What Does the Pay Transparency Directive Mean for Gender Pay Gap Reporting in Europe?

Several international organizations mark an “Equal Pay Day.” The European Equal Pay Day was observed on November 15 last year, and according to the European Commission, this is the day women effectively “stop getting paid” for their work in the year based on their lesser average earnings as compared to their male counterparts. There are disproportionately fewer women in higher paying positions and more of them in lower paying ones.

What legislation is there in Europe right now?

“Closing the gender pay gap” and “gender equality” in the labor market have been on the legislative and lobbyist agenda for years in Europe. Transparency legislation was enacted in several countries in recent years, including France, Germany, Spain, and the UK, and the Directive on Gender Balance in Corporate Boards (first proposed in 2012) was adopted late last year. Despite all this activity, according to the analysis of the statistical office of the European Union (Eurostat), the gap persists. Further, although there is a centuries-old tradition of income transparency in several Nordic countries, where anyone can find out anyone else’s income, this has not helped these countries close the reported gender pay gap as recently as 2021.

The European Parliament (“EP”) reports that women earn on average 13% less than men across Europe, but there is wide variation in the published data from state to state: (hovering around 20% in Austria, Estonia, Germany, Hungary, and Switzerland, and minimal in Belgium, Italy, Poland, Slovenia, and Romania, with Luxembourg being the only state to come out about even). The gap figures published by companies so far pursuant to national laws (generally, the various legislation has required larger companies to start reporting first) can be rather striking, especially when it comes specifically to the bonus pay gap in certain sectors. Reports are available either on company websites or in government-sponsored online reporting systems.

What’s changing?

On March 30, the EP approved the EU Pay Transparency Directive proposed by the European Commission (interestingly, not by an overwhelming landslide, but by a vote of 427 for and 79 against with 76 abstentions) following a period of consideration by the EP and Council of Ministers (the two main decision making bodies in the EU). We are now awaiting a vote from the Council that would lead to publication in the Official Journal, which would in turn trigger a three-year timeframe during which the European Member States will need to implement the Directive into national legislation. So, employers have at least until 2025 to prepare for compliance with the new enhanced requirements, which are expected to be more onerous than those that already exist in individual jurisdictions.

The draft Directive will result in implementing legislation across the EU, which based on the current text will require, among other things, employers to:

1. Indicate the starting salary or range (based on objective or gender neutral criteria) to be paid to a future worker for a specific position and the applicable CBA.
2. Not ask prospective workers about their pay history.
3. Make easily accessible to workers a description of the gender neutral criteria used to define pay and career progression (with some flexibility for Member States to account for company size).
4. Allow workers the ability to request and receive the information necessary to assess whether they are paid in a non-discriminatory manner compared to other workers in the same organization carrying out equal work or work of equal value and to enforce their right to equal pay if needed (this includes a right to request clarification). The employer must annually inform workers of their rights and facilitate the process without fear of retaliation and provide the information requested within two months.
5. Not restrict workers from disclosing their pay for the purposes of enforcing equal pay. Contractual terms to this effect are specifically prohibited.
6. Make publicly available and accessible certain information, such as the pay gap between female and male workers in their organization (including information on variable pay). This reporting obligation will be introduced in stages, starting with larger companies. This will eventually be mandatory for employers with at least 100 workers. Member States may entrust an existing body (such as a tax authority) to compile and make public such information on behalf of employers.  Workers and their representatives and the authorities will have the right to ask an employer for clarifications and details regarding the information reported, including an explanation of any gender pay differences.
7. Conduct a “joint pay assessment” with worker representatives (to be designated if there are none) whenever the reporting identifies a difference of at least 5% in average pay between male and female workers in any category doing the same work or work of equal value and which is not justified by objective and gender neutral factors or remedied within 6 months.
8. All of the above must comply with GDPR, and the data collected for purposes of the above must not be used for other purposes.

    

The Directive also requires Member States to set standards in public contracting and subcontracting and takes several steps to encourage and ease enforcement, including encouraging an array of penalties (as well as full recovery of back pay and related bonuses or payments in kind, compensation for lost opportunities and non-material damage and interest without upper limit), and protecting workers who enforce their rights from retaliatory dismissal.

Limitation periods cannot be shorter than three years and cannot begin to run before the claimant is aware or can reasonably be expected to be aware of an infringement.

What do employers do now?

Whether and how fast these measures will close any reported “gender pay gaps” remains to be seen. However, employers would be wise to consider whether to begin conducting voluntary analyses of any possible gap within their organization, identifying ways to mitigate, and taking other steps to prepare (such as revisiting relevant contractual provisions, the array of implicated policies, and current practices) for what might feel like the onset of uncomfortable and radical transparency to be ushered in by the legislation implementing these rules in the Member States. The impact will no doubt be complicated by the fact the current Directive text leaves significant room for Member States to take differing approaches, which will inevitably complicate compliance for multinational employers with operations in more than one European Member State.

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Caitlin and Yana are part of Seyfarth’s leading International Employment Law team. To find out more about pay transparency around the globe, please contact them or anyone else on our specialist team.