The Pay Transparency Directive has been adopted by the European Council, but still needs to be voted on by the European Parliament. It aims to eliminate the gender pay gap by empowering workers to access the necessary information to assess whether they are paid in a non-discriminatory manner compared to other workers in the same organisation carrying out equal work or work of equal value, and by providing enforcements mechanisms enabling workers to claim their right to equal pay.
While Member States will have 2 years from the entry into force of the directive to implement it into their national law, employers should already begin planning and take actions given the important changes the directive will bring.
The directive applies to employers in the public and private sectors and to all workers who have an employment contract or employment relationship as defined by law, collective agreements and/or practice in force in each Member State with consideration to the case-law of the Court of
Justice. That being said, the company may face additional risks in the event of reclassification of the parties’ relationship from self-employed to an employment relationship!
The directive provides for a series of measures to allow workers to detect and prove possible pay discriminations based on sex.
Equal pay means that women and men should be paid equally for the same work or for work of equal value. The directive makes it necessary to assess what constitutes work of equal value through a robust and objective methodology. To this end, many companies rely on a job evaluation and classification system. Such a system is important because it serves as a basis for pay decisions. Consequently, it should be based on objective and gender-neutral criteria.
The directive introduces minimum standards on pay transparency prior to employment as well as a right to information. Employers will be required to indicate the pay level or its range prior to the interview without the candidate having to request it (e.g. communication either directly in the job advertisement or by other means). This communication aims at counterbalancing the asymmetry of information between the applicant and the employer so as to guarantee fair negotiations. Further, an employer is prohibited from asking prospective workers about their previous pay history. This is to ensure that no past discrimination is perpetuated in the new employment relationship.
The right to information introduced by the directive can be summarized as follows:
- Employers will be required to disclose a description of the (gender-neutral) criteria used to determine pay levels and career progression. This information should be available to all workers in an easily accessible manner.
- Workers will have the right to receive information on their individual level of pay and on the average levels of pay, broken down by sex, for categories of workers doing the same work or work of equal value. Employers must inform all workers – on an annual basis – of their right to receive such information.
- Employers with at least 250 workers will be required to report on the gender pay gap. Base pay, variable or supplementary pay components will be taken into consideration. The gender pay gap will have to be publicly disclosed. A joint assessment with the workers’ representatives will be triggered if the information reveals a difference in average pay levels of at least 5% between female and male workers for all categories of workers, and if the employer cannot justify the difference by objective and gender-neutral factors.
In short, the new directive provides the means for workers, and those representing their interests, to detect discriminatory situations. But it goes further by providing for enforcement mechanisms.
These mechanism include the possibility for associations, organisations and bodies with a legitimate interest in ensuring gender equality to act on behalf of or in support of one or more workers who suffered discrimination; the right to full compensation, i.e. the full recovery of arrears of salary, bonuses or payment in kind that should have been paid if the discrimination had not occurred, including interest for late payment; etc. In other words, the financial risks for employers should not be underestimated (on top of the reputational risk).
One of the key measures of this directive also concerns the shift of the burden of proof. When workers who consider themselves to have suffered damages establish facts which allow the existence of direct or indirect discrimination on the basis of sex to be presumed, it is up to the employer to prove that there was no discrimination. If the employer fails to provide such a proof, the worker should benefit from any doubt that might remain. The presumption of discrimination does not even have to be proven by the worker if the employer has not complied with its obligations in terms of transparency. Further, judges will be able to order employers to disclose any relevant evidence which lies in their control.
Finally, repeated violations of equal pay right could jeopardize access to certain public contracts and concessions or the participation in a public procurement procedure.
As transparency may lead to the disclosure of inconsistencies in pay, anticipation is key to avoid business disruption and workforce demotivation. You will find hereby a (non-exhaustive) list of questions to reflect upon:
- How do you determine the value of a function (i.e. work of equal value)?
- Is your job evaluation and classification system up to date and free of (gender) bias?
- Is your recruitment process adapted to the new requirements of the proposed directive?
- What is the impact of transparency on salary negotiations?
- Are your HR policies and systems ready for the implementation of the right to information?
- How will you communicate with your workers and their representatives about this?
- Are you ready to report on your gender pay gap?
- Are you able to justify any wage differentials on the basis of objective criteria?
- Are you able to monitor the year-on-year evolution of the gender pay gap?
- In general, do your company culture, HR policies, processes and practices support diversity and inclusion?
Feel free to reach out to Bart Van den Bussche if you would like to understand the impact of the directive on your company and your workforce.