Sanctions and measures in the event of Pay Transparency Directive violations
Dr. David Sundermann
The EU Pay Transparency Directive (Directive (EU) 2023/970, hereinafter “EUPTD”) obliges companies to establish and secure pay equality between women and men.
While the transposition into German law has not yet been completed, it is evident that: The European legislator is taking decisive action and has assembled a comprehensive package of measures aimed at providing public institutions and workers with the instruments required to push or dare force companies toward enforcing pay equality.
Blog Series: Equal Pay and Pay Transparency
Pay equity is no longer merely a matter of fairness – it is becoming a statutory requirement. Under the EU Pay Transparency Directive, companies face a new set of requirements – from mandatory reporting to the implementation of transparent pay systems. In this blog series, we highlight what companies need to consider as the Directive takes shape and how to implement pay equity in a legally compliant and strategic manner.
I.
Claims for Damages and Compensation
A key element of the Directive is the right to full compensation for all damages suffered due to violations of the principle of equal pay (cf. Art. 16 EUPTD) for affected employees, with the burden of proof falling on the employer.
The Directive includes provisions for claims for financial losses and claims for non-material damage. The claims must be presented in a dissuasive and appropriate manner and represent a real and effective remedy.
§ 15 of the General Equal Treatment Act (AGG) lays down what is already established law regarding claims for compensation or reparation in cases of gender-based discrimination. One may reasonably expect that either a similar provision will be enacted, or § 15 of the General Equal Treatment Act (AGG) will be amended.
Side Note:
It is unlikely that companies will continue to be able to rely on the exclusion period laid down in § 15(4) of the General Equal Treatment Act (AGG), which requires claims for compensation or reparation to be submitted in writing within two months. Article 21 of the Pay Transparency Directive expressly provides that the limitation period for claims relating to equal pay may not be less than three years. In light of this provision, contractual exclusion periods currently in use will likely also need to be reviewed.
Given that compensation provisions are intended to have a dissuasive effect, there is concern that, following implementation of the Directive, a new form of “pay transparency hopping” may emerge – similar to the dubious practices found in so-called General Equal Treatment Act or General Data Protection Regulation hopping.
II.
Corrective Measures, Fines, and Procedural Rules
The Directive does not rely solely on individual claims but also seeks to secure and enforce the principle of equal pay through institutional mechanisms.
Authorities or courts should be able to order the cessation of the infringement or impose structural or organisational changes (cf. Article 17 EUPTD). Where such orders are not complied with, recurring penalty payments may be imposed. Complementing these provisions, Article 20 EUPTD reinforces the right of access to evidence. Accordingly, authorities or courts have the power to order companies to disclose relevant evidence.
To avoid placing financial burdens on alleged victims of gender-based pay discrimination, Article 22 of the Pay Transparency Directive permits national courts to assess whether, in proceedings concerning pay discrimination, the costs should not be borne by the non-prevailing claimant, but rather by the prevailing employer. This is taken into account in cases in which the claimant had legitimate grounds for bringing the claim – in particular, in which the prevailing party failed to comply with the pay transparency obligations set out in the Directive. It remains to be seen what will be included under the term “costs of proceedings,” particularly whether this will also encompass the legal fees of the claimant employees. One thing is for sure: Such a regulation would turn the general principles of court proceeding cost liability on its head.
Side Note:
Under current German labour court law, the prevailing party in a first-instance proceeding is (as of yet) not entitled to reimbursement of legal fees from the non-prevailing party (see § 12a Labour Court Act – ArbGG). There has been an ongoing debate as to whether this principle remains tenable in discrimination proceedings. This issue will take on practical significance with the implementation of the EUPTD.
Article 23 of the Pay Transparency Directive provides for the establishment of effective, proportionate and dissuasive sanctioning mechanisms, to be imposed in the event of a breach of rights and obligations relating to the principle of equal pay. The core of this sanctions regime will be the imposition of appropriate financial penalties. Under the sanctions regime, particular attention will be given to cases involving intersectional forms of discrimination or repeated violations of equal pay rights and obligations. In cases of repeated breaches, penalties may not only include fines but also exclusion from financial incentives or participation in public procurement procedures.
III.
Burden of Proof and Procedural Facilitation
The implementation of the EUPTD will formalise the reversal of the burden of proof in equal pay claims. § 22 of the General Equal Treatment Act (AGG) provides for a reversed burden of proof in discrimination proceedings, as is presently applicable under German law.
Under this provision, employees need only demonstrate facts from which discrimination may be presumed. At that point, the burden of proof shifts, and it is for the employer to rebut the presumption of discrimination. A comparable provision is set out in Article 18(1) of the EUPTD.
In light of Article 18(2) of the EUPTD, the burden of proof requirements is expected to become more stringent. In certain cases, employers will likely be required to affirmatively demonstrate that no discrimination occurred, even where the employee has presented no supporting evidence.
This concerns
the failure to provide applicants with the required information, enquiries about previous salary during the recruitment process, and the use of gendered job postings, job titles, or discriminatory recruitment procedures (cf. Article 5 EUPTD)
the failure to disclose the applicable mandatory gender-neutral and objective criteria for determining pay (cf. Article 6(1) EUPTD)
the failure, or failure in due time, to comply with rights of access to pay information and related transparency obligations, as well as measures aimed at preventing workers from disclosing their pay (cf. Article 7 EUPTD)
the failure to submit timely reports in accordance with Article 9 EUPTD
the failure to conduct a joint pay assessment (cf. Article 10 EUPTD)
IV.
Conclusion
The Pay Transparency Directive Marks a Fundamental Shift in the Principle of Equal Treatment in Employment Law
The proposed catalogue of measures and sanctions is colossal and is set to impose considerable administrative burdens, with challenges likely to come not only from employees but also directly from the state. Effectively contesting individual claims or defending against administrative orders and sanctions will entail a substantial evidentiary burden under the relevant procedural rules on the burden of proof, and – particularly in view of anticipated reforms to cost liability – may expose employers to significant financial risk.
Given these developments, companies would be well advised to promptly review and, where necessary, revise their pay structures and to ensure appropriate documentation is in place. The entire recruitment process – from the job posting through to the interview and hiring stage – should likewise be subjected to close scrutiny in light of the Pay Transparency Directive.
