Transparency from the Outset – Employer Obligations During the Application Stage and throughout the Employment Relationship
Lisa-Lorraine Christ, LL.M.
The EU Pay Transparency Directive (EUPTD) introduces new obligations for employers to ensure pay transparency during the application stage and throughout the employment relationship.
Employers will be required to provide clear information on pay, including objective criteria used to determine pay levels and progression – both during the application stage and throughout the employment relationship. This post explores the upcoming obligations companies will face and how these will affect salary negotiations and internal pay transparency.
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.
Pay Transparency at the Application Stage
1. Starting Pay or Pay Range Information
Going forward, employers will be required to ensure pay transparency before the employment relationship begins (Art. 5(1) EUPTD). The provision helps prospective employees make informed decisions about expected pay, improves their bargaining position, and promotes transparency in salary negotiations (see Recital 32).
Specifically, Article 5 – Pay transparency prior to employment, paragraph 1: states:
a) the starting pay level, or its range, for the position in question, based on objective, gender-neutral criteria; and
b) where applicable, the relevant provisions of the collective agreement applied by the employer to the position.
This information is to be provided in a manner that ensures informed and transparent salary negotiations, (...).
As a result, job applicants are now entitled to receive information – prior to employment – about
the starting salary or pay range,
as well as any relevant collective agreements that may apply to the role.
At the same time, employers may not ask applicants about their pay history in their current or former employment relationship (Art. 5(2) EUPTD).
Practice Guidance:
According to the wording of the provision, employers will be required to provide the information proactively – for example, in the job posting or by otherwise making it available to the applicant before the interview. No specific format is required. As a best practice, the information should be provided in written form for documentation purposes.
2. Company’s’ legitimate interest in confidentiality
Employers have a recognized legitimate interest in keeping their often proprietary and carefully structured pay systems confidential. This legitimate interest is to be aligned with the obligations set out in the transparency legislation. The extent to which information obligations must be fulfilled should be carefully assessed in a company-specific manner, taking into account the organisation’s internal structure and confidentiality interests. In the interest of good practice, national legislatures should take a balanced and proportionate approach when implementing the EUPTD in this sensitive area.
3. How should businesses address individually agreed salaries – especially those above standard ranges – under the new transparency obligations?
In everyday HR practice, an often-raised issue is how individually negotiated salaries should be assessed under the new transparency requirements.
Recital 32 of the Directive makes clear: that setting a pay range does not oblige employers to adhere strictly to its limits. Even within a transparent pay structure, higher salaries can be agreed based on the applicant’s individual negotiation skills. Caution is warranted: employers cannot justify a higher salary for the same or equivalent work solely on the basis that the applicant asked for more during the interview.
The Federal Labour Court found that reliance on freedom of contract does not, in itself, justify a pay disparity. Under § 22 of the General Equal Treatment Act (AGG), the full burden of proof lies with the employer to demonstrate that gender played no part in the pay decision (Federal Labour Court, judgment of 16 February 2023 – 8 AZR 450/21).
Does this mean negotiation skills no longer have a place in salary decisions? Not necessarily. In certain cases, negotiation skill – as a soft skill – may qualify as an objective, gender-neutral criterion within the meaning of Article 4(4) EUPTD and may justify a difference in pay if applied consistently and transparently. That said, the underlying criteria should be reviewed carefully to mitigate any potential risk, legal or otherwise.
Practice Guidance:
Under the EUPTD, the ability to rebut presumed pay discrimination becomes increasingly important, as expanded rights to information and reporting obligations make internal pay structures more transparent. HR decision-makers must therefore carefully document the reasons for awarding higher pay and present the underlying criteria – and their weighting – in a transparent and comprehensible manner.
II.
Pay Transparency During Employment: Pay Setting and Progression
Under Article 6(1) EUPTD, employees are to be provided with information about the criteria used to determine pay, pay levels, and pay progression.
The EUPTD seeks to increase transparency around pay progression during ongoing employment. As such, employers will be required to disclose the criteria used in their pay systems – such as professional experience, qualifications, and specific skills. The criteria must meet the requirements of the Directive and be defined in objective and gender-neutral terms.
Practice Guidance:
Employers should begin reviewing their existing pay systems, checking whether current criteria and weightings reflect the Directive’s standards of objectivity and gender neutrality – and whether they rely on any discriminatory stereotypes.
With regard to the procedure for providing the information, the Directive contains no specific provisions. As for the details, it remains to be seen how the German legislature will implement the Directive.
