CAN AN EMPLOYER BE SUED FOR VIOLATING THE PRINCIPLE OF EQUAL PAY?

CAN AN EMPLOYER BE SUED FOR VIOLATING THE PRINCIPLE OF EQUAL PAY? 

European Equal Pay Day and the Pay Transparency Directive
Female employees earn less than men, the gender pay gap in the EU is 13% in the average. This means that while a man earns €1, a woman in the same job earns only €0.87. In Hungary, the pay gap is significantly worse than the EU average, at around 18% to the detriment of female employees, which, applying the above example, means €0.82.

The European Equal Pay Day falls on a different day each year, the day from which women work for free compared to male employees. According to the EU average, this is mid-November, but in Hungary it is already the end of October.

The application of the principle of equal pay is hindered by the lack of transparency in remuneration systems, the lack of legal certainty regarding the concept of work of equal value, and procedural barriers faced by victims of discrimination. Employees do not have the information they need to successfully enforce their right to equal pay, in particular information on wage levels for categories of employees performing equal work or work of equal value.

In order to ensure equal pay for the same or similar work in the EU, in 2023 the European Parliament and the Council adopted a directive on strengthening the application of the principle of equal pay for men and women for equal work or work of equal value through wage transparency, commonly known as the Pay Transparency Directive, under which Member States must bring into force the laws, regulations, and administrative provisions necessary to comply with this Directive by June 7, 2026, at the latest.

The regulations for the transposition of the Directive in Hungary have not yet been published, but since they should be applied in practice in a maximum of eight months, in our series of articles we will attempt to summarize the obligations and requirements that are expected to come into force, based on the regulatory content of the Pay Transparency Directive.

Will the new regulations only affect really large companies?

The Hungarian regulations to be introduced on the basis of the Pay Transparency Directive will apply to all employers regardless of their size, but companies with a larger number of employees will also be subject to additional reporting obligations. In their reports, employers will be required to provide information about their organization, such as gender pay gaps, including supplementary or variable components of remuneration, data on the median gender pay gap, the ratio of female and male employees receiving supplementary or variable components as part of their remuneration, the proportion of female and male employees in each wage quartile, the gender pay gap by employee category, broken down by regular base pay and supplementary or variable components.

The reporting obligation will apply for the first time to employers with at least 250 employees and those with 150-249 employees, with a deadline of June 7, 2027, but while the former will have to provide the information in their reports every year thereafter, the latter will have to do so every three years. Employers with 100 to 149 employees will have to report for the first time by June 7, 2031, and every three years thereafter. Under the Directive, reporting by employers with fewer than 100 employees is voluntary, but Member States may require employers with fewer than 100 employees to provide information on pay in their national law.

In terms of deadlines, it is important to note that in order for an employer to be able to prepare a report in June 2027 that complies with the new legal regulations, as the report will cover the previous year starting on June 7, 2026, they will only be able to do so if they are already operating in accordance with the new regulations from June 2026. Since any necessary changes cannot be introduced overnight, preparations must essentially begin now.

What areas of the employer's operations and processes will be affected by the change?

It will affect wages. Employers will be able to fulfill their obligations under the Pay Transparency Directive if they identify and eliminate differences in pay for equal work or work of equal value and the reasons for those differences. They will have to develop objective criteria for assessing whether their pay structures ensure equal pay for equal work or work of equal value. Pay structures should allow for an assessment of whether employees are in comparable positions in terms of the value of their work, based on objective, gender-neutral criteria. These criteria should include: skills, effort, responsibility, and working conditions, and, where appropriate, any other factors relevant to the job or position in question. They should be applied in an objective, gender-neutral manner, excluding any direct or indirect discrimination based on gender. In particular, relevant human skills should not be undervalued. This does not preclude employers from paying employees performing the same work or work of equal value differently on the basis of objective, gender-neutral and impartial criteria, such as performance and competence. Based on these considerations, it is likely that all employers will need to review, clarify, and modify their remuneration structures and the performance assessments required for them.

It will also affect job descriptions, the job classification system, and job evaluation.
Wage structures that ensure respect for the right to equal pay must allow for the comparison of the value of different jobs within the same organizational structure. These pay structures should be based on indicators for gender-neutral job evaluation and classification systems or gender-neutral models. The value of work should be assessed and compared on the basis of objective criteria, including qualification, professional and training requirements, skills, effort, responsibility and working conditions, regardless of differences in working time arrangements. The guidelines consider comparison based on the factors of skills, effort, responsibility, and working conditions to be fundamental and sufficient for evaluating the tasks performed in an organization, regardless of the economic sector to which that organization belongs. Since not all factors are equally relevant to a given position, the employer must weigh each of the four factors according to the relevance of the criteria to the job or position in question. This means that an objectively fair system will need to be developed for comparing and contrasting jobs, and regular review of this system will be essential.
Employees may be in a comparable situation even if they do not work for the same employer, provided that the remuneration conditions are attributable to a single source determining those conditions and that those conditions are identical and comparable. This may be the case where the relevant pay conditions are governed by statutory provisions or agreements applicable to several employers, or where these conditions are determined centrally for more than one organization or undertaking within a holding company.

This will also affect employment documentation.
In order for employers to meet the requirements and comply with their reporting obligations, they must adequately document the functioning of their remuneration system, including, where applicable, internal consultations and reporting.
Measures aimed at wage transparency must protect employees' right to equal pay, while limiting employers' costs and administrative burdens as much as possible. In implementing this obligation, care should be taken to avoid imposing excessive administrative burdens on employers, for example by using ready-made templates.
After putting the Pay Transparency Directive into context in this article, in the second part of our series we will deal with the legal assessment of specific areas, including issues of pay transparency prior to employment, i.e., job applicants, recruitment, and selection among candidates. We will examine the extent to which and how job applicants should be guaranteed the right to receive information from their prospective employer about the initial remuneration or range of remuneration for a given position, determined on the basis of objective, gender-neutral criteria. We will examine whether employers can ask applicants about their current or previous remuneration, as well as how employers can ensure that job advertisements and job titles are gender-neutral. We will also outline how to ensure that recruitment procedures are conducted without discrimination, so as not to undermine the right to equal pay for equal work or work of equal value.