Pay Transparency Act comes into force

After the bill on pay transparency was ratified by the German lower house, the Bundestag, on 30 March 2017 and by the upper house, the Bundesrat, on 12 May 2017, the Pay Transparency Act (EntgTranspG) came into force on 6 July 2017.

I. The aim: Equal pay for men and women for equal or equivalent work

The aim of the Pay Transparency Act is to enforce the requirement of equal pay for women and men for equal or equivalent work (section 1 EntgTranspG). According to the federal government’s explanatory memo for the bill, the act is intended to eliminate direct and indirect pay discrimination based on gender (Bundestag Document 8/17, p1).

In line with this aim, section 3(1) EntgTranspG (and section 7(1) Equal Treatment Act or AGG) outlaws direct and indirect gender-based discrimination with regard to all elements of pay and pay conditions. Section 7 EntgTranspG accompanies the ban on discrimination and standardises it once again as the requirement for equal pay.

Section 8 EntgTranspG decrees (as does section 7(2) AGG) that definitions in agreements which breach the ban on discrimination (section 3 EntgTranspG) or the requirement for equal pay (section 7 EntgTranspG) are invalid.

II. Defining equal and equivalent work

Since the Act aims to enforce equal pay for equal or equivalent work, section 4 EntgTranspG defines these normative terms.

Male and female workers perform equal work when they carry out an identical or the same type of activity in different workplaces or one after another at the same workplace (section 4(1) EntgTranspG).

Equivalent work means when male and female workers could be seen as being in a similar situation based on a range of factors. Among other things, the type of work, the training requirements and the working conditions are relevant here (section 4(2) EntgTranspG).

III. Individual right to information

The main innovation and one of the tools for enforcing equal pay for equal and equivalent work is the individual right to information granted by section 10 EntgTranspG to each worker.

1. Prerequisite

The prerequisite for this individual right to information is that the worker works for the same employer in a company with normally over 200 employees (section 12(1) EntgTranspG) and at least six workers of the opposite sex carry out the equivalent activity (section 12(3) EntgTranspG).

The request for information is to be sent to the works council in text form if there is a works council and if the employer has not taken over the task of fulfilling the request for information (sections 14, 15 EntgTranspG).

2. Subject of information

If these prerequisites are met, the individual worker can request information about three points: the comparison salary, the criteria and procedure for determining both their own pay and the comparison salary, as well as up to two pay components.

The comparison salary is to be stated as the statistical median extrapolated to full-time equivalents (median is the middle figure of a series sorted by size, e.g. 1, 2, 3, 4, 9).

Employers that apply or are bound by collective agreements will find it fairly easy to fulfil the request for information: regarding the criteria and procedures for determining pay, it is sufficient to state the collective-agreement pay rules and say where the rules can be consulted (section 11(2) second sentence EntgTranspG). With regard to the comparison salary, it is sufficient to state the comparison salary of the opposite-sex workers in that salary band (section 11(3) second sentence no. 1 EntgTranspG).

For all other employers, it is more difficult to answer the request for information: they must first define the average gross salary (possibly extrapolated to a full-time job) for every worker of the opposite sex who carries out a comparable activity (including all pay elements, see section 5(1) EntgTranspG). Then the employer must sort the gross salaries thus calculated by size. The figure in the middle of the series is the median. The employer must provide this information.

3. Consequences of failure to provide information

If the employer refuses to provide information within the three-month period for providing information, the Pay Transparency Act only contains a penalty for employers not bound by or not applying collective agreements: according to section 15(5) EntgTranspG, there is a shift in the burden of proof and the employer must prove in a dispute that it does not breach the requirement for equal pay.

4. Consequences of information provided

In contrast, the Pay Transparency Act does not have any penalties for an employer which provides information and discloses a breach of the ban on discrimination. However, in this case the employer faces claims from discriminated workers based on section 15 AGG.

IV. Company audit procedure

Another tool in the Pay Transparency Act is the company audit procedure to review and create pay equality, set out in sections 17 onwards. Such an audit procedure to regularly check that pay rules and various salary components paid and their application comply with the requirement for equal pay is specified by the Act for employers with normally more than 500 employees. But the Act contains no penalty if such an audit is not carried out, nor any privileged treatment for employers which do carry out an audit. The company audit is voluntary. As workers must be informed of the results of the company audit, if one is done (section 20(2) EntgTranspG), it must be considered whether conducting such a voluntary audit is actually in the company’s interest.

V. Introduction of reporting obligations

Finally, the Act standardises reporting obligations with regard to equality and equal pay for employers with normally more than 500 employees who are required to produce a status report under sections 264 onwards of the German Commercial Code. Employers that apply or are bound by collective agreements must write such a report every five years, while other employers must do so every three years and disclose it as an annex to the status report in the Federal Gazette. The first such report must be issued in 2018 (section 25(2) EntgTranspG).