European Union: Commission proposes pay transparency rules to secure equal pay

In brief

The EU Commission has proposed a directive that would reinforce the entitlement to equal pay for men and women for the same work, or work of equal value, including by giving employees the right to comparative pay information and by requiring gender pay gap reporting for employers with 250+ employees, amongst other measures. Some EU member states already have aspects of these rules, while others do not, meaning that the rules could be a significant additional compliance burden for some organisations. The rules, if adopted, would be unlikely to come into force before late 2024.


Key takeaways

The EU Commission has proposed a new directive on pay transparency. If adopted, it would:

  • Require measures to ensure employers pay the same work, or work of equal value, equally.
  • Require employers to provide initial salary (or salary range) information to job applicants, pre-interview.
  • Prohibit employers from asking job applicants about salary history.
  • Create a right for a worker to request information about:
  • Their own pay level
  • Average pay levels, broken down by gender and categories of workers doing the same work / work of equal value
  • Require gender pay gap (GPG) reporting for employers with 250+ employees.
  • Create joint pay assessments if:
  • GPG is 5%+ for any category of workers doing the same work or work of equal value, and
  • employer has not justified the GPG.

Based on previous experience, we estimate that these proposals, if adopted, would need to be implemented by sometime in late 2024.

The proposed new rules will be a significant development in the many EU jurisdictions that do not currently have GPG reporting (for example, Ireland, although there have already been national proposed measures there). For those jurisdictions that do already have reporting rules (for example, Spain, Italy, France and Belgium), the proposed new rules would create a common standard throughout the union.

GPG reporting at company-wide or quartile level does not necessarily reveal unequal pay for the same work, but may instead demonstrate an uneven distribution of men and women between high and low paid jobs. Nevertheless, experience in the UK, for example, is that GPG reporting at the very least shines a spotlight on the issue of pay equality. As a further measure, the EU proposals would also require GPG information broken down by job, or work of equal value, which should provide greater clarity on pay equality.

Importantly, alongside GPG reporting, the proposed measures include one that member states "take the necessary measures to ensure that employers have pay structures in place ensuring that women and men are paid equally for the same work or work of equal value." This is accompanied by a requirement to make tools and methodologies available for this purpose. Assessing work of equal value can be a complex and time-consuming process, particularly if undertaken at root and branch level. It remains to be seen what precisely will be required of member states and, ultimately, employers. If it is suggested that all employers undertake a formal, comprehensive job evaluation study, this would be a significant compliance burden.

Baker McKenzie has extensive experience advising on compliance with existing rules in EU member states, and the UK, as well as conducting equal pay audits. Please get in touch with your usual contact to discuss what steps your organisation might need to take to comply with the proposed directive.

In more detail

The proposed directive's objective is to improve equal pay in the EU. It seeks to achieve this primarily through transparency and standard levels of enforcement.

Concepts

  • "Pay" would comprise all components, including variable pay and benefits.
  • Discrimination: equal pay analysis would be able to take account of intersectional discrimination, e.g. the position of migrant women, where both gender and racial or religious discrimination might be at play.
  • Pay comparison could be made with employees with different employers, if their pay is effectively set by a "single source" (reflecting existing ECJ case law). This could affect group structures, where pay is determined centrally.

Transparency - right to information

The proposed directive would arm employees with information, which would be coupled with effective enforcement measures.

All employers would need to provide initial salary (or salary information) range to all job applicants, pre-interview. This could be in the vacancy advert. However, a different salary could be negotiated.

Once in employment, an employee would be entitled to request information about their own pay and average pay levels for the categories of workers doing the same work as them, or work of equal value. The proposal would require employers to remind their workforce annually about this right.

Salary history and salary confidentiality

There would be a ban on asking job applicants about their salary history.

Conversely, employees would be free to disclose their salary for the purpose of enforcing equal pay.

Pay setting and career progression

Employers would be required to make easily accessible to its workers a description of the criteria used to determine pay levels and career progression for workers. These criteria would need to be gender-neutral.

Gender pay gap reporting

Employers with 250+ employers would need to report their GPG data, meaning:

  1. the pay gap between all female and male workers in complementary or variable components;
  2. the median pay gap between all female and male workers;
  3. the median pay gap between all female and male workers in complementary or variable components;
  4. the proportion of female and male workers receiving complementary or variable components;
  5. the proportion of female and male workers in each quartile pay band;
  6. the pay gap between female and male workers by categories of workers broken down by ordinary basic salary and complementary or variable components.

Each member state would need a monitoring body, which would publish this information.

Member states could choose to publish (a) to (f) themselves, if they have the data from other sources (e.g. tax authorities).

There would be a right for individuals, labour inspectorates and representative bodies to request clarification about GPG data.

Joint pay assessment

GPG reporting would be coupled with joint pay assessment, which would be triggered if the GPG were 5%+ for any category of workers doing the same work or work of equal value and the employer has not justified the GPG.

Broadly speaking, a joint pay assessment would analyse the pay data and identify the differences and reasons for those differences. In addition, it would identify justifications, remedial measures, and the effectiveness of previously identified remedial measures.

Employers would have to publish its assessment and take steps to address any unjustified pay differences.

Enforcement

All member states would need to have effective enforcement procedures, including the right to uncapped compensation for:

  • back pay (with interest)
  • lost opportunity
  • "moral prejudice" (this might mean something akin to injury to feelings)

Successful legal claims would be accompanied by a right to recover costs from the employer.

Next steps/timelines

The Commission's proposal must be submitted to the EU Parliament and Council, who must agree the text of the new directive, through a set procedure. Member states' national parliaments receive the proposals at the same as the Council and Parliament to enable them to give an opinion.

How long it will take to adopt the new directive will therefore depend on how quickly it is possible to reach agreement on the text. However, the Whistleblowing Directive and the Directive on Transparent and Predictable Working Conditions both passed from Commission proposal to formal adoption by the Council (the last stage of the legislative procedure) in approximately 18 months.

If the directive were formally adopted, member states would likely have 2 years to implement it.

Taking the above into account, we therefore estimate that the directive, if adopted, would need to be implemented by sometime in late 2024.

Contact Information
Bernhard Trappehl
Partner at BakerMcKenzie
Munich
bernhard.trappehl@bakermckenzie.com
James Brown
Knowledge Lawyer at BakerMcKenzie
London
james.m.brown@bakermckenzie.com

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