On 12 May 2017, the Federal Council passed the "Act to support transparency on pay structures – the Transparency on Pay Act" (the “Act”) in order to promote gender equality in pay. The Act entered into force on 6 July 2017 and since 6 January 2018 the obligations under the Act have “gone live”.
1. Legal definition of equal work
The Act provides a legal definition of the term “equal work“, which means identical or comparable activities that are conducted by employees in either identical or different positions. Therefore, equivalent work within the meaning of the Act will be deemed to be conducted by men and women, if “according to an overall view of all underlying factors they can be considered to be in a comparable situation”. The decisive factors in this respect are, inter alia, the kind of work, the training requirements and the work conditions.
2. Individual right to information for employees
The core stipulation of the Act is the individual right to information for all employees of a company employing more than 200 employees. This right to information, which is only now available, six months after the Act entered into force, can be asserted in “text form” (e.g. by e-mail) by indicating the comparable activity. Thereupon, the employer has to inform the employee about the procedure and its criteria to determine the employee’s individual remuneration and must also identify the relevant comparative remuneration. Moreover, the employer has to disclose the statistic median of the average monthly gross remuneration that the opposite gender receives (projected and applicable to a full-time equivalent).
Median means (in ascending order of all salaries) the average remuneration of the relevant peer group. For instance, if the peer group consists of 13 employees of the opposite gender, the median would be the seventh highest remuneration within this peer group. This information must be given within three months after the request has been filed. However, the information concerning the applicable comparative remuneration cannot be disclosed on the grounds of data protection, unless at least six employees of the opposite gender are within the peer group.
If a works council exists, the request for information has to be sent to the works council, who must then fulfill it. The works council must inform the employer in an anonymous way about any requests for information.
3. Specific stipulations for employers bound by collective bargaining agreements
For employers who are bound by or adopt collective bargaining agreements, it will be sufficient to name only the relevant collective remuneration system and to indicate where the collective bargaining agreement can be inspected by the employee to satisfy a request for information. Furthermore, the median remuneration of the opposite gender, who is in the same category of the inquiring employee, must be disclosed.
4. Who has the burden of proof?
Non-compliance with the obligation to provide information will lead to disadvantages for the employer in cases of a complaint regarding equal pay, provided that the employer is not bound by collective bargaining agreements. In this case the burden of proof will shift to the employer’s detriment, because – according to the legislator’s view – the withholding of information will raise serious doubts concerning the employer’s compliance with the legal equal pay obligation. However, according to the grounds of the Act, such withholding of information shall only be assumed if the employer does not provide any information regarding the requested remuneration components at all.
In contrast, the burden of proof does not shift to the employer if they are bound by collective bargaining agreements. According to the legislator’s opinion, the potential for discrimination in this respect is much lower than in cases of individually agreed or freely negotiated remuneration provisions.
5. Right to remuneration adjustments
The Transparency on Pay Act does not explicitly stipulate a legal basis for the employee to request a remuneration adjustment. Therefore if an employee wants to pursue such a claim, the employee must rely on the principles so far established by German labour courts. The Transparency on Pay Act solely stipulates the following principles, which arise from various legal sources:
Equal work must be paid equally. A difference regarding the remuneration of employees, who provide equal services, cannot solely be justified by the characteristic “gender”. Any stipulation which violates this equal pay principle is invalid.
6. Occupational audit procedure
Private employers, who employ more than 500 employees on a regular basis, are encouraged, but not obliged, to regularly review their remuneration systems, including the paid remuneration components, as well as their practical application to confirm they are compliant with the equal pay requirements.
7. Reporting obligation
Companies that employ more than 500 employees and are already obligated to make a management report within their annual accounts, according to the German Commercial Code, will also be required to publish regular reports regarding their efforts to promote gender equality and equal pay, under the Transparency on Pay Act Any absence of stipulated efforts must be justified within the report. Subsequently, in the future this report must be attached to the management report and furthermore has to be published in the German Federal Gazette.
Any employer who is bound by collective bargaining agreements is required to generate such a report every five years; otherwise such a report has to be generated every three years, starting this year (one year after the Act entered into force).