Differences in remuneration

European Court holds that difference in length of service can justify different pay

Equals should be paid equally. Any employer who does not adhere to this principle may be accused of breaching the requirement to be a good employer under Article 7:611 of the Dutch Civil Code. He also runs the risk of being guilty of illegal discrimination on grounds of gender, race or age. However, in practice courts tend to apply these rules less strictly than one might expect.

In its decision of 30 January 2004 (JAR 2004, 68), the Dutch Supreme Court emphasised that the question of whether a difference in pay is justifiable may only be determined on the basis of the requirement to be a good employer under Article 7:611 of the Civil Code where the factors of gender, length of service and term of the employment contract do not play a role. When identifying what the requirements for a good employer are in a particular situation, one must take into consideration the basic principle that equal work in equal circumstances must be remunerated equally.

Unacceptable

An exception to this principle may be made where there are objective grounds to justify unequal pay. The Supreme Court has held that courts should exercise caution in deciding that an agreed difference in pay should be regarded as contrary to the requirement to be a good employer and should therefore be corrected. Only where the inequality in pay is unacceptable according to standards of reasonableness and fairness should unequal pay be corrected.

Burden of proof

This approach does not apply where the issue under consideration is a difference in remuneration between a man and a woman. In that situation, the employer is bound by the Dutch Equal Treatment Act. Article 7:646, paragraph 1, of the Civil Code provides that: “Employers may not discriminate between men and women when entering into an employment agreement, nor when providing training for employees, determining the terms and conditions of employment, deciding on promotion or terminating an employment agreement”. This legislation was put in place largely due to the influence of European legislation and case law. However, applying this fundamental principle in practice is not always as straightforward as it might seem. The European Court of Justice has had to answer questions from national courts regarding its

application on several occasions. Many decisions have concerned the issue of who bears the burden of proving whether a difference in remuneration between a man and a woman is due to gender discrimination.

In 1989, the European Court held that pay scales must be transparent. If the criteria for awarding pay are unclear and it can be shown that on average female employees earn considerably less than male colleagues then the employer must prove that his salary scale is not discriminatory (ECJ 17 October 1989 (Danfoss), C-109/88, [1989] ECR 3199). On 3 October 2006, the European Court considered whether remuneration based on experience was justifiable and whether length of service was an appropriate means of determining experience. The European Court answered these questions in the affirmative. Even though it has been established that pay scales of this type disproportionately disadvantage women, employers are permitted to use this method.

Experience

This case before the European Court was brought by a female employee in the United Kingdom. She was employed as a health inspector and discovered that she was earning considerably less than male colleagues doing the same work. She believed that her employer was practising gender discrimination. The British courts referred questions on the interpretation of the European rules in this area to the European Court. The European Court held that in principle calculating years of experience can be a justifiable method of determining a difference in quality of work. However, if the employee was able to show that the difference in years of experience did not result in any difference in the quality of employees’ work, then the system could be discriminatory.

Summary

In short, employers do have a certain degree of freedom in establishing pay scales. Although the fundamental principle in the legislation is that equals must be paid equally, in practice courts exercise caution in applying this standard. However, stricter standards apply to some categories, for example where there are differences in pay between a man and a woman. In such cases, employers will be required to prove that the difference is caused by other objective factors that are legitimate. A difference in quality of work is regarded as a factor that justifies a difference in pay. A remuneration system that incorporates objective factors that approximate differences in quality of work is therefore in principle justifiable, according to the European Court. The burden of proving otherwise, for example proving that a difference in years of experience does not make any difference to the quality of work, lies with the employee.

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