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Act for Equal Pay makes the gender pay gap go away

Whilst already in 2017 the Transparency of Pay Act or Equal Pay Act was passed (cf. "The new Equal Pay Act – it's getting serious!", BEITEN BURKHARDT online, May 9th, 2017), the act itself set a six month waiting period until the individual right for information could be exercised. That period elapsed on January 6th, 2018. Owing to that employees could now exercise their right for information, if – of course – the requirements for such are met.

The underlying idea of the act is to close the apparently existing gender pay gap of 21 percent between the salary of male and female employees. Although that sounds like a huge gap, nearly 14 percent can be explained by taking into account factors such as education, role within the family, choice of profession etc. Seven percent however do not seem justifiable with such explanation. In order to fix this issue, employees should be entitled to know the salary of their (comparable) colleagues and therefore are granted an entitlement to receive the same remuneration. Though that is the idea, in practice, the Equal Pay Act does not grant an entitlement for exercising the right and also only the median needs to be stated to the employees.

Requirements for exercising the right

Operations with less than 200 employees (as a rule) are not subject to the Equal Pay Act. So are operations, even though they are exceeding the threshold, if less than six employees of the opposing gender are performing the same or equivalent work. Such limitation was included to ensure data privacy of the employees. If those requirements are met, the individual right for information could be exercised. The next question arising is as to who employees have to address. Also, a distinction has to be made between employers not being bound by collective bargaining agreements and not using such in comparison to companies being subject to collective bargaining agreements or applying those. Obviously both are subject to the individual right of information but the company being bound by or at least applying collective bargaining agreements is less suspicious in respect to any discrimination since it is assumed that those are using a payment system of some kind. However, in such companies being bound by or applying collective bargaining agreements, the works council is the place to address, unless the employer told the works council that he/she would be responsible for taking care of the information claims. In companies not being bound by collective bargaining agreements and also not applying those, the employer is subject to the request for information.

Possible ways to reply to the information requests

In accordance with the Equal Pay Act it is not an option solely not to reply to the exercised information request. This is owed to the fact that this is supposed to set an indication for discrimination. Companies are therefore urged to reply to such requests. Whilst a lot of companies already set up departments and educated their persons chosen for replying to those request, not too many of those came in. That might be due to the fact that the request is (brand) new and basically no experience exists. However, once the first lawsuits will have been brought in and courts will have decided in favor of the employees, the slippery slope has been set foot upon. In order to be prepared for such, companies do not only need to provide a standard procedure for handling incoming requests but also need to update their payment system, if existing.

Setting up a payment system

Though this sounds easier than expected, multiple issues need to be observed and juggled, because frankly, most companies try to stick to a system but as the markets are changing, systems, which have not been recorded in writing are neglected and eventually not existing anymore. However, a start needs to be made in order to be on the safe side. Once courts are starting to grant an upward adjustment, it is too late. Consequently, a system needs to be found in which employees can be classified. Good thing is that the European Court of Justice states that a system does not need to be perfect. In addition, the Highest Federal Labor Court also holds that within the transformation phase to a different system, there will always be injustices. The only necessity is that those are taken care of and eventually will be eliminated. Such payment systems can be negotiated with the works council or – if necessary – with a union.

Finally – will this resolve the gender pay gap?

Most likely not. Is the Act designed to do so – also not. However, we have to deal with what we get. And at least it will give food for thought or even get things moving in order to work on getting rid of any potential discrimination. The essential idea of eliminating any kind of discrimination cannot be achieved with such Act but that should not lead to companies neglecting their duties resulting from such, since this could lead to a rude awakening. Consequently, it seems to be better to fasten the seatbelt and start setting up a payment system.

If you have any questions related to this topic, please feel free to contact Dr Kathrin Bürger (Lawyer, LL.M.(New York), Licensed Specialist for Labour Law).

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