Equal Pay Light? – Update on Proposed German Equal Pay Act

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On October 6, 2016, the coalition committee of the German government parties agreed on the planned Equal Pay Act (Entgeltgleichheitsgesetz). We described the first draft of the Equal Pay Act submitted by the German Federal Ministry for Family Affairs, Senior Citizens, Women and Youth in our blog post earlier this year.

The Act shall provide for an individual right to information for employees and works councils as well as a duty of documentation and review procedure for employers. However, the contents of the Equal Pay Act as agreed upon by the coalition committee constitute a light version of the Act compared with the first preliminary ministerial draft we previously reported on.

The Federal Ministry for Family Affairs, Senior Citizens, Women and Youth will now submit an amended draft Equal Pay Act in accordance with the following agreed terms.

New Information Rights for Employees and Works Councils

  • Employees will be entitled to be informed by the employer about the salary of co-workers in similar positions. However, according to the new agreement, this shall only apply in companies employing more than 200 employees. This threshold was not provided for in the very first draft.
  • In companies bound by collective bargaining agreements, the information shall both be 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.

Changes for Employers

  • Under the newly agreed terms, only companies employing more than 200 employees have to document any pay gap.
  • Furthermore, large companies with more than 500 employees have to introduce an internal company review procedure by way of which pay equity is to be reviewed at least every five years. However, other than previously foreseen, this requirement does not constitute a legal obligation, but rather a non-binding request.
  • Companies within this scope will also be required to report about the implementation of their procedures and their own compliance with the principle of equal pay.

Equal Pay Act ‘Light’

Besides these deviations in comparison with the first ministerial draft we reported on, other regulations previously provided for, apparently will not be included in the new Equal Pay Act:

  • Other than provided for in the first draft, employers will not have to indicate the minimum wage for the advertised position in a job advertisement.
  • Furthermore, confidentiality clauses in employment contracts covering the salary will not be invalid under the new Equal Pay Act as now agreed on.
  • New co-determination rights for works councils will not be included in the Equal Pay Act according to the current agreement between the governing parties.

The new Equal Pay Act will therefore bring changes in particular for large companies with more than 200 respectively 500 employees. For these companies concerned, the impact of the new Act will presumably not be as severe as expected after studying the first preliminary ministerial draft.

However, the consequences of the new Act must not be underestimated. To meet the new requirements, considerable internal capacities and operating resources will be necessary in large companies falling under the scope of the regulations.