On 30 March 2017, the German Parliament (Bundestag) passed the Act to Promote Transparency of Pay Structures (“Entgelttransparenzgesetz” - EntgTranspG). This Act aims to promote wages fairness for women and men performing the same or equivalent work. It primarily provides for claims for information against the employer, together with review processes and reporting obligations. In this context, employers bound by collective bargaining agreements and employers implementing the same are privileged.

ESSENTIAL CONTENTS

The Act provides for amendments regarding the claim for payment of a higher remuneration in case of discrimination, a claim derived from various legal bases. While the claim has still not been expressly regulated, the EntgTranspG tries to provide clarification on a factual level by defining “equal and equivalent work” in compliance with previous court rulings. Accordingly, equal work is defined as being “identical or of the same kind”. Equivalence shall be measured by an overall assessment of several factors, inter alia, the type of work, the qualification requirements and the working conditions. It has to be emphasized that equivalence does not extend to the work result, i.e., there is no qualitative evaluation of the employee’s performance at this level. However, differences in performance can of course be considered elsewhere; for example, within the scope of the question for the reason of unequal treatment. It is to be expected that the issues of “equal” or “equivalent” are going to be considerably contentious in remuneration disputes even after the introduction of the aforementioned definition.

Claim for information

Also newly introduced is an individual claim for information of employees in companies regularly employing more than 200 employees.

Assertion

Employees are entitled, by means of an enquiry with the works counsel or the employer, to request information about the average monthly gross remuneration (statistic median) of the respective other gender of a comparison group and - per enquiry - up to two individual remuneration components. The term remuneration in this context also includes other cash compensation or compensation in kind, e.g., the provision of a company car. An enquiry about median remuneration components shall enable a targeted information of the employee about remuneration components where the employee suspects unequal treatment. Furthermore, the employer has to notify the criteria and procedures of remuneration setting.

The request can principally be made every two years, for the first time on 1 January 2018. If the claim is asserted before 1 July 2020, a three-year (instead of two-year) waiting period will apply until the next assertion.

Median

The median is determined by sorting the salaries of the comparison group according to size. The median then divides this data record into two (equal) halves so that the value in the one half is not higher, and in the other half not smaller, than the median value. The result of this calculation method can significantly deviate from the average value, but in the legislator’s opinion preferable to the latter because few extreme values have so little influence. Nonetheless, the informative significance of such statistical values is limited for the question of equal treatment in remuneration. The fact that at least 50% of the comparison group earn more than the applicant can, for example, also indicate unequal treatment within the comparison group. A shortfall of the comparison median does not necessarily correspond to unequal treatment. Conversely, income in the amount of the median does not exclude unequal treatment.

Relief for employers bound by collective bargaining agreements

The Act provides simplified answer options for employers bound by and implementing collective bargaining agreements. If criteria and procedures of remuneration setting are based on statutory regulations or collective bargaining agreements, it will suffice to refer to those and indicate where they can be consulted. Furthermore, employers bound by and implementing collective bargaining agreements can use the remuneration of other employers in the applicant’s remuneration or salary group for comparison remuneration purposes. Employers not bound by collective bargaining agreements and employers not implementing the same must principally provide information on the comparison group specified by the employee applying for information. If the employer wishes to select a different comparison group, this will require a statement of reasons.

Furthermore, and only for those employers not bound by collective bargaining agreements and those employers not implementing the same, the Act orders a specific legal consequence for the case that such employers do not comply with the claim for information or that the works council could not provide the information for reasons for which the employer is responsible. Only then shall a reversal of the burden of proof apply in case of a dispute regarding the question of whether a breach of the equal pay obligation is given.

Review process

Private employers with regularly more than 500 employees are asked to review their compliance with the equal pay obligation by way of a review process. Such process consists of a review of the current situation, an analysis and a results report. The Act does not provide for any obligation to review or legal consequences in the event of non-performance.

Reporting obligations

Employers with regularly more than 500 employees that are required to prepare a management report according to the German Commercial Code (HGB) are obliged to draw up a report on equal treatment and equal pay. This report has to explain, inter alia, measures taken to promote equality and achievement of equal pay. Employers bound by and implementing collective bargaining agreements have to prepare such a report every five years, all other employers every three years. The report has to be published in the Federal Gazette, together with the management report.

Conclusion

The Act does not affect companies with regularly fewer than 200 employees. The extent of the burden for larger companies by individual information requests is still difficult to assess. Likewise, it remains to be seen whether the claims for information turn out to be a suitable instrument for achieving equal pay.

In any case, concerned companies should provide the necessary structures in good time to process information requests in compliance with the mandatory data protection regulations and, if applicable, with the involvement of the works council. Companies with regularly more than 500 employees may consider performing a review process; if they are obliged to publish a management report, a report on equal treatment and equal pay must be drawn up.