I. Introduction

German Bundestag (national Parliament of the Federal Republic of Germany) passed the “Transparency of Pay Act” which purpose is to ensure pay equality between women and men in order to close the gender pay gap. Dependent on which calculation methods are adopted, the gender pay gap in Germany is suspected to range from 7 to 21 %. The Act expressly states that it aims to promote and enforce the equal pay principle, meaning that equal pay must be granted for equal or comparable work and that direct or indirect wage discrimination based on gender is prohibited.

II. New rights for employees and duties for companies

The new rule essentially relates to three aspects:

1. Individual right to information

The law entitles individual employees to request the median monthly salary of employees of the opposite sex within their comparison group (i.e. those employees who do similar work to them. This applies to companies with regularly more than 200 employees and can be first exercised six months after the Act came into force.

2. Voluntary audits

Companies with more than 500 employees should audit the compliance of the precept of equality concerning remuneration (“Betriebliche Verfahren zur Überprüfung und Herstellung von Entgeltgleichheit”).

Such companies are requested to conduct internal audits to review their remuneration schemes and actual remuneration in light of gender equality. Companies are not obliged to conduct such audits – the final rule states them as optional.

3. Reporting obligations of equality and equal payment

If an operation with more than 500 employees has the obligation to generate a status report (“Lagebericht”) according to Secs. 264 ff, 289 German Commercial Code (“Handelsgesetzbuch” – HGB), the Act obliges them to publish a report regarding gender equality and equal pay in the German Federal Gazette. This report extends to measures on promoting gender equality and their results as well as measures taken to achieve equal pay.

The reports have to be prepared every three years and cover the preceding three years respectively. The first report is due in the year following the coming into force of the law (i.e. 2018) and covers only the preceding year (i.e. 2017).

III. What actions are required by the company?

1. Assessing the company’s payment scheme

The first request by an employee can be made six months after the Act came into force meaning 6th of January 2018. Thus companies have limited time to prepare. Because of the detailed information one has to provide (disclosure of the remuneration that employees of the other gender receive for comparable work on a monthly average and breakdown of this information for up to two specified wage components, e.g. base salary, bonus payments) companies have to check their payment scheme as soon as possible.

In order to gather the relevant information to comply with the request, companies must identify the comparative remuneration (i.e. the Euro amount that will serve as reference for an assessment of gender equal pay) as well as criteria and procedures to determine remuneration in the company.

The comparative remuneration is determined by reference to the remuneration of all “comparable employees” of the respective other gender. Such employees are defined as colleagues who carry out the same or at least comparable work. Important criteria for this are the nature of the work, educational requirements and the conditions of the work.

In a second step companies will have to identify the average monthly salary of each employee in the comparison group for the last calendar year. All cash benefits and contributions have to be taken into account (i.e. also benefits like company cars). Part-time remuneration has to be projected to full-time remuneration.

The comparative remuneration, however, is not the average salary of all employees in the comparison group but the statistical median of the individual salary amounts. The statistical median is the “middle value” of a data set. To identify this value, companies will have to rank the individual salaries by their respective amounts and identify the “middle” amount.

2. Answering future requests within three months

The employer shall principally respond to the request and exchange the information within three months in text form. Should the employer miss this deadline no immediate penalty is foreseen by the Act. However failure to provide information at all leads to a shift of the burden of proof.

3. Prepare reasonable justifications for unequal payment

The employer is authorized to put forward proportionate and reasonable justification for unequal payment. Furthermore employees can only requested information if the comparison group consists of six or more employees of the opposite sex. Therefore no justification at all is required if the comparison groups consist of less than six employees of the opposite sex.

IV. FAQ

1. Will a difference in payment for comparable work be possible at all?

Yes. As the Act itself states unequal payment is possible if the employer puts forward proportionate and reasonable justification for it. Therefore companies need to explain why there is a difference in payment. Reasons can be for example experience of worker, physical requirements, or coping with high workload.

2. Should companies audit their payment scheme?

Though the audit itself is voluntary employees have to be informed about the results (Sec. 20 II). This obligation exists regardless of when the audit was conducted and whether the company had any chance to resolve an identified discrimination in pay. By publishing a negative audit, companies prepare the ground for litigation for salary adjustments.

3. What legal consequences does the Act provide?

The Act itself does not provide any legal consequences for companies applying discriminating pay schemes. The law refers to existing legal bases for entitlements to salary adjustment in case of pay discrimination under the Equal Treatment Act (“AGG”), Sec. 15 AGG. The employee has therefore the claim for remuneration in case he/she feels disadvantaged.

Employees have to demonstrate and prove that the difference in pay is based on gender and thus discriminating. However, this does not apply in cases where a shift of the burden of proof is applicable. If the burden of proof has shifted, it will be up to the companies to prove that there is either no difference in pay or that the difference is not based on gender.

4. Which role has the works council?

If a works council is established at an operation employees can send the respective request to the works council as the competent body. Employers however are free to take over and manage all or some information requests. It is recommended that an employer executes this right and acts as the responsible addressee of employees’ requests. If no works council exists, employees must always file the request with the employer.