On the 30th of March 2023, as part of its efforts to address the gender pay gap phenomenon and promote the equal pay principle, the European Parliament widely approved the EU Pay Transparency Directive. In 2021, the gender pay gap stood at 12.7% in the EU, with no minimal changes in the last ten years. Whilst the equal pay principle has been recognised as a fundamental pillar of EU law since the Treaty of Rome, this statistic showcases that its implementation on a practical level has not been very successful. The Pay Transparency Directive thus aims to address the absence of pay transparency which has been recognised as a major impediment to fulfilling the equal pay principle. To ensure its effectiveness, the Directive has a wide sphere of application in that it applies to all public and private employers, to workers who have an employment contract or employment relationship, as well as to potential job candidates.
In virtue of this Directive, employers are bound to report their gender pay gaps. The frequency of such reports is based on the size of the workforce. In fact, employers with 250 or more workers are obliged to report annually and employers with 150-249 workers have to report every three years. After five years of the rules coming into force, the minimum number of workers will reduce to 100 workers and employers will have to report their gender pay gaps every three years. It is up to Member States to limit the thresholds even further, demand more frequent reporting or incorporate a broader bracket of workers. Reporting allows for a certain level of publicity and since the public will be able to compare and contrast the priority given to ensuring pay equality from one company to another, employers will be encouraged to narrow the pay gap and avoid any future discrepancies.
The obligation to report is tied to an additional obligation. Where the report exposes a gender pay gap of 5% or more without any objective justifications, the employer must actively work to rectify the issue within a reasonable time. Failure to do so results in the employer needing to carry out a ‘joint pay assessment’ together with the workers’ representatives. Employers must also make available to workers an account of the requirements which are employed to determine their individual and average pay as well as their pay progression.
As a corollary to the employer’s obligation to be more transparent, the Directive endows on workers the right to receive information on individual and average pay levels, disaggregated based on gender and worker categories. This right is applicable to all workers and is not dependent on the workforce’s size. Upon a worker’s request, employers must grant this information within a reasonable period of time and in any case within 2 months from when the request was made. Workers must be made aware annually by their employer of their right to receive information.
The Pay Transparency Directive also requires pay transparency in the pre-employment stage. Employers are not allowed to ask job candidates how much they currently earn or how much they earned in previous employment. Moreover, employers will need to reveal in job announcements or prior to a job interview, the starting salary level or range for the particular position. This is important as it evens the playing field, allowing the worker to be adequately equipped when entering negotiations with the employer. Job announcements and job titles need to be worded using gender neutral words with the recruitment process being carried out in a non-discriminatory manner. Contracts of employment must also reflect this element of transparency in that employers cannot contractually disallow workers from revealing their salary or from inquiring on how much other workers earn. In the case of issues arising between the employer and worker concerning the latter’s pay, the burden of proof shifts onto the employer to show the absence of pay discrimination.
To ensure the successful implementation of the Directive on a national level, Member States must establish effective and proportionate penalties, including fines, to be imposed on employers for breaching the rules. Furthermore, a worker who has been impacted negatively as a result of the breach is empowered to claim compensation.
Upon formal approval of the Directive by the Council, Member States have a three-year period for implementation on a national level. Since the new rules target employers by imposing various new obligations, employers must take the necessary steps to prepare for the coming into force of this instrument. Such preparation includes carrying out a pay audit to determine the presence of gender pay gaps and attempt to understand the reasons for such gaps. This enables employers to tackle the discrepancies in a proactive manner while also fully comprehending the pay system methods in place. In addition, subjecting pay policies, job evaluations and classification methods to a system of review ensures they are founded on objective requisites and are gender neutral. Employers must also establish internal structures that can be used to obtain information on pay gaps as well as structures that cater for reporting. Workers must be fully cognisant on the plan of action they should embark on if they are faced with pay discrimination. Such plan of action may include setting up what is known as ‘speak up’ mechanisms that encourage workers to bring forward any complaints internally.