WorkLife 2.0: EU proposes new transparency measures aimed at closing the gender pay gap

Equal pay between men and women for equal work or work of equal value (‘equal pay’) has been one of the founding principles of the EU and is enshrined in the Treaty of Rome of 1957 (the treaty establishing what today is called EU). 

Better enforcement of equal pay through new measures, including transparency ones, is a political priority of President von der Leyen and of the European Commission (‘the Commission’), as confirmed in the Gender Equality Strategy 2020-2025

Current legal framework

There are several legal acts, of different legal value (binding and non-binding), that try to narrow the gender pay gap across EU in general as well as in specific industries (eg financial services).

Directive 2006/54/EC on the equal treatment of women and men in matters of employment and occupation requires employers to ensure equal pay for equal work/work of equal value between women and men.

A 2014 non-binding recommendation by the Commission aims to strengthen the principle of equal pay between men and women through transparency. It offers to member states a broad range of measures aimed at improving pay transparency, such as:

• enabling workers to request information on pay levels, including on complementary or variable remuneration, broken down by gender, for categories of workers doing the same work or work of equal value;
• requiring employers with at least 50 workers to report the average remuneration by category of worker or position, broken down by gender;
• conducting pay audits in companies with more than 250 workers and making them available to workers' representatives and social partners upon request; and 
• including equal pay issues and pay audits in collective bargaining.

In the financial services industry, EU Directive 2019/878 (which is known as the Capital Requirements Directive V or ‘CRD V’ and had to be implemented by December 2020) requires the remuneration policies of credit institutions and investment firms to be ‘gender neutral’. The revised European Banking Authority (EBA) guidelines on sound remuneration policies have just been published and contain some important indications in relation to gender pay neutrality. The requirement to operate a gender-neutral remuneration policy apply to all staff in the relevant institutions (and not just the so called identified staff) and apply at group level (parent and all subsidiaries that are within the scope of prudential consolidation). Some of the measures go beyond transparency and may require significant adjustments to existing remuneration policies. 

The guidelines indeed require institutions to document appropriately the value of each position, for example by documenting job descriptions or defining wage categories, and determining which positions are considered as having an equal value, for example by implementing a job classification system. The guidelines – which are addressed to national regulators – will apply from 31 December 2021.

Towards a new EU directive 

Despite the existing legal framework, according to Eurostat, gender pay gap levels vary across Europe, with an average gap of 14.1 per cent, and the highest being in Estonia (21.7 per cent) and the lowest in Luxembourg (1.3 per cent). 

These differences indicate that the principle of equal pay is not fully implemented and enforced. Separately, the COVID-19 pandemic created new challenges in relation to equal pay, reinforcing gender inequalities. 

These developments led the Commission to propose a new directive (‘the proposed directive’) in March 2021 that aims to strengthen the application of the principle of equal pay between men and women through new binding pay transparency measures and enforcement mechanisms.

The proposed directive grants workers more rights in relation to pay transparency, such as:

• information about pay-level for job seekers. Job seekers will be able to have access to the necessary information on pay, in compliance with the EU General Data Protection Regulation. This aims to enable them to evaluate whether or not they are subject to discrimination, compared to their colleagues of the other sex, who are doing the same work or work of equal value; and
• information access for workers. Workers will be able to request information about the average pay levels for the same work during employment. The proposed directive states that ‘work of equal value’ will be judged based on objective criteria (eg education, professional and training requirements, skills, efforts and responsibility, etc) as well as on the guidelines deriving by case law of the CJEU.

At the same time, the proposed directive ensures access to redress for the victims of pay discrimination, such as: 

• full compensation for workers who suffered from gender pay discrimination. This right also includes recovery of back pay, bonuses and payments in kind; and 
• authorising equality bodies and workers' representatives to act in legal or administrative proceedings, on behalf of the workers who experience pay discrimination. The proposed directive allows collective claims on equal pay. There will be full compensation for victims of discrimination and remedies that address structural discrimination or bias in organisations.

In addition, the proposed directive also strengthens the reporting obligations for employers, in particular in relation to:

• reporting of gender pay gap. Employers with at least 250 workers must publish information on the pay gap between female and male workers across all categories of staff. Internally, they should also report on pay differences among female and male workers in the same category;
• carrying out a joint pay assessment. If the gender pay gap in the same category of workers is higher than 5 per cent and not justifiable on objective gender-neutral factors, the employers’ will have to carry out a joint pay assessment with the workers’ representatives; and
• bearing the burden of proof. The proposed directive holds the employer responsible for the discrimination by default. The employer will have to prove that there was no discrimination and not the worker.

The proposed directive refers to ‘employers’ or ‘companies’, but it does not clarify whether it will apply at entity or group level. It remains to be seen whether this will be clarified during the other stages of the legislative process of this proposal. 

By way of comparison, this guidance of the UK government (‘the guidance’) provides that, if the employer is part of a group, it must calculate, report and publish the gender pay gap information for each separate legal entity that has a headcount of 250 or more. 

However, a group of employers that has reported and published separate gender pay gap information for a number of legal entities within their corporate structure can also voluntarily report and publish combined figures for the entire group.

Likely impact of the proposed measures 

The rights and obligations listed above will set common minimum standards across member states, where the current landscape is fragmented. 

Some of them (such as Italy, France, Germany and Austria) already have or, like the Netherlands, have proposed a law that requires reporting on gender pay. However, the rights listed above strengthen the requirements of national laws in the countries where there are such laws and set a minimum standard in countries where such laws are absent.

For instance, if the proposed directive is adopted, workers will be able to request access to information directly, whereas now they have to request this information through the works council. While some member states have a system of sanctions in place, in case of breach of reporting requirements (eg in Italy, where administrative fines and the temporary suspension of social security reliefs, if any, apply), the proposed directive also gives the workers the right to claim full compensation in case of gender pay discrimination.

The proposed directive sets similar standards to the existing UK regime. According to the guidance in force in the UK, large private-sector employers (defined as those with 250 or more employees on 5 April of each year) are required to analyse their gender pay gap and publish a report on their website (hence data is available to everyone, including workers). 

However, the UK regime is more rigid given that it requires the listed companies in the UK to report annually on the difference in pay between that of the CEO and the company’s UK employees whose full-time remuneration ranks than at the 25th, 50th (median) and 75th percentiles. Listed companies are also under the obligation to maintain a registry for such purpose.

Next steps 

This proposal is currently going through EU’s legislative process. The European Parliament (EP) and the member states (via the Council) will each suggest amendments to the Commission’s proposal, after which the institutions will come together to negotiate a final text (in a process often referred to as ‘trilogue negotiations’).

In the EP, the amendments will be drafted jointly by the committee of employment and social affairs and the committee of women’s rights and gender equality. The EP has provisionally earmarked 9 December 2021 as the date on which they should agree their amendments, after which trilogue negotiations could commence, if the Council has already agreed its own amendments.

This means, in practice, that a final text would not be agreed until the first half of 2022 (during the French presidency of the Council), at the earliest. As the Commission has proposed that the directive would need to be transposed two years after its entry into force, it means employers will not need to comply with the new transparency requirements before mid-2024 at the earliest.

Reactions so far have been supportive of the initiative, but not of the selected tools. Business Europe has called for an initiative that respects the competences of national social partners for wage setting, allows for pay to be determined according to individual performance and respects the confidentiality of individual pay, as well as avoids promoting litigation. 

Similarly, the European Trade Union Confederation has stated that the proposed directive contains many good principles. However, the tools are inadequate to achieve the directive's aims.