EU directive banning pay secrecy will leave inequality with nowhere to hide

This insight was originally published in the Business Post on 17 December.

Ireland is now in its second year of mandatory gender pay gap (GPG) reporting, which is an annual requirement for employers with 250 or more employees. Smaller employers will come into scope from 2024 when the threshold is set to drop to employers with 150 or more employees and to those with 50 or more employees in 2025. 

The main purpose of GPG reporting is to provide an opportunity for employers and employees to understand the reasons for the GPG and the measures needed to address it. A GPG does not indicate an absence of equal pay for equal work, rather it’s a measure of the average difference in pay between men and women across an organisation. However, recent developments at EU level are set to soon shift the spotlight very much onto equal pay issues.

While equal pay for equal work has been law a long time, the European Commission has identified lack of pay transparency as a key obstacle to its enforcement. Pay transparency facilitates the detection of gender discrimination and it raises awareness and stimulates debate around the reasons for structural gender pay differences.

The EU Pay Transparency Directive came into force in June 2023 and Ireland has until June 2026 to implement the new rules. It contains far-reaching new measures, such as gender pay-gap reporting across all EU member states, a ban on pay secrecy, information rights for employees, job candidates and much more.

While GPG reporting under the directive is similar to the existing Irish regime, there will nonetheless be some important changes on that front. Employers will have to provide details of the GPG by employment category to employees and employee representatives. Broadly speaking, this means employers calculating and disclosing the GPG in respect of those performing equal work or work of equal value.  

The accuracy of the GPG report will need to be confirmed by the employer's management, after consulting employee representatives, which is not currently required under Irish law.

Employees, their representatives and employment rights bodies will then have the right to ask the employer for clarifications and details regarding the information, including explanations concerning any gender pay differences. The employer will be required to respond to any such request within a reasonable time and provide reasons. Where gender pay differences are not justified by objective and gender-neutral factors, the employer will be required to remedy the situation in close co-operation with employee representatives, the Workplace Relations Commission (WRC) and/or the Irish Human Rights and Equality Commission (IHREC).

Where the GPG report indicates a gap which (i) is at least 5% in any category of workers; (ii) has not been justified by objective and gender-neutral factors; and (iii) has not been remedied within six months of the date of the GPG report, the employer will have to carry out a joint pay assessment in co-operation with employee representatives, with the results to be made available to employees, their representatives and the monitoring body.

Changes are also on the way in the area of recruitment. Employers will have to indicate the initial pay level or range in a job vacancy notice or otherwise prior to interview and, importantly, will not be permitted to ask applicants about their pay history. The aim is to ensure workers have the necessary information to engage in balanced and fair negotiations regarding their salaries and to ensure existing pay discrimination and bias is not perpetuated over time, especially when changing jobs. 

Employees will have a right to request information from their employer on their individual pay level and on average pay levels broken down by gender for employees doing the same work or work of equal value. This information must be supplied by the employer within two months of the request.

Not only that, but employers with 50 or more employees will have to make information easily accessible regarding the criteria used to determine employees' pay, pay level and pay progression.

Measures will be put in place to prohibit pay secrecy clauses in employment contracts.

As the name of the directive suggests, this is all about pay transparency. If equal pay issues are revealed this will have significant potential to expose the employer to equal pay litigation.

Currently in Ireland, the Employment Equality Acts provide all employees with a right to bring a claim in respect of equal pay. Where a claim is successful, the amount of back pay the WRC or the Circuit Court may award is limited. Under the directive, employees will be entitled to full recovery of back pay. This could be substantial, depending on how far back an equal pay issues goes.

Equal pay claims are already big news in the UK with some well-known retailers currently in the middle of defending test cases by sales staff, who are predominantly female, on the basis they perform work of equal value to warehouse staff, who are predominantly male.

The directive’s consequences are significant. It will undoubtedly lead to an increase in employee and representative involvement in addressing pay equity and it contains potentially tedious requirements for employers to conduct equal pay audits and assessments of work of equal value.

It will increase the profile of equal pay and pay transparency across EU member states and will likely lead to a rise in equal pay claims. It’s worth bearing in mind that the directive sets out the minimum standards required. Ireland, like other EU member states, may introduce and maintain pay transparency laws that are more favourable to workers. 

While the current focus for many employers is no doubt on complying with existing GPG reporting requirements, employers should not lose time in getting ahead of the new pay transparency rules. Employers should take steps now to examine existing recruitment, pay transparency and GPG reporting practices and address any issues, before they are forced to.

For further information in relation to this topic, please contact Duncan Inverarity, Partner, Triona Sugrue, Knowledge Consultant,  or any member of ALG's Employment team.

Date published: 08 January 2024