Pay transparency in the absence of implementing legislation
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 Pay Transparency Directive) must be transposed into national law by 7 June 2026. That deadline applies not to companies, but to the Member States, because the provisions of an EU Directive generally require national implementing legislation before they can take effect.
What happens if, as now seems likely, the German legislature remains inactive, at least for the time being? What do employers need to bear in mind? This article provides a practical overview of this complex topic. The first step is to distinguish between private and public employers.
As a rule, Directives do not have direct effect between private parties – but there are exceptions
As a rule, EU Directives must be transposed into national law (i.e. into legislation) before they take effect in the individual Member States because, unlike Regulations, the provisions of a Directive do not have direct effect. Under Article 288 (3) TFEU, they are binding on the Member States only as to the result to be achieved. Accordingly, their provisions do not have direct effect vis-à-vis private parties, but only through the relevant national implementing legislation. This principle therefore applies primarily to private employers.
The position is different for public employers: from 7 June 2026 onwards, they will have to comply with the provisions of the Pay Transparency Directive even in the absence of German implementing legislation, whereas private employers will not.
Which employers qualify as public employers and will therefore have to comply with the Pay Transparency Directive from 7 June 2026?
According to the case law of the European Court of Justice (ECJ), public employers in this sense include, in addition to public authorities, all bodies which, irrespective of their legal form, are made responsible by an act of the State for providing a public-interest service under State supervision and are vested for that purpose with special powers going beyond those applicable in relations between private individuals (see ECJ, judgment of 12 July 1990 – C-188/89). In other words, the entity must be exercising powers attributable to the State. Companies that are predominantly State-owned and have been granted special State powers must therefore apply and comply with the provisions of the Pay Transparency Directive directly from 7 June 2026 onwards, even if Germany has not enacted implementing legislation by then.
Directive-consistent interpretation: will private employers also have to comply from 7 June 2026?
Although the points made above regarding public employers do not, in principle, apply to private employers, private employers may also be affected once the transposition period has expired because the provisions of the Directive must in any event be taken into account when national law is interpreted. National courts are required to interpret domestic law as far as possible considering the wording and purpose of EU Directives in order to ensure their full effectiveness. This obligation does not arise only once the transposition period has expired, but it becomes more significant if the national legislature has not (yet) transposed the Directive.
Interpretation in conformity with the Directive reaches its limits where it would lead to an interpretation contrary to national law or would impose standalone obligations on private parties (including private employers) without any basis in national law. The ECJ has underscored this by stating that provisions which, because of their binding nature, do not have direct effect on individuals cannot acquire such horizontal effect through the ‘back door’ of interpretation in conformity with the Directive (see ECJ, judgment of 26 September 1996 – C-168/95). Under no circumstances may interpretation in conformity with the Directive have an ‘exclusionary effect’ on national provisions; in other words, it must not render them wholly inoperative in the event of a ‘breach’ (see ECJ, judgment of 26 September 1996 – C-168/95).
In the context of equal pay for men and women, it is particularly important to note that Article 157 TFEU, as a provision of primary law, is binding and that national provisions that conflict with it have no legal effect.
It is therefore necessary to determine what will apply to private employers in Germany from 7 June 2026 onwards if the legislature remains inactive until then, or even beyond. In what respects do the provisions of the Pay Transparency Directive go beyond existing German legislation to such an extent that they may be applied through interpretation even without specific implementing legislation?
Interpretation of the German Transparency in Wage Structures Act in line with the Directive
The German Transparency in Wage Structures Act (EntgTranspG) has been in force in Germany since 2017. Its purpose was, and remains, to make the principle of equal pay enforceable in practice and to encourage employers to review their internal pay structures.
The Act contains provisions on, for example, pay structures (sections 3, 4 (4) and 7), reporting obligations (sections 21 and 22) and employees’ individual right to information (sections 10 to 16). Wherever there is room for interpretation, the Pay Transparency Directive must be taken into account even in the absence of implementing legislation.
In addition, there is a risk that provisions which cannot be interpreted in conformity with the Directive and which conflict with the general principle of equal pay under Article 157 TFEU may no longer be applied by national courts in accordance with ECJ case law (see ECJ, judgment of 22 November 2005 – C-144/04, para. 76 et seq. – Mangold).
What should employers – public and private alike – do now?
All of this means that employers already have specific obligations to act, even though implementing legislation has not yet entered into force.
1. Remuneration systems: now is the time to update them.
Remuneration systems are at the heart of pay transparency, as discrimination is often already evident in the criteria on which they are based.
Under section 4 (2) German Transparency in Wage Structures Act (EntgTranspG), applicable law bases the determination of essential requirements on the "totality of factors", with particular consideration being given to the type of work, training requirements and working conditions.
Article 4 (4) Pay Transparency Directive provides that, in determining the equivalence of work, at least the following four objective, gender-neutral criteria must be taken into account: skills, effort, responsibility and working conditions.
The concept of a "totality of factors" is not clearly defined. It must therefore be assumed that, even before implementing legislation is enacted, the four minimum criteria set out in the Pay Transparency Directive will, as a matter of course, must be taken into account for the purposes of interpretation in conformity with the Directive. The Directive’s express reference to these criteria indicates that precise requirements are to be transposed.
2. Reporting obligations: probably only once national implementing legislation is enacted.
Employers' reporting obligations regarding equal pay are currently set out in fairly general terms in the German Transparency in Wage Structures Act (EntgTranspG). Under section 21 of the German Transparency in Wage Structures Act (EntgTranspG), employers that generally have more than 500 employees are required to prepare a management report in accordance with sections 264 and 289 of the German Commercial Code (HGB). That report must set out the measures taken to promote equal pay. Under section 22 of the German Transparency in Wage Structures Act (EntgTranspG), reporting periods of five or three years apply.
The Pay Transparency Directive goes considerably further and imposes more stringent requirements. First, the reporting obligation applies to companies with as few as 100 employees (Article 9 Pay Transparency Directive). Second, general information on measures taken is not enough; rather, employers must disclose very specific key figures. In addition, the Directive introduces shorter intervals for the commencement and frequency of reporting.
In our view, there is little basis to assume that, in the absence of implementing legislation, the stricter reporting obligations of the Pay Transparency Directive will already apply to private employers through interpretation of the existing provisions. Interpretation in conformity with the Directive by national courts must not result in thresholds, deadlines and reporting requirements being enforced directly against private employers. Otherwise, this would exceed the permissible limits of interpretation and amount to an impermissible direct effect on third parties.
Such restraint in interpretation is particularly warranted in the context of reporting obligations, because only national transposition can designate the parameters and bodies necessary for compliance. At present, for example, no public authority has been designated for the purposes of the reporting obligations, nor is there a definitive definition of "employee representatives". The possibility of differing approaches, particularly in relation to the latter, is illustrated, among other things, by the Commission report "Low-bureaucracy implementation of the Pay Transparency Directive", which was commissioned by the German Federal Ministry for Family Affairs (see our article on the final report on the Pay Transparency Directive).
However, because implementing legislation could be introduced at short notice – and the Pay Transparency Directive does not provide for any transition periods – companies should nevertheless begin gathering the necessary data without delay so that they can comply with the reporting obligations at short notice. Companies should also use the remaining time to identify any pay gaps and, where possible, eliminate them.
Public employers, by contrast, must already assume that the reporting obligations will apply from 8 June 2026 onwards.
3. Right to information: application of the Pay Transparency Directive via Article 157 TFEU.
The current German Transparency in Wage Structures Act (EntgTranspG) already provides employees with rights to information. Accordingly, employees in companies that generally have more than 200 employees may already exercise this right every two years (section 12 (1) of the German Transparency in Wage Structures Act (EntgTranspG)). In addition, pursuant to section 11 (3) of the German Transparency in Wage Structures Act (EntgTranspG), the reference pay must be stated as the statistical median of employees of the opposite sex. However, this information need be provided only if at least six employees of the opposite sex are employed in the relevant comparison group (section 12 (3), second sentence, of the German Transparency in Wage Structures Act (EntgTranspG)).
Here, too, the Pay Transparency Directive provides for significantly broader rights. Under Article 7 of the Pay Transparency Directive, every employee, regardless of the size of the business, is entitled to information on their individual pay and the average pay of comparable groups of employees. In addition, the right to information applies regardless of the size of the comparison group. However, the limits imposed by data protection law must be respected, and the Pay Transparency Directive does not explain how this is to be done.
There is a risk that, by reference to the primary law of Article 157 TFEU, national courts will recognise the Pay Transparency Directive's far-reaching right to information even where neither the minimum company size is met nor a sufficient number of employees are employed in the comparison group.
As regards the number of comparable employees, a balance will then have to be struck between data protection requirements and compliance with the right to information. In cases of doubt, it is certainly advisable to withhold further information until a relevant court ruling has been issued to defend effectively against allegations of data protection breaches.
Impact on the existing allocation of the burden of proof
For equal pay claims under sections 3 and 7 of the German Transparency in Wage Structures Act (EntgTranspG), the burden of proof set out in section 22 of the German General Act on Equal Treatment (AGG) applies. However, Article 18 of the Pay Transparency Directive will also have to be taken into account by national courts. Under that provision, employers must show that there has been no pay discrimination as soon as there are sufficient indications of gender-based discrimination. The identification of just one better-paid comparator of the opposite sex is enough to trigger that presumption. The employer then bears the full burden of proving either that the presumption is rebutted or that the work performed by the two employees does not fall within the same comparison group (see German Federal Labour Court, judgment of 23 October 2025 – 8 AZR 300/24 on the so-called ‘pair comparison’).
No impact on limitation periods
The Pay Transparency Directive will have no impact on the limitation period for claims arising under the German Transparency in Wage Structures Act (EntgTranspG). While the German Transparency in Wage Structures Act (EntgTranspG) does not contain its own rules on limitation, the general limitation periods under sections 194 ff. of the German Civil Code (BGB) apply. Article 21 (1) of the Pay Transparency Directive now expressly provides for a limitation period of three years.
The Pay Transparency Directive may be partially applicable even before implementing legislation enters into force
Many of the Pay Transparency Directive’s stricter requirements may apply even before transposition into national law because, when interpreting undefined legal terms, the Directive’s specific provisions must already be taken into account. However, interpretation in conformity with the Directive must not result in the applicable statutory limits being exceeded. It is to be hoped that the safeguards against impermissibly pre-empting legislative implementation decisions will be maintained.
Regardless of these technicalities of EU law, companies are strongly advised to establish transparent, gender-neutral pay structures that comply with the requirements of the Pay Transparency Directive and to ensure that the necessary data is readily available. Existing systems and current remuneration should be reviewed, and any pay gaps should be eliminated.
