EU Directive on equal pay for equal work adopted with member state compliance scheduled for 2026

In March 2023, the Directive (EU) 2023/970 of the European Parliament and of the Council of 10 May 2023 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 (the “Directive”) was adopted. EU member states now have until 7 June 2026 to bring laws, regulations, and administrative provisions into force in order to comply with the Directive.

The impetus for the Directive has been the steady gender pay gap experienced across the EU. According to data disclosed by the European Commission, the average gender pay gap in the EU was 13% in 2020 requiring women to work 1.5 extra months that year to make up the difference.

Hungary has been below the EU average with its 17.2%, which is the fifth highest gender pay gap in the EU. The Directive aims to reinforce the principle of equal pay for men and women for equal work and work of equal value (this principle was included in the Treaty of Rome as well).

The Directive applies to all employers in both public and private sectors. On the employee side, the Directive applies to all employees who have an employment contract or employment relationship as defined by the law, collective agreements, and practice in force, irrespective of the (managerial) position of employees, and the definite/indefinite or part-time/full-time nature of employment.

The Directive imposes the following new obligations on employers relating to pay transparency in the workplace:

• Regarding job applicants, employers must provide information on initial pay or pay range before the job interview, and they will no longer be allowed to ask applicants about their pay history during the job interview. Job advertisements must also be gender neutral.
• Employers must disclose to the employees the objective and gender-neutral criteria used to determine their pay, pay levels, and pay progression.
• Upon request, employers are required to inform employees in writing of their individual pay levels and average pay levels broken down by gender for categories of employees performing equal work or work of equal value. Employers must provide this information within a reasonable period of time, but no later than two months from the date when the request is made.
• In addition to the information above, employers must inform all employees annually of their right to request pay-related information and the steps to be taken to exercise this right.
• Employees cannot be prevented from disclosing their pay for the purpose of the enforcement of the principle of equal pay. Thus, employers must put in place measures to prohibit contractual terms that restrict employees from disclosing information about their pay. This means that all contractual clauses that prohibit employees from disclosing information to other employees will have to be supervised and adjusted.
• Employers are obliged to report on the gender pay gap to the relevant national authority. In this regard, the Directive lays down the following specific provisions:
  • employers with 250 or more employees must submit their report by 7 June 2027 and every year thereafter,
  • employers with 150 to 249 employees must submit their report by 7 June 2027 and every three years thereafter, and
  • employers with 100 to 149 employees must submit their report by 7 June 2031 and every three years thereafter.

Should the report submitted show a gender pay gap of over 5%, the employer must justify this in an objective and gender-neutral manner. If the employer fails to justify the gap and remedy the gap within six months of the date of the pay reporting submission, the employer is obliged to carry out a joint pay assessment in cooperation with the employees’ representatives.

If an employee suffers damage as a result of a breach of the principle of equal pay, they are entitled to claim full compensation for the damage. The Directive also provides for the shift of the burden of proof. The employer must prove that there was no direct or indirect discrimination in relation to pay, and the employee must only prove facts from which it can be presumed that there was discrimination.

In addition to full compensation provided to employees, the employers will also face the risk of other sanctions (e.g. fine) in case of non-compliance.

Although the member states still have two years to implement the Directive’s rules (in Hungary there is currently no specific draft law in response to the Directive), employers are encouraged to begin reviewing the relevant processes and provisions of their employment contracts and to develop a transparent pay structure in line with the Directive’s rules.

For more information on this Directive and how it could affect your business, feel free to turn to your CMS contact.