New directive on pay transparency

On 24 April 2023, two years after the first proposal was submitted, the Council of the European Union adopted Directive (EU) 2023/970 of the European Parliament and of the Council of 10 May 2023 strengthening 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"). Member States now have approximately two and a half years to bring into force the national legislation necessary to comply with the Directive by 7 June 2026 at the latest.

The main reason for the adoption of the Directive is the persistent gender pay gap across the European Union. Although there is considerable variation between Member States, the EU average was 13% in 2021, with only a slight decrease over the last ten years. Luxembourg has the lowest gender pay gap in the EU at 0.7% and Latvia the highest at over 22%. The Czech Republic has long been below the EU average. According to 2021 data, the gender pay gap in the Czech Republic is 16.4%, which is the seventh highest gender pay gap in the European Union.¹ The Directive therefore aims to reinforce the principle of equal pay for men and women for equal work, and thus to combat gender pay discrimination. Greater transparency in employers' remuneration should contribute to reducing this discrimination. Indeed, a lack of transparency on pay is currently considered to be one of the main obstacles to reducing or eliminating the gender pay gap.

Pay transparency

The rules set out in the Directive will apply to both job applicants and employees, including managers and employees of employment agencies. On the employers' side, the rules will be binding on both public and private sector employers. The Directive imposes several new obligations on employers relating to pay transparency in the workplace, both before and during the employment relationship. Regarding job applicants, employers will now be obliged to provide information on initial pay before the job interview itself, and it will no longer be possible to ask applicants about their previous pay history during the job interview, which is nowadays quite a common practice. For employees, employers will be required to disclose the criteria on which their pay is based, the different pay levels, and pay progression.

Employees' right to information on remuneration and the disclosure of remuneration information

The Directive further extends the rights of employees to information from their employer. Specifically, employees will be entitled to request written information regarding their individual remuneration, as well as information regarding average remuneration levels broken down by gender for categories of employees performing the equal work or work of equal value. Employers will be obliged to provide this information to the employee within a reasonable period, not later than two months from the date of the request. In addition to the remuneration information itself, employers will have to inform all employees annually of their right to remuneration information and the steps to be taken to exercise this right.

Employment contracts often contain a clause that prohibits an employee from disclosing information to other employees and third parties about their pay and the employer's remuneration arrangements. To enforce the principle of equal pay, Member States will be obliged to adopt measures in their national legislation to prohibit such contractual provisions. Employers will therefore not be able to effectively prevent their employees from disclosing information about their remuneration to each other.

Mandatory reporting of gender pay gap

Employers will now be obliged to report annually on the gender pay gap to the relevant national authority. This obligation will only apply to employers with more than 250 employees. Employers with 100 to 249 employees will have to submit this report every three years. Should the report submitted show a gender pay gap over 5%, the employer will be obliged to justify this in an objective and gender-neutral manner. If the employer fails to justify the pay gap, they will be obliged to carry out a joint pay assessment in cooperation with the employees' representatives, with the aim of identifying the pay differences, correcting them and, above all, preventing them in the future. 

Right to compensation

If an employee suffers damage as a result of a breach of rights or obligations relating to remuneration, they will be entitled to full compensation for the loss or damage suffered, with the burden of proof being on the employer to prove that the breach of obligations and the damage caused did not occur. In addition to compensating the employee, the employer will also be subject to sanctions for non-compliance; however, it is up to the Member States themselves to determine the sanctions, which should be effective, proportionate and, above all, dissuasive.  

In the Czech Republic, there is currently no specific draft law in response to the Directive. Given that the time limit for the transposition of the Directive does not expire until 2026 and that the amendment to the Labour Code currently being prepared by the Ministry of Labour and Social Affairs will address other adjustments (in particular, increased flexibility in employment relationships), we do not expect the implementing amendment to the Labour Code to enter into force this year.

However, sooner or later employers will have to prepare for and comply with the new rules. The Directive allows Member States to provide for certain exceptions for employers with fewer than 50 employees, and it will be interesting to see whether the Czech Republic makes use of this possibility (a possible exception to the obligation for employers to establish objective and gender-neutral criteria for determining remuneration and remuneration practices). From a practical point of view, this exception seems appropriate, as for some smaller employers this obligation may represent a disproportionate administrative burden.

¹ European Commission document available here.