Publication

The Directive of the European Parliament and of the Council on transparency of remuneration (2023/970)[1] (hereinafter, the “Directive”), adopted on 10 May 2023, provides for significant changes in the application of the principle of equal pay throughout the European Union. Member States must transpose the requirements of the Directive into national law by 7 June 2026. Although the draft law implementing the requirements of the Directive is currently under development, it is important for employers to start preparing for its implementation.

Objective and scope of the Directive

The aim of the Directive is to eliminate pay differences between men and women, promote pay transparency and ensure fair and transparent pay-setting mechanisms. Although the principle of equal pay is not new in Latvia (as the Labour Law (Darba likums) already provides for the obligation of equal pay to men and women),[2] it is expected the implementation of the Directive’s requirements will help to strengthen and clarify the legal framework for this obligation, providing employees with a “checklist” to assist with verifying whether pay is indeed equal.

The Directive applies to employers in the private and public sectors, covering both employment relationships and service relationships, as well as persons who perform work for a certain period of time for remuneration on behalf of and under the direction of another person.[3] As emphasised in the Directive, the existence of an employment relationship must be determined upon the basis of the actual working conditions, rather than how the parties describe (formalise) the relationship[4] .

Remuneration is defined in the Directive as the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in kind, which the worker receives directly or indirectly, in respect of his employment, from his employer (supplementary or variable components).

Remuneration structure and availability of information

The Directive is based upon two key provisions: (i) the employer’s obligation to ensure a pay structure is based upon objective and gender-neutral criteria; and (ii) the employee’s right to information.

Specifically, employers will have to develop a pay structure that ensures equal pay for equal work or work of equal value. The pay structure must be such that it is possible to assess whether employees are in a comparable situation in terms of the value of their work, based upon objective and gender-neutral criteria agreed with employee representatives (if any, for example, trade unions). These criteria must not be based directly or indirectly on the gender of the employees. The main criteria should include skills, effort, responsibility and working conditions, and other factors that are relevant to the specific profession or position.

Job comparisons can also be carried out between several employers, for example, within a group of companies, where there is a single source that determines the terms of remuneration.[5] In addition, when assessing whether employees are in a comparable situation, the employer may have to compare not only current but also former employees.[6]

Employers will also have to provide employees with information on pay issues and the pay system within the workplace, as well as to inform employees annually of their right to receive such information. The Directive underlines that employees have the right to request and receive in writing information on their individual pay levels and average pay levels broken down by gender for categories of employees who perform the same work as them or work of equal value to them.

Employers will have to provide information to the competent authority and take active measures if the pay gap exceeds 5%. The obligation to start and regularly report on pay differences varies depending on the number of employees. According to the publicly expressed opinion of the Ministry of Welfare (Labklājības ministrija) (implementing the measures for transposing the Directive), Latvia plans to only adopt the minimum requirements of the Directive. Therefore employers with fewer than 100 employees will not be required to provide the data specified in the first paragraph of Article 9 of the Directive.[7]

Given the draft law implementing the requirements of the Directive is still being drafted, it is not yet known which institution shall be ultimately responsible for providing the relevant information, nor how this will be carried out in practice.

Transparency of remuneration

During the recruitment process, employers will be required to provide applicants with information about the salary or salary range for the position, but they will not be allowed to ask questions about the applicant’s previous or current salary. Employers must also ensure job advertisements and titles are gender-neutral, as well as ensuring recruitment processes are non-discriminatory.

The Directive provides that employees shall not be prevented from disclosing their remuneration for the purpose of enforcing the principle of equal pay and further requires Member States to introduce measures to prohibit contractual provisions that restrict an employee’s ability to disclose information about their pay. This provision could give rise to conflicts in cases whereby an employer has included an employee’s remuneration in a list of confidential information and/or trade secrets. The requirements of the Directive could mean that such a restriction is no longer applicable insofar as it restricts the employee’s right to disclose their remuneration for the purpose of implementing the principle of equal pay.

Compensation and legal costs

The Directive requires Member States to ensure any worker who has suffered damage as a result of a breach of the principle of equal pay is entitled to claim and receive full compensation or damages, as determined by the Member State, including compensation for lost opportunities (e.g., access to certain benefits depending on the level of pay).[8]

A similar but less comprehensive legislation already exists in the second part of Article 60 of the Labour Law, which provides that if an employer has violated the provisions of the first part of this article (equal pay for men and women for the same work or work of equal value), the employee has the right to claim the remuneration that the employer normally pays for the same work or work of equal value.

With regard to legal costs, the Directive requires Member States to ensure in cases whereby a judgment in proceedings relating to a claim of discrimination in the field of pay is favourable to the defendant, national courts may, in accordance with national law, assess whether the claimant who has lost the case had reasonable grounds for bringing the claim and, if so, whether it would be appropriate not to require the claimant to bear the costs of the proceedings.

To date, however, it is unclear what the scope of ‘costs of proceedings’ under the Directive actually is and how it will be transposed into national law. Under the current rules, claimants in claims for recovery of pay and other employee claims arising from or related to employment legal relationships are exempt from paying court fees (state fees and expenses related to the examination of the case).[9] Costs related to the conduct of the case (legal assistance, related to attendance at court hearings, collection of evidence, etc.) shall be awarded against the claimant in favour of the defendant if the claim is dismissed.[10]

In accordance with the principles of fairness and proportionality and after assessing the objective circumstances of the case, the court may determine a lower amount of reimbursable expenses for legal assistance.[11]

The current legislation: (i) only applies to the reduction of reimbursable lawyer’s expenses; (ii) does not directly provide for complete exemption from them; and (iii) may not appear to cover the grounds for exemption from legal costs set out in the Directive.

In light of the above, the legislator will likely have to amend the existing legislation, including, but not limited to, the Labour Law, in order to adequately implement the provisions of the Directive.

Conclusion

Although there are still a number of questions that will only be answered after the Directive has been transposed into national law, it is clear employers subject to the applicable rules can already start preparing for the requirements of the Directive.  This includes reviewing the existing remuneration structure and considering possible criteria for determining the value of work (positions). At the same time, the Ministry of Welfare is also preparing guidelines for employers on the establishment of a transparent remuneration system in companies and institutions, based upon the requirements of the Directive and good practices in other countries.[12]

Should you have any questions or clarifications concerning the Directive, or require practical assistance with any aspect of Employment laws, please reach out to a member of VILGERTS’ Employment team.

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[1] Please refer to Directive (EU) 2023/970 of the European Parliament and of the Council (10 May 2023) on strengthening the application of the principle of equal pay for men and women for equal work or work of equal value through a pay transparency and enforcement mechanism. Available at: https://eur-lex.europa.eu/legal-content/LV/TXT/?uri=CELEX:32023L0970

[2] Please refer to Section 60(1) of the Labour Law.

[3] Please see: https://www.lm.gov.lv/lv/direktiva-par-darba-samaksas-parredzamibu

[4] Please refer to Recital 18 of the Directive.

[5] Please refer to Article 19(1) of the Directive.

[6] Please refer to Article 19(2) of the Directive.

[7] Please see: https://www.lm.gov.lv/lv/direktiva-par-darba-samaksas-parredzamibu

[8] Please refer to Recital 50 of the Directive.

[9] Please refer to Article 43(1) of the Civil Procedure Law.

[10] Please refer to Article 44(3) of the Civil Procedure Law.

[11] Please refer to Article 44(5) of the Civil Procedure Law.

[12] https://www.lm.gov.lv/lv/direktiva-par-darba-samaksas-parredzamibu