European Union Directive Does Not Create More Equal Salary Conditions, but Brings Higher Administrative Burden

The Ministry of Social Affairs requested feedback regarding the draft of the European Union Salary Transparency Directive, according to which employers would face several additional obligations, such as developing career rules and reporting obligation for large companies. In its letter, the Chamber highlighted based on feedback from its members, that establishing a directive does not facilitate achieving the desired results, but increases significantly administrative burden for Estonian companies.

The aim of the proposal for the European Union Salary Transparency Directive is to ensure that women and men in the European Union are paid equal pay for equal work. This aim is fully supported by the Chamber of Commerce, but in the Chamber’s opinion, the gender pay gap is not mainly due to gender discrimination in organisations, instead, the reasons lie elsewhere.

Mait Palts, Director General of the Estonian Chamber of Commerce and Industry emphasised that in order to decrease the pay gap, efforts should be made to change the attitudes in the society and not resort to regulatory solutions, commands and prohibitions. “The main reasons for the gender pay gap are the attitudes and gender roles created in the society, which in turn cause gender segregation at the labour market, influence educational choices and hinder work-home life balance. Therefore, attention should first be paid to these problems and not additional regulations,” he says, and added that otherwise we will be finding ourselves in a situation where the salaries are imposed from some high level and not as a result of negotiations between employer and employee.

Implementation of the obligations proposed in the draft causes quite a bit of confusion for employers and employees, but their benefit is questionable. For example, it is difficult, especially for small companies, to establish what equal work is and if a specific employee can compare themselves with other positions or not. Furthermore, it is questionable if the data disclosed to the employees mostly serves its purpose or not. According to the draft act, information on the average salary levels of male and female employees should be published to the employees. At the same time, if a company employs one woman and ten men, the salary of the woman would become known to the entire organisation, but for the male employees, the information published would concern the average salary of ten persons, which does not provide specific information for the female employee. In certain cases, data might not be comparable and therefore confusion and no added value is created. A separate kind of difficulty arises from the situation where a salary consists of a large component of performance or piece-work pay.

Additionally, the draft includes provisions that are not reasonable for smaller companies. For example, according to the proposal, employers are required to make information regarding the criteria based on which the employer establishes salary levels and career advancement, easily available for employees. Such obligation would be applicable for all, including smaller employers.

Palts also pointed out that the majority of Estonian companies have less than 10 employees and will most probably never develop salary and career advancement rules, and there is no obligation to do that. “In our opinion, it would be too burdensome and oftentimes unnecessary to start devising different position names for their employees, grouping employees or developing career systems,” says Palts.

The Directive establishes the following obligations for companies:

• Employers are required to provide candidates information on salary level or range in the job ads or before job interviews. At the same time, candidates cannot be asked questions regarding their previous salary;
• Employers are required to make available for the employees information regarding the criteria based on what employers establish salary levels and career advancement. Thus, all companies, irrespective of their size, would have to start developing rules for salary arrangement and career advancement. If an employee requests, employers are required to provide them information on average salary level on the same or equal position. Furthermore, employers are required to start reminding employees annually that they have the right to request such information;
• Major companies must publish annual information on salary differences of their female and male employees in their organisation. The information must be made publicly available (e.g. homepage) and also to the supervisory authorities. For internal use, employers are required to provide information on the salary gap of female and male employees by categories of employees performing same or equal;
• If at least 5% gender pay gap is identified in a company, which the employer is unable to justify with objective gender neutral circumstances, employer in cooperation with employee representatives must carry out joint assessment of salaries and report the results to the employees and supervisory authority.
• Employers are required to pay indemnity to the employee who suffered salary discrimination due to gender. Loss of both salary and bonuses must be compensated.
• Even if an employer wins a salary discrimination dispute, compensation of procedure costs cannot be requested from an employee (except if the employee filed a claim to the court maliciously etc.).
• Furthermore, Member States are obliged to establish penalties for cases when employers violate rights and obligations arising from the Directive. States are to ensure also that companies participating in public procurements meet the obligations arising from the Directive.