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New European Directive on equal pay for men and women and pay transparency

According to the EU, binding measures are needed to improve pay transparency, encourage organisations to review their pay structures to ensure equal pay for women and men who perform equal work or work of equal value, and enable victims of discrimination to exercise their right to equal pay.

Measures relating to the prevention of discrimination shall not prevent employers from paying different remuneration to employees who perform equal work or work of equal value on the basis of objective, gender-neutral and prejudice-free criteria such as effectiveness and competence.

1. Who falls within the scope of the Directive?

The EU act applies to employers in both the public and private sectors, some of whom also have more specific obligations, described in this material.
The directive also applies to all employees, including those with a fixed-term employment contract, part-time, collective agreements, etc.

As a measure to eliminate wage discrimination is pre-employment pay transparency, the Directive also applies to job applicants. The EU Act provides, in addition to providing protection to employees, to limit as far as possible the possible costs and administrative burden on employers. The measures to be envisaged will, where appropriate, be adapted to the size of the employers, taking into account the number of employees.

2. The concept of 'remuneration' and the granting of access to the criteria for its definition

'Pay' should be understood not only remuneration but also additional or variable components of remuneration. The Directive introduces an obligation for employers to give their employees easy access to the criteria used to determine pay, pay levels and their increase.

The criteria should be objective and gender neutral. This could be respected by making corresponding changes to the wage rules of the undertaking concerned.
It is left to each Member State's discretion to consider whether to bind employers to fewer than 50 employees from the obligation on pay increases.

3. Provision of written information upon request

Employees have the right to request and receive written information about their individual pay level and average pay levels broken down by sex for categories of workers who perform equal work like themselves or work of a value equal to the value of their work.
The employer is obliged to provide this information at the latest within 2 months of the request.

Employers will have to inform all workers annually of their right to receive the information and of the steps the employee must take to exercise this right.

4. Provision of information to the Authority and time limits

Member States should oblige employers to provide a certain set of information to the control body to be designated. This will include data on the gender pay gap, the gender pay gap in the additional or variable components, the share of women and men workers receiving additional or variable components, the gender pay gap by category of workers, broken down by normal basic salary or remuneration and additional or variable components, etc.

The data will have to be provided by 7 June 2027 and every year thereafter employers with 250 or more employees, for employers with 150-249 and 100-149 employees every three years.

Each Member State has the power to determine whether employers with less than 100 employees should have an obligation to provide payment information.
Medium and large enterprises will have to organize the appropriate human resources and administrative capacity to meet the reporting obligation.

5. Joint pay assessment

The Directive provides for a pay assessment to be carried out in cooperation with employee representatives when:

• reported pay shows a difference of at least 5% in the average level of pay of female and male workers for any category of employees;

• the employer did not justify this difference in average pay level on the basis of objective, gender-neutral criteria;

• the employer has not corrected this unjustified difference in average pay level within six months from the date of submission of the pay information.

6. Right to compensation

The Directive requires Member States to ensure that any employee who has suffered damage as a result of a breach of a right or obligation relating to the principle of equal pay will have the right to bring an action and receive full compensation or reimbursement for such damages. The employee must be compensated for the loss and damage suffered in a deterrent and proportionate manner.

Compensation or recovery must place the injured employee in the position in which they would have been if they had not been discriminated against on grounds of sex or if no violation of any of the rights or obligations relating to the principle of equal pay had occurred.
Compensation or reimbursement must include full recovery of payment due and related premiums or payments in kind, compensation for loss of opportunity, non-material damage, any damage caused by other relevant factors, which may include combined discrimination, as well as interest on delay.

The Directive prohibits limiting compensation or reimbursement from a maximum amount fixed in advance. The measure aims to protect employees from possible abuses, given the de facto dominant position of the employer.

7. Disclosure of the amount of remuneration

The Directive prohibits employers from creating obstacles for employees to disclose data on their pay. Employers may require employees who have received information other than information on their own pay not to use that information for purposes other than the exercise of their right to equal pay.

8. Burden of proof

The Directive obliges Member States to ensure that, in proceedings concerning direct or indirect wage discrimination, where the employer fails to fulfil its defined pay transparency obligations, the burden of proof for non-discrimination is on the employer.

9. Sanctions

It is left to the discretion of the Member States to lay down the rules on penalties for non-compliance with the transposed rules. They must be effective, proportionate, and sufficiently dissuasive. Penalties are expected to include fines that may be based on the employer's gross annual turnover or the total amount of his salary funds. The issue will remain open until the transposition of the directive and the definition of specific measures.
Any aggravating or mitigating factors should be taken into account when determining the amount of the penalty.

10. Time-limit for transposition

Each Member State must comply with the Directive by 7 June 2026 at the latest. It remains to be seen whether Bulgaria will take a more liberal or more conservative approach to transposing the EU act.

Published on Jun 13, 2023

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About the author

Alexander Radenovski

I admit that I am hungry for law. Currently I am involved in KDBM's corporate law and litigation practice helping senior lawyers to solve some of the conundrums that clients present.

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