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The new Equal Pay Act – it's getting serious!

In Germany, every year attention is drawn to the pay gap between women and men — on so-called "Equal Pay Day". The difference is estimated at about 20 per cent. This has prompted the German legislature to oblige companies to provide information on the remuneration they pay their employees. On the 30th of March 2017, the German Parliament adopted the Transparency in Pay Structures Act (Gesetz zur Förderung der Transparenz von Entgeltstrukturen). The most important part of this Draft Act is the new Equal Pay Act (Entgelttransparenzgesetz, EntgTransG).

The Draft Act in between has already been passed by the Federal Council of Germany (Bundesrat). Therefore, a quick implementation of the legislation, presumably on the 1st of July 2017, is to be expected. As per the contents of this Act, it is not permissible to agree on, or pay a lower remuneration, for equal work or work of equal value in an employment relationship if this decision is only based on gender. The Act in its current version provides for an individual right to information for employees in companies with at least 200 employees on a regular basis. Furthermore, it provides a voluntary process to verify and establish equal pay in the company and a reporting duty for the promotion of women's advancement and equal pay for companies with at least 500 employees on a regular basis, among other things.

Individual Right to Information

According to the Draft Act, employees are entitled to request information on the following topics to verify compliance with the equal pay order of employers with more than 200 employees:

  • Criteria and procedure for the determination of personal remuneration.

  • Criteria and procedure for the determination of remuneration for an equal activity and the respective pay-scale group or an activity of equal value which is mainly performed by employees of the opposite sex and the respective pay-scale group.

  • The statistical mean value of the monthly remuneration of a group of at least six employees of the opposite sex performing equal work or work of equal value.

Example: The comparison group comprises five women and fifteen men; a woman requests information. The statistical mean value of the remuneration of the fifteen men is calculated as a comparative value.

The information is limited to the gross monthly remuneration or two individual remuneration components. Moreover, a blocking period of two years is applicable, i.e. an employee cannot request further information before expiry of the two-year period.

Employers' obligation to provide Information

In companies without collective bargaining agreements and without a works council, the right to information is directed towards the employer; in companies with collective bargaining agreements and without a works council, the right to information may also be directed towards the representatives of the collective bargaining partners. In companies with collective bargaining agreements and with a works council, the right to information is generally directed towards the works council. The works council is obliged to submit the information request to the employer in an anonymous and detailed form. The works council may also allocate such responsibility to the employer; alternatively, the employer may request such allocation from the works council (limited for the period of the works council's term of office).

In companies without collective bargaining agreements, the right to information is generally also directed towards the works council; the same principles apply. Due to the missing collective bargaining agreements additional regulations must be observed: In the case of the employer negating a comparable activity, justification and information on an alternative comparable activity is required. In addition, the employer is obliged to give the information within one month upon receipt of the request in writing. In the case of the employer not fulfilling — either completely or partially — the obligation to provide information, discrimination is presumed — in legal proceedings the burden of proving that there is no violation of the equal pay order lies with the employer.

The legal consequence in the event of a violation of the obligation to provide information is a claim for performance of the withheld payment. In that regard, it is irrelevant whether unequal remuneration is based on discriminating collective bargaining agreements, other collective bargaining rules and / or direct or indirect discrimination. Besides this, there are claims for compensation or damages pursuant to Section 15 of the German General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz; AGG). The claim will also exist after cessation of the working relationship.

Tasks of the Works Council

The works council's list of tasks pursuant to Section 80 of the German Works Council Constitution Act (Betriebsverfassungsgesetz, BetrVG) will be complemented by the task of working towards equal pay of women and men for equal work and work of equal value. As discussed, the right to information is generally directed towards the works council; to ensure that it is able to perform its task in a proper manner, it is entitled to inspect the gross payrolls desegregated by gender and any remuneration components (above-tariff / individually agreed bonuses, benefits in kind).

Company procedure to verify and establish Equal Pay

The Act requires employers with more than 500 employees to verify their remuneration components and conditions with regard to compliance with the Equal Pay Act. It is expected that companies of this size are able to meet such obligations due to their organisational structure. The implementation of such verification procedure is voluntary. In case of an employer opting for this procedure, it is also free to choose the respective methods of analysis and job evaluation. In-house publication of the verification results is possible, although not mandatory. Time intervals of five years are recommended for the verification. The works council should be informed of the choice of the verification instruments in a timely manner.

Reporting Duties

All employers obliged to publish a management report (Sections 264, 289 German Commercial Code (Handelsgesetzbuch)) with more than 500 employees on a regular basis has so-called reporting duties: Accordingly, such employers have to present their measures for the promotion of gender equality of women and men in the company and its effect, as well as their pay regulations, evaluation procedures and measures to ensure equal pay for women and men. In particular, this includes details on the total number of employees as well as full-time and part-time employees, the activities which are performed by at least 60 per cent of the employees of the same gender and the average gross monthly salary of the employees converted into the full-time equivalent. Employers bound by a collective bargaining agreement are obliged to report every five years, employers not bound by a collective bargaining agreement, every three years.

Conclusion

Whether the new Act is actually suitable to compensate the pay gap between women and men remains unanswered. However, it is certain that it will be put into effect and cause additional bureaucracy and high costs. It can also not be excluded that this Act may sow discord among the staff and limit competitiveness. Companies must have the possibility to pay particularly engaged, high-performing, hard-working and efficient employees more than others. For this reason, they should label jobs individually and formulate vacant positions individually to avoid comparability of employees. Additionally, it is recommended to always document objective reasons, like criteria related to job market, performance and work results for a higher remuneration. These are for example: seniority (reward of professional experience), physical demands, skills and stress level. In the case of remuneration negotiations, the employer should look for requirements for a higher remuneration for objective reasons like travel costs, relocation costs, kindergarten allowance and bonuses.

If you have any questions related to this topic, please feel free to contact
Dr Nina Springer (LL.M., Lawyer and Labour Law Specialist).