Legal Advice

Who Earns How Much? Legislature Enacts Transparent Compensation Act

On March 30, 2017, the Bun­des­tag ad­op­ted the Act to Pro­mote Trans­pa­rency of Com­pen­sa­tion (the "Trans­pa­rent Com­pen­sa­tion Act"). At its ses­sion on May 12, 2017, the Bun­des­rat did not ob­ject to the law; the­re­fore, it en­te­red into force on the day af­ter its pro­mul­ga­tion.

The Aim of the Act is to Close the Sta­tisti­cal Pay Gap.

The ob­jec­tive of the Trans­pa­rent Com­pen­sa­tion Act is to close the sta­tisti­cal wage gap (in terms of the aver­age gross hourly wage) bet­ween wo­men and men, which is eit­her 21% ("unad­jus­ted" pay gap) or 7% ("ad­jus­ted" to eli­mi­nate the struc­tu­ral fac­tors and dif­fe­ren­ces in work ex­pe­ri­ence bet­ween wo­men and men), de­pen­ding on how you read the sta­tistics.

Who Earns How Much? Legislature Enacts Transparent Compensation Act© Thinkstock

The Me­ans: A Right to In­for­ma­tion

The key ele­ment of the Act is that all em­ployees are now en­tit­led to ob­tain in­for­ma­tion on the com­pen­sa­tion of their col­lea­gues at com­pa­nies with more than 200 em­ployees as of Ja­nu­ary 1, 2018. This is con­fi­gu­red as fol­lows:

  • If em­ployees have evi­dence that at least six col­lea­gues of the op­po­site sex are paid more for the same or equi­va­lent work, they can com­pare their in­come with the aver­age in­come of these em­ployees.
  • The right to in­for­ma­tion co­vers both the base salary and two other com­pon­ents of com­pen­sa­tion, such as bo­nu­ses or com­pany cars. Em­ployees are free to choose the other two com­pen­sa­tion com­pon­ents they re­quest.
  • If the em­ployer does not con­sider the ac­tivity spe­ci­fied by the em­ployee to be com­pa­ra­ble, the em­ployer must in­di­cate ano­ther com­pa­ra­ble ac­tivity and, if there is no such ac­tivity, the em­ployer must ju­stify this.
  • The re­quest for in­for­ma­tion can be made wi­thout a hand­writ­ten si­gna­ture. An email from the em­ployee to the em­ployer is thus suf­fi­ci­ent. When a works coun­cil is in exis­tence, the re­quest for in­for­ma­tion must be sent to the works coun­cil, which will then pur­sue the re­quest with the em­ployer.
  • The em­ployer is re­qui­red to pro­vide in­for­ma­tion wi­thin one month. Per­so­nal data about other em­ployees must be an­ony­mi­zed.
  • If the em­ployer does not com­ply with the in­for­ma­tion re­quest, an un­ju­sti­fied unequal tre­at­ment of the em­ployee by the em­ployer is as­su­med. The em­ployer is en­tit­led to state ju­sti­fi­ca­ti­ons for unequal pay. The em­ployer must de­mons­trate and prove that there are la­bor mar­ket-re­la­ted re­asons for the unequal tre­at­ment or ex­cep­tio­nal be­ne­fits of the em­ployee who is paid more. Howe­ver, no sta­tutory sanc­tions are pro­vi­ded for em­ploy­ers with unequal pay.
  • In prin­ci­ple, the em­ployee is en­tit­led to ac­cess this in­for­ma­tion only once every two years.
Ad­di­tio­nal Ob­li­ga­ti­ons for Large Com­pa­nies

If the com­pany re­gu­larly em­ploys more than 500 em­ployees, the com­pany must check at least every five years whe­ther or not it is in com­pli­ance with the equal pay ru­les.

Im­pact on the Ma­nage­ment Re­port

If the com­pany is re­qui­red to pre­pare a ma­nage­ment re­port in ac­cor­dance with the Ger­man Com­mer­cial Code, it must sub­mit a re­port on the pro­mo­tion of wo­men and the es­ta­blish­ment of equal pay for equal work.

Im­pact on Prac­tice

With the sta­tutory claim as of Ja­nu­ary 1, 2018, em­ployees will be gi­ven the op­por­tu­nity for the first time to re­ceive in­for­ma­tion on their col­lea­gues' em­ploy­ment terms, and they can ex­er­cise this right wi­thout great ef­fort at any time. In this con­text, this in­stru­ment will pro­bably be par­ti­cu­larly us­eful in se­pa­ra­tion sce­na­rios, since it can give the em­ployee ad­di­tio­nal "bar­gai­ning chips".

It is true that, there are no sanc­tions against em­ploy­ers who fail to pro­vide the re­ques­ted in­for­ma­tion, e.g., in the form of en­tit­le­ment to hig­her wa­ges. Howe­ver, the in­te­rest in avo­iding vio­la­ti­ons is li­kely to be very high be­cause they could im­pair the cli­mate at the com­pany and da­mage the com­pany's pu­blic image.

It is, howe­ver, doubt­ful whe­ther the Trans­pa­rent Re­mu­nera­tion Act will ac­tually lead to equal pay for men and wo­men—es­pe­cially one that is sta­tisti­cally de­mons­tra­ble.

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