The New German Law On Remuneration Transparency

May from 6 January 2018 on everybody know their colleagues salaries? Germany introduced a new law on salary transparency. An overview.

In the EU, the stipulation of equal remuneration originally was implemented in 1957 by the Treaty of Rome and today is set forth in Article 157 of the Treaty on the Functioning of the European Union (TFEU). In Germany, the idea of non-discriminatory remuneration is addressed by Sections 2 ff. German General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz, AGG), Section 75(1) German Works Constitution Act (Betriebsverfassungsgesetz, BetrVG) and – in particular – by Article 3 of the German Constitution. However, in reality discriminating remuneration at the workplace is hard to identify. With the new Law on Remuneration Transparency (Entgelttransparenzgesetz), the government intends to (i) clarify that women and men should receive the same salary for equal or equivalent work, and (ii) provide employees with a tool to learn of a potential pay discrimination. The law came into force on 6 July 2017, providing that employees are entitled to assert corresponding claims for information against their employer. Employers now may want to take five minutes of their time for the following quick-check to find out whether they are affected and what to expect.

Who Is Affected?

The law applies in businesses with more than 200 employees, i.e., in businesses with at least 201 employees.

What Does It Cover?

An employee’s right to information encompasses on the one hand information on the process applied in salary determination and, on the other hand, encompasses information on (comparable) salaries. In connection with inquiries on salary determination, the employer is obligated to provide information on the criteria applied in determining the applicant’s salary and in determining the salary for equal or equivalent work. Regarding information on the salary, an applicant does not have the right to be informed on an individual colleague’s specific salary. Further, an applicant can only assert a claim for information if at least six colleagues of the other gender have a job that is equal or equivalent to the applicant’s job. Therefore, the right to information under the new law ends at company levels where the same positions are not held by at least six employees of the other sex.

Equal And Equivalent Work

Now, what is ‘equal‘ or ‘equivalent‘ work? The new Law on Remuneration Transparency provides for the first time for a definition of equal and equivalent work. Employees of the other sex have an equal job if they are carrying out an equal or equivalent activity at different workplaces or successively at the same workplace. Equivalent work exists where on the basis of an overall evaluation of certain parameters, female and male employees can be viewed as being in a comparable situation. Those parameters, for example, can be the type of work, education requirements, or employment conditions. Employee performance is not factored in. Since these parameters may not be consistently interpreted the definition of equivalent work at this time remains diffuse.

How Is The Right For Information Asserted?

Employees in companies that are bound by or voluntarily apply collective agreements make an inquiry with their works council. If no works council exists, employees make their inquiries directly with their employer. Employees in companies that are not bound by or do not voluntarily apply collective agreements make their inquiry directly with their employer. Where a works council exists, they can also assert their right for information through their works council. Management-level employees (leitende Angestellte) always contact their employer directly.

Where employees pursue their information right towards their works council, the works council provides the requested information to the applicants directly. In this case, the employer is obligated to disclose to the works council any and all documentation that is necessary to respond to an applicant’s inquiry.

The requested information can be provided by email. However, there is a blocking period: Once an employee has made an inquiry, this employee has to wait for two years until he/she can assert their right for information again, unless the circumstances have not changed in the meantime.

Rights for information can only be exercised from 6 January 2018 on.

What Information Needs To Be Provided?

Under the new Law on Remuneration Transparency, the right of information covers information on the salary determination as well as information on a comparable salary. Information on the salary determination covers infos on the determination of the applicant’s salary as well as the determination of the salary for comparable work. Information on a comparable salary covers info on the comparable salary of the applicant’s colleagues of the other gender doing equal or equivalent work based on the statistical median of the average gross salary calculated on full-time equivalents. In addition, an applicant can request information on two additional compensation parameters (e.g., bonus, company car or mobile phone) to be identified explicitly by the applicant. The reported salary, however, is not the average salary. Rather, the employer has to disclose the amount that is the median within the range of the compensation span within the comparable group of employees – i.e., the statistical median.

An employee’s right to information only covers compensation schemes within the same business and by the same employer. Regionally varying salaries with the same employer and comparisons between employee groups (e.g., employees and trainees) are not covered by the right to information.

The employer has to anonimyze any personal data that is contained in the information provided to the inquiring employee.

How Fast Does The Employer Have To React?

The employer has a time-frame of three months to respond to an inquiry. If the employer fails to provide the requested information (in time), the employer bears the burden of proof that the stipulation of equal pay has not been violated. Meeting the three-months deadline most likely is not an easy task for employers that have not yet investigated issues of equal pay within their company in sufficient detail.

Corporate Examination Procedures On Equal Pay

Non-public employers regularly employing more than 500 employees are encouraged to review their salary structures by means of corporate examination procedures. The Law on Remuneration Transparency, however, phrases this task as a request and not as an obligation. Further, employers with more than 500 employees that are obligated to provide a management report pursuant to German accounting regulations now have to include a report on gender equality and equal pay pursuant to the provisions of the new Law on Remuneration Transparency, or have to provide specific reasons for not furnishing such a report.

What Happens If Someone Earns Less Than His/Her Colleagues?

The new law provides for a right to information only and not for a right to compensation adjustment. On the basis of information provided, applicants, however, can pursue claims for compensation adjustments under the German General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz). In any case, an applicant has gained more information he or she can utilize in future salary negotiations.

We think that companies should prepare for upcoming inquiries pursuant to the new Law on Remuneration Transparency. In light of the three-months-deadline, it may be recommendable to prepare payroll information and documenation on compensation schemes. This may in particular apply in cases where requests for information can be channeled through the works council, since the new law requires employers to provide the works council with all relevant information necessary to respond to an applicant’s request. Although the new law does not provide for a right to salary adjustment, we think that it does leave room for company internal dynamics, to which employers should be sufficiently prepared from an organizational, communication and legal perspective.