New Equal Pay EU Directive – pay gaps must be disclosed in future

The principle of equal pay for men and women is embedded in Article 157 TFEU. Section 1 reads as follows: “Each Member State shall ensure that the principle of equal pay for male and female workers for equal work or work of equal value is applied.”

Therefore, following the European Parliament, the EU member states have also adopted new regulations in the Pay Transparency Directive in order to increase pay transparency. Among other things, enterprises with more than 250 employees will be obliged to submit an annual report on the extent of the gender pay gap. Smaller businesses are also affected by such tightened requirements, albeit at a lesser extent. The transparency rule is intended to help employees to compare their salaries, thus being able to identify wage differences. 

In future, remuneration structures are to be based upon gender-neutral criteria and structured in such a way that job evaluations and job classifications will be gender neutral. Furthermore, job advertisements and job titles must not allow conclusions as to gender. Recruitment processes must be free of discrimination. 

Employers will be required to work together with employee representatives on the joint determination of wages if wage reports reveal a gender pay gap of at least 5 %. Member States will be required to develop mechanisms to effectively enforce these measures, including effective, proportionate and deterrent sanctions (for example, fines) for non-compliant employers. Employees who are harmed by violations are to be able to claim damages in the future. Multiple discrimination and the rights of non-binary people will also be taken into account for the first time.

According to the new regulations, employees and their representatives are to be entitled to further specify and complete information on individuals and average salaries broken down according to gender. Remuneration-related confidentiality clauses are to be prohibited in future. Thus, employees shall no longer be prevented from disclosing their income or looking up wages for themselves or in another employment category.

In connection with wage issues, the burden of proof is to be shifted from the employee to the employer. Thus, if an employee believes the principle of equal pay for men and women has been violated, such employee may file a complaint and the employer will bear the burden of proof that there was no discrimination. 

In a next step, the Council must formally approve the draft bill before signing it. Subsequently, it can be published in the Official Journal of the EU. The new regulations will take effect 20 days after publication. 

Conclusion

In the future, there will no longer be any wage secrecy. Employees will be entitled to information about the remuneration in their employment category. Disciplinary measures (including fines) are envisaged for employers not complying with the rules.

Companies are obliged to act if the pay gap exceeds 5 %. Confidentiality clauses relating to remuneration in employment contracts will no longer be possible in the future according to the will of the EU.