European Union: European Parliament Adopts Pay Transparency Directive – First Step To Equal Pay!

Across European Union March 30^th, 2023 will be remembered as the day the European Parliament ("EP") tackled the EU gender pay gap. In our 'Mind the gap!' article we have already stated that pay transparency offers a solution in bridging the pay gap. However, until today the first step still needed to be taken.

The members of EP have understood the need to tackle this issue and on March 30^th, 2023 a large majority in the EP voted in favour of the Pay Transparency Directive ("Directive"): 427 members voted in favour. The 79 votes against and 76 abstentions could not have stopped this first step in closing the gender pay gap.

The EU Commissioner for Equality Helena Dalli welcomed EP's support for the new rules:

Important steps

The proposal for this Directive was introduced by the European Commission in March 2021 and entailed amongst other an obligation for EU organisations to be open about the pay policies strengthening the principal of equal pay for equal work.

Adopting the Directive is the first step in making salaries more transparent as the lack of pay transparency has proven to be one of the main obstacles, if not the major one in closing the gender pay gap women (of EU) so badly need.

The Directive also ensures job-seekers to have access to information on the pay range of positions they apply for and disabling employers to ask about previous pay, thus limiting the possibility of job-seekers salary history to influence the salary offered to the candidate.

Employer obligations to take into account

The Pay Transparency Act, in order to prevent discrimination, requires employers to be open about the pay policies making it accessible to their employees. The pay policies need to offer objective and gender-neutral criteria used to determine wages and wage increases.

However, this is only applicable to companies with more than 100 employees. But it is a starting point giving employers responsibility for providing transparency as they have to share this information with the competent national authority, with employees and with employees' representatives (e.g. unions). Additionally, employees and their representatives shall be able to request information on their pay level and that of other employees doing the same work in order to compare the wages.

If it should appear that the average pay of male and female employees differs by at least 5% (on a full-time basis!) and the employer cannot sufficiently justify the difference (e.g. no objective and gender-neutral criteria) the employers – in cooperation with employees' representatives – must carry out a joint pay review. If unjustified differences exist, the employer shall have to take corrective measures.

Moreover, under the new pay transparency rules the employers shall be obliged to provide the information on pay policies annually or every three years, depending on the size of the company and intersectional discrimination will be considered an aggravating factor.

Failure to comply with 'equal pay for equal work' principle

Employers who fail to comply with the 'equal pay for equal work' principle risk compensation claims by employees, judicial measures such as forcing employers to comply with this law within their own organisation and organisations, e.g. equality bodies or staff representatives taking action on behalf of employees.

More specific penalties and measures will have to be set up by member states upon implementation of the Directive.

Implementation & enforcement within EU – we're not there yet!

Directives contain targets that all European Union member states must meet. The intended outcome is therefore fixed, but how a member state meets it is not. Member States are free to decide how to implement the directive. In doing so, they can take into account the specific situation in their own country.

So we're not there yet!

The period for implementation is three years, meaning that for e.g. the Netherlands, the legislation will have to be in force by 2026 at the latest.

Let's hope the House of Representatives (Tweede Kamer) won't wait that long and implementation shall be quicker than continued consideration on the proposal 'Gender Pay Equality Bill', similar to the one EP just adopted, which has been submitted in March 2019 and not yet deliberated on.

How to achieve transparency:

It is clear that employers cannot give the same wage to everyone. A lot of work is needed in determining someone's worth. It takes a lot of effort to take into account different wages and everyone's different situations and to organize it all to a fair amount of money.

As an employer you may have good grounds to reward someone with less work experience even if they have to do the same work, but this needs to have a good justification. This requires labour transparency and that is difficult.

It can seem overwhelming and often employers do not know exactly where and how to start. These kinds of issues can cause problems and create a tense working atmosphere. ACG International can help employers to achieve transparency.

ACG International is specialized and experienced in assisting companies preparing these kinds of divisions of labour. It is important for both employers and employees that these issues are and remain properly managed.

ACG International's managing partner, Edith Nordmann, has an expert qualification in labour law. She has been working as a lawyer in the field for over twenty years and can offer practical and strategic advice about employment contracts as well as help you maximize the transparency you have been searching for.

In addition, as of 2023, Edith has been appointed as member of the Task Force Future of Work, Skilling and Mobility under the Business 20 (B20 (of the G20 2023)) – meeting with approximately 100 esteemed professionals from around the world specialised in the field of employment. The B20?is the official G20 dialogue forum representing the global business community. Established in 2010, the B20 is among the most prominent Engagement Groups in G20, with companies and business organisations as participants. The B20 leads the process of galvanising global business leaders for their views on issues of global economic and trade governance and speaks in a single voice for the entire G20 business community.

So, at ACG International you're in great hands.

If you want to learn more about labour transparency and labour divisions, or how to really start reducing inequality in an efficient way on the business floor you are at the right place. ACG International offers free "labour-transparency-check" strategy sessions to help employers assess what needs to be done to achieve labour transparency.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.