EU Draft Directive Bites the Tail of the Gender Pay Gap Dragon

By Uberto Percivalle July 14, 2021
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​According to statistics from the European Union (EU), the gender pay gap remains a problem. The EU Commission, the executive branch of the European Union, promised to eliminate the pay gap with the Equal Pay for Equal Work or Work of Equal Value directive proposal, also called the draft directive.

The Draft Directive

In March, the EU Commission published the draft directive seeking "to strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms." Employers with operations in the EU should seriously consider this draft legislation and whether a gender pay gap could exist within their own organization. If so, employers should prepare and implement a plan to eliminate it now.

Equality of Pay and the EU

The principle of pay equality between men and women is not new to the EU. In 1957, when the European Economic Community was formed by Belgium, Italy, France, West Germany, Luxembourg and the Netherlands, Article 119 of the Treaty of Rome signed by those founders expressly required the implementation of the principle of equal pay for equal work.

After 64 years, several judicial cases and other pieces of legislation, the European Parliament called for more action since statistical data show that the equal pay objective has not yet been reached. In 2019, a process was started that included consultation with stakeholders and the public and resulted in the draft put forward by the EU Commission.

5 Percent Threshold and Joint Pay Assessment

The draft directive purports to apply to all employers, although a few measures have been limited to employers with at least 250 employees.

This is the case with the joint pay assessment, which is a procedure that employers with at least a 5 percent difference in average pay need to go through with workers' representatives, labor inspectorates and equality bodies to analyze the gap and ultimately remedy it.

Reporting Obligation

Reporting various statistical data about pay gaps between female and male employees is another obligation limited to employers with at least 250 employees. Such data should be published on a website or otherwise made publicly available. The express purpose of making pay gap data publicly available is to make the data accessible by employees, unions, labor inspectorates and equality bodies and to allow comparisons between employers, business sectors and regions. Since various EU member states have already mandated reporting obligations, the draft directive will help harmonize the laws.

Transparency Obligations

Reporting is not the only transparency obligation envisaged by the draft directive. In fact, according to the directive, employers should inform job applicants about a job's initial pay level or range, based on objective, gender-neutral criteria. Prospective employers may not, however, query applicants about their pay history.

Once recruited, employees are entitled to easily accessible information about criteria used to determine pay levels and career progression, and the criteria must be gender neutral. Employees are also entitled to receive information about average pay levels, broken down by sex and job categories, to assess their individual pay and possible gaps. Employers may object to these requirements due to the risk that, despite employees' confidentiality obligations, information is leaked to competitors.

Remedies and Sanctions

The draft directive calls for EU member states to ensure that individual employees may enforce their equal pay rights in courts, to be fully restored and put in the same position they would have been had there been no discrimination. Moreover, depending on the judicial procedures of each EU member state, equality bodies and workers' representatives should also be able to engage in judicial actions, either on behalf of or supporting claimant employees. Courts would also have the power to order an employer to take the structural or organizational measures necessary to comply with the principle of equal pay.

Finally, the draft directive mandates member states to adopt penalties for noncompliance, including fines, the revocation of public benefits and funds, or exclusion from public procurements.

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Why Should a Draft Directive Draw Attention?

The draft directive is only a proposal and not yet adopted. In order to be adopted, it requires the favorable vote of the EU constitutional bodies—the EU Parliament and the Council of the European Union. After its adoption, member states will have a couple of years to implement it.

But HR leaders would be well-advised to focus their attention on the draft directive without delay. Once enforceable provisions of the law are enacted, there won't be grace periods. Moreover, those businesses that find themselves with a major gender pay gap need to use the time between now and the enactment of enforceable provisions to implement a gradual and sustainable change.

Finally, in light of the long and articulated preparation phase that led to this proposal, relying on the directive's failure would not be a winning bet. But even if the directive does fail, employers that eliminate discriminatory pay gaps earn the rewards of a strong reputation and attractiveness to prospective employees.

Uberto Percivalle, a long-time SHRM member, is an attorney with Baker McKenzie in Milan. He can be reached at uberto.percivalle@bakermckenzie.com

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