EU: The EU Pay Transparency Directive: What Employers Need to Know
In March of this year, we already dedicated an article to the draft Pay Transparency Directive. In the meantime, this important new directive was approved on 10 May, published on 17 May, and entered into force on 6 June 2023. Therefore, we would like to give employers a more extended overview of the main content of this directive. The transposition deadline for the EU Member States might still seem far (7 June 2026, i.e., in 3 years), but the new rules require an implementation of measures by employers, which for most companies will take a significant time to prepare.
The directive lays down minimum requirements to strengthen the application of the principle of equal pay for equal work or work of equal value between men and women (the “principle of equal pay”) enshrined in Article 157 TFEU. It is applicable to employers in the public and private sectors and to all workers who have an employment contract or employment relationship according to national law, with consideration to the case-law of the Court of Justice of the EU. Certain aspects also apply to job applicants.
2. Pay transparency prior to employment: the recruitment procedure
First of all, job applicants receive a right to receive information from prospective employers. This information regards the initial pay or its range, based on objective, gender-neutral criteria, to be attributed for the position concerned; and where applicable, the relevant provisions of the collective agreement applied by the employer in relation to the position. This information must ensure an informed and transparent negotiation on pay. The information can be given in a published job vacancy notice, prior to the job interview or otherwise. However, in case a job vacancy is published, their content and the job titles need to be gender neutral.
Second, the recruitment procedure should not be conducted in a discriminatory manner.
Third, employers are prohibited from asking job applicants about their pay history during their current or previous employment relationships. This does not mean that the job applicant cannot use this information himself or herself during the pay negotiations, but he or she also has the right to keep this information secret.
These new obligations will obviously require many employers to seriously revise their recruitment procedures.
3. Pay transparency during employment and the right to information
Also, workers who are already in an employment relationship are granted a right to information.
First, employers need to be transparent regarding pay setting and their pay progression policy. They have to make easily accessible to their workers the criteria that are used to determine workers’ pay, pay levels, and pay progression. Those criteria need to be objective and gender-neutral. However, the directive does allow Member States to exclude the obligation to give information regarding pay progression (i.e., promotions) for employers with fewer than 50 employees.
Second, the workers also receive the right to request and receive in writing information on their individual pay level and the average pay levels, broken down by sex, for categories of workers performing the same work as them or work of equal value to theirs. Workers can also do this request via their worker representatives or through an equality body. If the received information is inaccurate or incomplete, they can demand additional and reasonable clarifications and details for which they need a substantiated reply. Answers need to be given within a reasonable time with a maximum of 2 months after the request. The employer must inform all workers annually of their right to receive the information.
Third, the directive prohibits any restrictions by the employer for workers to disclose of their pay (so they can discuss and compare it with others). Any contractual clause or policy, including confidentiality or non-disclosure obligations, will no longer be allowed.
4. Reporting obligations
The directive also contains a reporting obligation for employers towards a monitoring body and workers. The reporting includes:
- the gender pay gap;
- the gender pay gap in complementary or variable components (e.g., variable bonuses, additional benefits, etc.);
- the median gender pay gap;
- the median gender pay gap in complementary or variable components;
- the proportion of female and male workers receiving complementary or variable components;
- the proportion of female and male workers in each quartile pay band (a “quartile pay band” means each of four equal groups of workers into which they are divided according to their pay levels, from the lowest to the highest); and
- the gender pay gap between workers by categories of workers broken down by ordinary basic wage or salary and complementary or variable components.
The frequency and entry into force of the reporting obligation vary according to the size of the employer:
- 250 employees or more: the first deadline on 7 June 2027 (still 4 years to go) and every year thereafter.
- 150 to 249 employees: the first deadline also on 7 June 2027, but only every three years thereafter.
- 100 to 149 employees: the first deadline on 7 June 2031 (still 8 years to go) and every three years thereafter.
The directive does not include such a reporting obligation for companies with less than 100 employees, but they have the right to report on their own initiative and Member States can impose an obligation themselves.
The reporting obligation also awards a certain importance to the social dialogue at company level. The accuracy of the information shall be confirmed by the employer’s management, after consulting workers’ representatives. Workers’ representatives shall have access to the methodologies applied by the employer. However, this is merely a consultation; workers’ representatives cannot obstruct the reporting by the company (their consent is not required).
The reporting result in the publication of the information by the monitoring body. Also, the employer itself is allowed the publish the information, e.g., on its website. However, one aspect is excluded from the publication by the monitoring body and the employers: the information regarding the gender pay gap between workers by categories of workers broken down by ordinary basic wage or salary and complementary or variable components. The directive seems to regard this information as too sensitive to allow its publication. Therefore, this information needs to be communicated by the employer to all their workers and to the workers’ representatives. Employers shall also provide the information to the labour inspectorate and the equality body upon request. The information from the previous four years, if available, shall also be provided upon their request.
Following the publication and communication of this information, workers, workers’ representatives, labour inspectorates, and equality bodies shall have the right to ask employers for additional clarifications and details regarding any of the data provided, including explanations concerning any gender pay differences. Employers need to give substantiated answers within a reasonable time (no deadline). In cases where gender pay differences cannot be justified on the basis of objective, gender-neutral criteria, employers shall remedy the situation within a reasonable period of time in close cooperation with workers’ representatives, the labour inspectorate and/or the equality body.
5. Joint pay assessment
The directive provides a form of self-remediation for companies that face issues. Employers who are subject to pay reporting must, in cooperation with their workers’ representatives, conduct a joint pay assessment where all the following conditions are met:
- The pay reporting demonstrates a difference in the average pay level between female and male workers of at least 5% in any category of workers;
- The employer has not justified such a difference in the average pay level on the basis of objective, gender-neutral criteria, and
- The employer has not remedied such an unjustified difference in the average pay level within six months of the date of submission of the pay report.
The joint pay assessment comes down to an extensive evaluation of differences in pay and the reasons behind these differences, and it has to include measures to address the unjustified differences in pay. It is unclear to which extent the workers’ representatives need to be involved in this assessment, but in any case, the assessment must be communicated to them as well as to the workers and the monitoring body. Also, the labour inspectorate and equality body can request the communication assessment.
In any case, a joint pay assessment needs to lead to the implementation of the proposed measures within a reasonable timeframe in close cooperation, in accordance with national law and/or practice, with the workers’ representatives. Upon their request, the labour inspectorate or equality body can participate in the process.
6. Remedies and enforcement
The Directive includes a right for workers to request a full, real and effective compensation or reparation if they have suffered damage a result of an infringement of any right or obligation relating to the principle of equal pay. Basically, the directive demands that the victim receive a complete backpay if a discrimination has been found. Furthermore, it is not allowed to limit the amount of the compensation by a prior contractual upper limit.
In addition, courts can also order employers to stop the infringement of the equal pay principle and take measures to remedy the situation.
In order to ease a legal procedure for workers, the burden of proof is shifted. When workers establish before a competent authority or national court facts from which it may be presumed that there has been direct or indirect discrimination, it shall be for the respondent (the employer) to prove that there has been no direct or indirect discrimination in relation to pay. This was already the case under the existing EU discrimination directives. However, the new reports will certainly help workers establish facts.
Next to the remedies for victims, the directive also wishes to ensure the implementation of its transposed rules by employers and, therefore, demands the Member States to impose deterrent penalties on non-compliant companies.
Furthermore, the Directive states that complying with obligations relating to equal pay should be taken into account (as a condition) of public contracts and concessions.
Finally, the directive states that workers and their workers’ representatives shall not be treated less favourably on the ground that they have exercised their rights relating to equal pay or have supported another person in the protection of that person’s rights. Member States will need to provide protective measures for non-retaliation, including dismissal protection.
Source: Directive (Eu) 2023/970 of the European Parliament and of the Council of 10 May 2023 to strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms