In recent years, there has been an upward global trend in the implementation of new legal measures aimed at addressing pay transparency. This trend continues to gather pace as more and more jurisdictions turn their focus to tackling this issue. 

2023 saw an important step forward in implementation of new regulation at European level. In April 2023, the European Council gave the final approval to a new directive seeking to strengthen the principle of equal pay through pay transparency, and it was subsequently signed into law.  This set the clock ticking, with the start of a three year countdown to the deadline date of 7 June 2026 for Member States to introduce domestic laws to give effect to the directive’s requirements.

A period of legislative activity therefore lies ahead and some jurisdictions including Sweden, Luxembourg, the Czech Republic and Estonia have already begun early initial discussions on how the directive will be implemented locally. Germany appears to be leading the way, however, and is expected to publish its draft bill during the course of 2024. What is clear is that, by no later than summer 2026, we can expect to see a wealth of new governance in this area in Europe.

What impact does the directive have for the life sciences sector?

The directive applies to all employers, with only pay reporting obligations being subject to employee thresholds.  Businesses in the life sciences sector therefore need to be alive to the key obligations coming down the line, in particular when, traditionally, participation of female talent in STEM-related industries has been low, including at leadership level. 

In 2022, the overall gender pay gap in the EU was 13%, but the gap for Professional, Scientific and Technical activities ranged from -1.5% (Romania) to 29% (Cyprus), with 19 Member States having a gap of over 15%, including 10 with a gap of over 20%[1].  In the UK, the Office for National Statistics reported a 10% gender pay gap for Science, Research, Engineering and Technology professionals in 2023[2].

Against the backdrop of these statistics, the directive requires Member States to legislate, as a minimum, for:

• Job applicants to have the right to receive information about initial pay, or its range, with a ban on employers asking job applicants about their pay history with existing or previous employers.
• Employers to make easily accessible to their existing workers the criteria that are used to determine workers’ pay, pay levels and (for employers with 50 or more employees) pay progression.
• Workers to have the right to request, and receive in writing within two months, information on their own pay, plus the average pay levels, broken down by sex, for categories of workers performing the same work as them, or work of equal value; an annual reminder of this right must be provided and workers also have the right to request clarifications.
• Measures to prohibit contractual terms that restrict workers from disclosing information about their pay.
• Employers with 100 or more employees to provide information on their gender pay gap, including the proportion of female and male workers receiving complementary or variable components of pay. The timeframe for compliance, and frequency of reporting, depends on employer size.
• Joint pay assessments to be conducted where published gender pay gap information demonstrates an objectively unjustified difference in the average pay level between female and male workers of at least 5%, and the employer has not remedied this difference within six months of its pay report.
• For workers who have sustained damages to be able to obtain full, real and effective compensation or reparation. Compensation must include full recovery of back pay and related bonuses or payments in kind, compensation for lost opportunities, non-material damage, any damage caused by other relevant factors, as well as interest on arrears. Compensation must not be capped.

The requirements of the directive have the potential to have wide-ranging ramifications for employers. For those based in EU jurisdictions, such as France, Germany, Italy and Spain, which already have extensive provisions requiring employers to be transparent about gender pay differences, a watching brief will need to be maintained to see how these countries adapt, or supplement, existing regulations to align with the EU directive. In Finland, the government has specifically announced that it will be promoting pay transparency in accordance with the minimum requirements of the directive. Generally, it appears inevitable that familiar existing obligations may well be extended, or even upturned, requiring employers to get to grips with a host of new requirements.

Other jurisdictions, including the Netherlands, Romania, Luxembourg and Hungary, will have to introduce laws addressing gender pay gaps for the first time. Whilst having a blank canvas to work with, these Member States still have an onerous task in determining how to give effect to the directive domestically. 

The UK is not required (post-Brexit) to implement the new directive but, although once arguably ahead of the curve in terms of tackling gaps in gender pay, may now be seen as slipping behind European progress in this area. Multi-national operations will have to consider how best to align their gender pay strategy in the UK with other European jurisdictions. This may well result in businesses deciding to put in place processes which actually exceed the minimum standards they are legally obliged to implement in the UK.

What steps do employers in the life sciences sector need to take?

As we move forward, we can expect to see a flurry of activity as Member States start to publish more information and draft legislation on how the directive will be implemented locally. However, the basic requirements of the directive are already clear and employers should not underestimate the potential timescale for understanding and implementing the new obligations.  Early steps to ensure compliance will be critical.

Key steps to take in preparation include:

• Setting aside management time to address the new pay transparency obligations and carving out the business' strategy.
• Auditing the workforce to determine which categories of employees carry out the same work, or work of equal value, such that they are likely to be comparators for pay purposes.
• Reviewing contracts of employment, in particular with regard to pay secrecy clauses.
• Reviewing existing recruitment procedures and talent acquisition and retention policies.
• Training recruiting staff, in particular with regard to the description of job roles and the provision of pay information in job advertisements; training of all staff involved in performance review and/or pay processes.
• Refreshing HR processes to ensure the timely provision of pay information, the annual reminder and responses to requests for clarification.
• Engaging in discussion and consultation with trade union and other worker representatives.
• Identifying which jurisdictions operated in will fall within the ambit of gender pay gap reporting; setting the strategy for data collection and report drafting; training relevant staff.
• Identifying potential gender pay gaps; identifying objective criteria which may explain those gaps; assessing the need for, and scope of, any remedial steps required, plus potential budget implications.

With so much to think about, please don't hesitate to reach out to our international Employment Group to discuss the impacts of the directive on your business and how we can help.

[1]Gender pay gap statistics - Statistics Explained (europa.eu)

[2]Gender pay gap in the UK - Office for National Statistics (ons.gov.uk)