How much does my colleague earn? - EU Commission wants to strengthen "wage transparency".
by ZELLER & SEYFERT
It is not only in the course of discussions about "gender equality" that interest groups are calling for more wage transparency. The so-called intra-company wage gap and the different levels of compensation paid to different employees is also often not without controversy. The EU Commission has now responded to this situation with a proposal for a new directive. But what measures are planned and what do they mean for employers and employees? You can find answers to these questions here at ZELLER & SEYFERT.
"Fair" wages are being called for across Europe, with wage transparency seen as one of the key factors in achieving this goal. In a further attempt to enforce equality between men and women, the European Commission presented a proposal on 04.03.2021 to this effect:
"Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on strengthening the application of the principle of equal pay for men and women for equal work or work of equal value through pay transparency and enforcement mechanisms" - 2021/0050 (COD)".
According to this regulation, employers will be obliged to provide more wage transparency in the future. It also aims to improve access to justice for potential victims of pay discrimination.
How will wage transparency be regulated?
The Commission proposal has two main components: First, it includes measures to ensure wage transparency for employees and employers. Second, it aims to ensure better access to justice. These goals seem laudable in light of Article 3 of the German Basic Law and the requirement of effective legal protection. However, the Commission's proposal does not achieve a balance of interests between employers and employees.
What measures are planned?
First of all, the systematics of the law shall be laid out: Art. 1-5 (Chapter 1) represent the general provisions, Art. 5-11 (Chapter 2) regulate the substantive measures by which wage transparency is to be improved. Art. 12-23 (Chapter 3) contain procedural rules, and Art. 24-34 (Chapter 4) contain the final provisions. In this paper, the focus is on Chapters 2 and 3.
Measures to improve wage transparency
Wage transparency is desirable not only during an existing employment relationship. There should already be corresponding regulations for the period before an employment contract is concluded and employees should be given the right to information. How this is to be achieved is explained below.
Wage transparency even before employment?
The first legal innovation arises even before the conclusion of an employment contract. If the current proposal were to be adopted by Parliament and the Council as it stands, employers would in future have to provide job applicants with "information on the starting salary for the job in question, or its range, based on objective gender-neutral criteria." They would also be prohibited from asking about wage trends in previous employment. This applies regardless of whether it is in writing, in person, or through a representative.
However, the extent to which this would restrict private autonomy, which is anchored in private law and secured in the German Basic Law, is questionable. In addition, a connecting factor in contract negotiations would be eliminated, and entering into a subsequent employment relationship would be on shakier ground. Employers could lose an essential criterion for assessing applicants before a contract is signed. After all, their suitability for a particular position can often be assessed quite well on the basis of their previous salary.
Transparency in determining pay and career development
If a contract is subsequently concluded between the two parties, the employer must provide all employees with a "description of the criteria for determining remuneration and their career development in an easily accessible manner." In this regard, it is not clear from the proposal how specifically the criteria for career development must be formulated. This is particularly noteworthy against the backdrop of permanent economic and digital change, as these criteria may change over time. How the proposed directive intends to deal with this problem is not apparent.
Do employees get a right to information?
The EU proposal grants employees a right to information. According to the proposal, employees would have a legal right to know how high their individual income is compared to the average income. The information would be broken down by gender and for groups of employees who perform the same or comparable work. The employer must refer to this right every year and, after requesting this information, provide it within a "reasonable period of time." It also effectively bans the use of confidentiality agreements in relation to pay levels. Under the Commission's proposal, employees would thus no longer be prevented from disclosing their pay in order to enforce the principle of equal pay for men and women for equal work or work of equal value.
What is “work of equal value”?
However, several questions already arise: First of all, the term "work of equal value" causes uncertainty - what is to be understood by this? Is the student employee to be compared with a trained worker simply because both perform roughly the same activity? Where is the line drawn? No answer to these questions is provided for in the Directive, nor can it otherwise be predicted. This question is likely to become the subject of numerous labor court cases.
Burden on the working climate?
It is also impossible to predict how the working atmosphere within a company will develop if employees earn more than the allegedly affected employee himself/herself because of their negotiating skills or greater efficiency for comparable work (keyword: envy culture). In addition, it would probably be difficult to check whether disclosure of the wage level was made because of the enforcement of the principle of equal pay.
Additional regulations for companies with at least 250 employees
In addition to the restrictions already explained, there are additional restrictions for employers with at least 250 employees.
Reporting on the pay gap between male and female employees
Additional regulations relate on the one hand to disclosure obligations regarding the wage gap between all employees. Accordingly, information must be provided on
- supplementary or variable components,
- the average pay gap between all employees,
- the proportion of employees who receive supplementary or variable components,
- the proportion of employees in each income quarter, and
- the wage gap between female and male workers for groups of workers, disaggregated by normal basic pay and by supplementary or variable components.
All of the above data must be published in a user-friendly manner, such as on the employer's website or elsewhere, with the imposition of a not inconsiderable amount of red tape. In this context, the directive also contains an authorization basis for the internal administrative storage and subsequent dissemination of the aforementioned data.
Employers are required to retain these records for four years in both cases. In addition, all employees are given the right to request additional clarification and details from the employer regarding any data provided. There is no need to explain that this is problematic in terms of data protection law and undesirable from the employer's point of view due to the bureaucratic effort involved.
What does “joint pay evaluation” mean?
On the other hand, employers must perform a "joint pay evaluation" under certain circumstances. This is the case when there is a difference in average employee earnings of at least five percent in a group of employees and this difference is not justified by "objective and gender-neutral" factors. However, what exactly is meant by these factors remains unclear, as does the term "group of employees."
The "joint pay evaluation" includes
- an analysis of the proportion of women and men workers in each group of employees,
- detailed information on the average earnings of women and men and on supplementary or variable components for each group of employees,
- an identification of any differences in income between women and men workers in each group of workers,
- the reasons for such income disparities, and objective, gender-neutral justifications, if any, as jointly determined by the employee representatives and the employer,
- measures to eliminate such differences if they are not justified on the basis of objective and gender-neutral criteria; and
- A report on the effectiveness of the measures identified in previous joint pay evaluations.
What enforcement remedies are planned?
For legal enforcement, legal protection and the right to appeal are provided. There are also provisions on the right to compensation, the burden of proof and statute of limitations, and court and procedural costs
Legal protection and appealability
Member States would have to ensure a procedure through which employees can invoke a violation of their rights. Associations, organizations, equal treatment bodies and employee representatives as well as other legal entities should be able to participate in any judicial or administrative proceedings. The condition is that they have a legitimate interest in ensuring equality between men and women in order to enforce rights or obligations related to the principle of equal pay, in accordance with the criteria set out in national law. In doing so, equality bodies and employee representatives may act on behalf of or in support of several employees with the consent of the persons concerned. It is not yet clear whether a mere economic advantage of the complainant is sufficient in this regard.
Entitlement to compensation
If a violation of the principle of equal pay is established, the employee shall in the future have a right to compensation or redress. This is intended to achieve actual and effective compensation for the damage suffered in a manner that is dissuasive and commensurate with the damage suffered. In addition, an allegedly affected person shall be able to invoke injunctions to establish a violation or to take structural or organizational measures to fulfil rights or obligations. These claims are enforced with penalty payments in the event of non-compliance.
Who bears the burden of proof?
If an employee claims that his or her rights have been violated and makes this claim credible, the employer must prove that there has been no (in)indirect discrimination. If doubts remain on the part of the court, these are borne by the employer. This creates a high degree of legal uncertainty, because it will rarely be possible to fully prove the absence of a reason.
When do claims become time-barred?
The minimum three-year statute of limitations does not begin to run until the plaintiff has become aware of the violation of the principle of equal pay for men and women or this can reasonably be expected.
Who bears the court and procedural costs?
In principle, the employer bears the court and procedural costs. If the employee prevails, this also includes court and expert fees. However, even if the employer prevails, he must bear his own costs. This can only be avoided if the employer can prove that the action was brought in bad faith or that it would be manifestly unreasonable not to recover the costs under the particular circumstances of the individual case. In practice, this means that an almost impossible hurdle has been set up for the assertion of any damage items.
What does the proposal mean for practice?
In summary, it can be said that this Commission draft - should it be adopted by the European Parliament and the Council in its current form and then implemented into German law - will bring about considerable changes: The scope of the envisaged information obligations together with the formal regulations on the burden of proof and cost allocation will lead to a significant additional bureaucratic burden for the employer side and thus also increase labor costs per se. In addition, there will be restrictions on private autonomy. The question is therefore whether these additional burdens can be justified by the hope of uncovering otherwise undetectable discrimination or by a prevention effect that is likely to result from the regulations. We take a critical view of this because it also runs counter to the Commission's fundamental goal of reducing bureaucracy, but we reserve the right to make a final assessment after evaluating the practical consequences of the regulations in German law.
Do you have questions about wage transparency?
If you have questions or a case related to wage transparency in your company or the level of your compensation, we will be happy to help you. The attorneys of the law firm ZELLER & SEYFERT are here for you and will reliably stand by your side. Attorney Dr. Christian Zeller has many years of experience in dealing with similar cases. He will be happy to identify the specifics of your case during a free initial assessment. You can reach him conveniently via our contact form, directly by e-mail to firstname.lastname@example.org or simply by phone (+49 (0) 30-40 36 785-80).
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