Proposed German Equal Pay Act May Complicate Remuneration Issues

Statistics reveal a difference of 7 percent between the remuneration paid to men and that paid to women with the same qualifications in Germany. The average hourly wage even shows a difference of 22 percent, making pay discrepancy in Germany one of the highest in the EU. In order to adjust these wage injustices, the German Federal Ministry for Family Affairs, Senior Citizens, Women and Youth submitted a first preliminary ministerial draft of the German Equal Pay Act (Entgeltgleichheitsgesetz) on December 9, 2015. The act is expected to be adopted in 2016.

New Information Rights for Employees and Works Councils

The draft mainly provides for transparency within the company. Both, employees and the works council will be entitled to be informed by the employer about the salary of co-workers in similar positions. Specifically, the information right covers the average remuneration of a group of at least five employees performing the same or the same type of work. It includes information about a certain pay group and about work that is performed mainly (i.e., 60 percent and more) by the other gender. Furthermore, the employee may obtain information about the criteria and the procedure for determining his or her own salary.

Accordingly, confidentiality clauses in employment contracts covering the salary are invalid. However, with a view to data and privacy protection, the employer may not disclose any information about the specific remuneration of individual employees. Consequently, the data on the basis of which the average remuneration is calculated must be rendered anonymous.

Legal Enforcement of Equal Pay

The employer must respond to an inquiry in text form within one month. If he does not meet the employee’s request or does not answer it properly, the employee may enforce the claim by filing a lawsuit. Alternatively, the employee may file a complaint with the works council first which will influence the employer to rectify the situation if it considers the complaint justified.

In case of unequal pay without objective justification, the employee is entitled to supplementary payments for the last three years.

Rights of the Works Council

Besides the above-mentioned information rights, works councils obtain further co-determination rights. They are also supposed to support the employer in questions of equality and wage-setting and control the establishment of an equal wage structure.

The works council may force the employer to conduct a company review procedure if several cases of discrimination indicate that the wage structure is generally discriminatory with respect to remuneration.

Changes for Employers

The Equal Pay Act will bring many changes for employers. For example, they will have to comply with numerous information requirements.

Furthermore, in a job advertisement employers must indicate the minimum wage for the advertised position as provided for under applicable collective bargaining agreements or by law or other norms of collective legislation.

There are additional requirements for large companies with more than 500 employees. These companies have to introduce an internal company procedure by way of which pay equity is to be reviewed. This procedure has to be certified by the Federal Anti-Discrimination Agency.

Companies within the scope do not only have to publish the results of their company procedures, but will also be required to report about the implementation of the procedures and their own compliance with the principle of equal pay. If the report reveals gender discrimination with regard to pay, the relevant remuneration arrangements must be eliminated without delay.

Practical Impact for Businesses in a Nutshell

Potential subsequent wage payments will impose an additional financial burden on companies. Furthermore, considerable internal capabilities will be needed to meet obligations to provide information and – in case a works council exists – to exercise the new co-determination rights. Especially for large companies with more than 500 employees, the procedural rules that are to comply with will tie up internal operating resources.