice for victims of pay discrimination.

1. Transparency measures

Regarding remuneration transparency, four measures stand out.

First, employers must provide information about the initial pay level or its range in the job vacancy or before the job interview. Moreover, employers will no longer be allowed to ask job-applicants about their pay history.

Second, employees will have the right to request information from their employer on their individual pay levels and average pay levels, broken down by sex, for categories of employees performing equal or equal value work. This right will exist for all employees, irrespective of the size of the company.

Third, employers with at least 250 employees will have to publish information on the pay gap between female and male workers. Five years after the transposition of the Directive, the threshold for this obligation is lowered to companies with 100 or more employees.

Fourth, if the above disclosure requirement shows that there is a gender pay gap of at least 5% and the employer cannot justify that gap on basis of objective, gender-neutral factors, then employers will have to carry out a pay assessment in cooperation with workers’ representatives.

2. Better access to justice for victims of pay discrimination

Regarding access to justice for victims of pay discrimination, four key measures have also been taken. First, workers who have suffered gender-based pay discrimination should have a right to claim compensation for the lower pay that they received based on their gender. This compensation includes full recovery of back pay and related bonuses or payments in kind. Second, the burden of proof will be  on the employer to prove that there is no pay discrimination. Third, it is up to Member States to establish the specific penalties for breaches of the equal pay rule, including fines. Finally, equality bodies and workers’ representatives may act on behalf of employees in judicial or administrative proceedings and can take the lead in collective actions on equal pay.

The proposal will now be submitted to the European Parliament and the Council for final approval. Once agreed (expected in 2023), the Directive will enter into force 20 days after publication in the Official Journal and Member States will then need to transpose the new elements of the Directive into national law within two years. The European Commission will review the proposed directive after eight years.

Take Aways

• In the future, employers will have to publish the initial pay or its range in the job vacancy or communicate them before the job interview.
• Employees will have the right to request information on their individual pay levels broken down by gender for categories of employees performing equal or equal value work.
• Employers with at least 250 employees will have to publish information on the pay gap between female and male employees in their organization (later extended to companies of at least 100 employees).
• If the reporting requirement shows that there is a pay gap of 5% and the employer cannot explain it on the basis of objective and gender-neutral factors, a pay evaluation will have to be carried out in cooperation with workers’ representatives.
• Employees who are victims of pay discrimination will have to be compensated for this.
• The burden of proof will be on the employer to prove that there is no discrimination.