The New German Pay Transparency Act - Are You Ready?

On July 6, 2017, the Pay Transparency Act (Entgelttransparenzgesetz – EntgTranspG) came into force aiming to tackle the gender pay gap – which is suspected to range somewhere between 7 and 22 % in Germany. The Act mainly provides for information rights of employees and for the implementation of review and reporting procedures in companies.

The New Provisions at a Glance

The Act provides for

• information claims of employees regarding pay structures in companies regularly employing more than 200 employees;
• implementation of voluntary internal review procedures in companies regularly employing more than 500 employees; and
• mandatory pay equity reporting for companies regularly employing more than 500 employees and are subject to reporting obligations under the German Commercial Code (Handelsgesetzbuch – HGB).

A Closer Look at the New Provisions

Information Claims

• If the company regularly employs more than 200 employees, employees (no matter whether female or male) may claim for information about the salary of co-workers in similar positions and the criteria and the procedure for determining his or her own salary.
• In companies bound by collective bargaining agreements, the information shall be both gathered and issued by the works council. In companies with an existing works council but not bound by collective bargaining agreements, employer and works council may choose whether the right to information shall be exercised by the works council or the individual employee.
• Specifically, the information right comprises the average monthly gross salary of at least six colleagues of the other gender who perform the same or the same type of work. Also, the employee can ask to be provided with information about up to two remuneration components (e.g. bonus, company car) at his or her option.
• The employees' right to information may be exercised in textual form (for example by email) every two years, but not earlier than six months after the entry into the full force of the Act (thus, in January 2018 for the first time).
• The company will be obligated to provide an employee with the requested information within three months in textual form (again, for example by email) after the information request. If the employer does not meet the employee’s request or does not answer it properly or in due time, the employee may enforce the claim by filing a lawsuit or filing a complaint with the works council, if any.
• If the employer does not fulfill its information obligations, in the event of a dispute, the burden of proof for a violation of the equal pay principle is being reversed, meaning that the employer will have to show and prove that no violation of the equal pay principle has occurred, and must put forward reasonable justification for unequal payment.

Voluntary Internal Review Procedures

• Companies with regularly more than 500 employees are called upon to implement internal review procedures to ensure their compliance with equal pay principles.
• Other than originally planned and provided for in the first draft of the Act, there is no legal obligation to implement such internal review procedures.
• The results of such voluntary internal review have to be published internally within the company. If the review reveals gender discrimination with regard to pay, the relevant remuneration arrangements must be eliminated without delay.
• Companies will have to evaluate whether at all and in which form such an internal review should be conducted, because by disclosing a negative review result, companies may prepare the grounds for litigation.

Mandatory Pay Equity Reporting

• Companies regularly employing more than 500 employees which are required to prepare a management report pursuant to sec. 264 and 289 of the German Commercial Code (Handelsgesetzbuch – HGB) (e.g., stock corporations (AG), limited liability companies (GmbH)) will be obligated to include information about their measures to achieve pay equity in this report.
• The reports must cover the previous three years and will be made publicly available.
• The first report must be prepared in 2018 for 2017.

Practical Impact for Businesses and How to Prepare

The Act will bring changes in particular for large companies with more than 200 and up to 500 employees. Considerable internal capabilities will be needed to meet obligations to provide information. It is recommended that companies review their pay structures now and to prepare the required information in order to be prepared when the first employees make use of the information right.

Whether claims of salary adjustments by employees will be raised by way of litigation remains to be seen. In the past, employees in Germany were rather reluctant to file claims in discrimination matters during an ongoing employment relationship. Usually, claims for damages or compensation due to discrimination are only raised at or after the termination of the employment relationship.