EU Approves Pay Transparency Directive

After a political deal was reached by the European Parliament and the bloc’s member states last month, European companies will be required to disclose pay gap information between female and male employees, provide salary information to employees and job applicants, and carry out a resolution if the unjustified gap is more than 5%. 

Background: The pay transparency directive was put forward by the European Commission in April 2021 to reduce gender pay gaps in the EU. Women in the EU were paid on average 13% less than men, according to a 2022 survey, with wide variations across the Union, from 0.7% in Luxembourg to 22.3% in Latvia.

During the negotiations last year, the European Parliament made several notable changes: 

• Expanding the duty to disclose the pay gap to companies with more than 100 employees in the EU, from the original 250 employees.
  
  
• Including intersectionality – the interconnected nature of social categories such as race and gender – as a factor for pay discrimination and to strengthen the ability to take equal pay claims to court.
  
  
• Recognizing non-binary people in its scope, a first for EU legislation. 

The directive focuses on two core elements of equal pay:

• Measures to ensure pay transparency for workers and employers; and
  
  
• Access to remedies for those experiencing pay discrimination.

Pay transparency measures:

• Pay transparency for job-seekers: Employers will have to provide information about the initial pay level or range in the job vacancy notice, or before the job interview. Employers will not be allowed to ask prospective workers about their pay history.
  
  
• Right to information for employees: Workers will have the right to request information from their employer on their individual pay level and on the average pay levels, broken down by sex, for categories of workers doing the same work or work of equal value.
  
  
• Reporting on gender pay gap: Employers with at least 100 employees must publish information on the pay gap between female and male workers in their organization. For internal requests, employers should provide information on the pay gap between female and male employees by categories of workers doing the same work or work of equal value.
  
  
• Joint pay assessment:  Where pay reporting reveals a gender pay gap of more than 5% without a justification, employers will have to revise affected workers’ pay, in cooperation with workers' representatives.

Access to remedies:

• Compensation for workers – workers who suffered gender pay discrimination are entitled to compensation, including full recovery of back pay and related bonuses or payments in kind.
  
  
• Burden of proof on employer –by default, the employer, not the worker, must prove that there was no discrimination in relation to pay.
  
  
• Recommended sanctions include fines – Member States should establish specific penalties for infringements of the equal pay rule, including a minimum level of fines.
  
  
• Equality bodies and workers' representatives may act in legal or administrative proceedings on behalf of workers as well as lead on collective claims for equal pay.

Outlook: The directive will be formally approved by the European Council, and member states will have 2 years to adopt it into their national laws. Significantly, the deal comes after the EU approved another law that would require listed companies to move toward 40% female representation in non-executive director positions by 2026 and Japan required its listed companies to disclose gender pay gap. We expect to see more countries leverage the legislation to promote gender equality.