Be Aware - May 2021

New EC directive: Right to equal pay between male and female workers

A few days before International Women’s Day, the European Commission adapted a proposal for a directive 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.

While the right to equal pay (for equal work) between male and female workers is one of the EU’s founding principles and is included in various European texts (in particular Directive 2006/54/EC), as well as in our internal legal arsenal, in practical terms, the implementation of this principle can be complicated. Lack of pay transparency has been identified as one of the key obstacles.

This proposal, dated 4 March 2021, was submitted in the face of this observation and the COVID-19 pandemic, which hit female workers especially hard. The objective is to increase pay transparency and to provide better access to justice for victims of pay discrimination.

In terms of pay transparency, the proposal provides in particular for:

• More transparency before employment: employers will need to inform candidates about the initial pay level or the initial pay range in the job vacancy notice or before the job interview. They will be prohibited from asking questions about their pay history with their former employers.
• A right to information for workers during the employment relationship: workers will have the right to request information from their employer on their individual pay level and on the average pay levels, broken down by sex, for categories of workers doing the same work or work of equal value. Employers are obliged to inform all workers, on an annual basis, of this right.
• Each year, employers with at least 250 workers are required to make publicly available (on their website or via another way) pay gap data between female and male workers. Pay gap information between male and female workers doing the same work or work of equal value must also be provided internally (to workers and their representatives). If, for these employers, the pay information reveals a pay gap of at least 5% and the employer cannot justify this gap by objective and gender-neutral factors, the employer shall be obliged to carry out a pay assessment with the employee representatives.

As for measures to ensure greater access to justice, the proposal includes measures in terms of burden of proof (a shift of the burden of proof to the employer, in case the latter does not comply with the pay transparency obligations), limitation periods (at least three years), and compensation in respect of damage (which shall not be capped).

This proposal has yet to be approved. If adopted, it will need to be transposed by Member States within two years.

Frédérique Gillet

Should variable remuneration always be included in the calculation basis of the indemnity in lieu of notice?

In a recent judgment of the Ghent Labour Court, the Court had to decide whether Long Term Incentives (LTI) and Short Term Incentives (STI) should be included in the calculation basis of the indemnity in lieu of notice. In the case at hand, an employee held a position as a top executive within a company until 1 July 2017. As from 1 July 2017 his position was changed, and he was no longer considered to be a top executive.

The employee was dismissed with immediate effect in December 2017. After the dismissal, two prorated bonus amounts were paid out under an STI and LTI plan for performance during the first half of the financial year of 2017. The bonuses were prorated as the employee no longer held the position of top executive as from 1 July 2017.

The discussion arose whether the calculation basis of the indemnity in lieu of notice was correctly determined and whether the employer should have taken the bonus amounts into account for the calculation.

The bonus plans as applicable within the company expressly provided that bonuses were only granted to employees holding a position as a top executive. Moreover, the LTI plan stipulated that if an employee were to take up another position within the company, they would only be entitled to a prorated bonus if the new position was not a top executive position.

As the employee only held a top executive position during the first half of the financial year of 2017, the Ghent Labour Court determined that he was not entitled to a bonus for the second half of 2017.

As the employee was not entitled to the bonuses at the time of dismissal, they were not included in the calculation basis of the indemnity in lieu of notice. As a matter of fact, in accordance with the Act of 3 July 1978 on employment contracts (Employment Contracts Act) the indemnity in lieu of notice shall be calculated on the basis of the salary and benefits which the employee is entitled to at the time of dismissal. Even though the Employment Contracts Act also provides that the average variable remuneration over the 12 months preceding the dismissal shall be taken into account, the Ghent Labour Court indicated that this does not imply that each variable remuneration paid during the 12 months preceding the dismissal is also a benefit that the employee is entitled to at the time of dismissal.

The Ghent Labour Court indicated that, as from 1 July 2017, because of his new position, the employee was in fact no longer entitled to the bonuses and that they should not be included in the calculation basis of the indemnity in lieu of notice. The fact that they were paid later is irrelevant.

Variable remuneration shall only be included in the calculation basis of the indemnity in lieu of notice if the employee is entitled to this benefit at the time of dismissal. Whether or not this is the case should be assessed carefully.

Jascha Kolesnyk