Germany: The Pay Transparency Directive and the issue of "horizontal third-party effect"

The EU Pay Transparency Directive (Directive (EU) 2023/970) requires companies to make their salary structures more transparent with the aim of reducing inequalities between women and men. This includes, among other things, salary information in job advertisements, information rights for employees and regular reports on the so-called gender pay gap. Member States must transpose these requirements into national law by 7 June 2026. Companies should prepare early because they will face significantly stricter information and reporting requirements and will need a clearly defined remuneration system that will be scrutinised by employees, works councils and courts. 

This briefing focuses in particular on the question of what obligations companies have even without the timely transposition of the directive into German law and what you should therefore already be doing now. 

What happens if Germany does not transpose the directive on time?

It is to be expected that the German legislature will not implement the Pay Transparency Directive on time or, if it does, that it will do so inadequately. As things stand today (2 February 2026), there is not even a draft bill from the responsible ministry. Does this mean that the provisions of the directive will not apply? Not quite. This is where a legal concept comes into play that often sounds complicated but can be easily explained: horizontal third-party effect. Behind this term lies the question: can employees directly invoke an EU directive against their private employer?

The short answer is: normally no. EU directives must first be "translated" into national law. Until then, they do not automatically apply to relationships between two private parties – e.g. between employees and companies. This is a fundamental principle of EU law. However, the case law of the European Court of Justice (ECJ), the German courts and the Federal Labour Court (BAG) is more nuanced.

Can the directive have a direct impact despite not being implemented?

Other EU rules do apply directly between private individuals, in particular Article 157 of the Treaty on the Functioning of the EU (TFEU), which establishes the principle of "equal pay for equal work or work of equal value", the prohibition of discrimination in Article 21 of the Charter of Fundamental Rights (CFR) and the requirement of equality in Article 23 CFR. These principles have always applied between private individuals, including employees and companies. 

The courts can interpret national regulations, such as the existing Pay Transparency Act and its rights to information, in accordance with the requirements of the Directive. This is referred to as "interpretation in conformity with the Directive" and may mean, for example, that information must be provided in a more comprehensive manner than under the current law or that transparency obligations must be interpreted more strictly. 

The extent to which this can go is demonstrated by the decision of the Federal Labour Court (BAG) of 23 October 2025, according to which, due to the influence of EU law, a pay comparison with a single person of the opposite sex is already sufficient to indicate gender discrimination. 

The Bochum Regional Court went even further in its decision of 12 December 2025: due to the influence of Article 157 TFEU, a "third-party managing director" became an "employee" within the meaning of the German Remuneration Transparency Act. She was thus able to achieve an upward salary adjustment because the pay difference between her and the male managing director could not be objectively explained, even with his significantly higher sales and employee responsibility. In this respect, the decision follows the tendency of the labour courts not to accept practical differences in responsibility, activity or negotiating skills as a (gender-neutral) justification for unequal treatment. 

Even under the current legal situation, an upward "adjustment spiral" is to be expected, as other female colleagues could follow suit and – if successful – the remaining male colleagues would then ask themselves why they earn less than their female colleagues. 

With the expiry of the implementation period for the Pay Transparency Directive, the legal situation will become more stringent, regardless of whether it is implemented or not. "EU conformity" allows the courts to interpret even stricter European legal requirements and standards.

Specific consequences for remuneration systems and pay decisions

Even if the German legislature fails to implement the Pay Transparency Directive on time or inadequately, employees can therefore have their remuneration checked after the implementation deadline to see whether it violates EU law and, if necessary, assert their right to information.

After the implementation period, the standard used to interpret existing laws and consequently measure remuneration systems would be new. The Pay Transparency Directive precisely defines the requirements that an "objective and gender-neutral remuneration system" must meet (e.g. clear evaluation criteria, comparability of equivalent work, comprehensible criteria for remuneration development).

Employees would not be able to invoke individual directive standards in isolation, but they would be able to argue that a pay difference violates EU law because the company does not meet the requirements specified in the directive. This is particularly relevant in practice when it comes to requests for information on comparative pay, the question of which comparison groups to use, and the burden of proof. If employers cannot explain pay differences in a transparent and structured manner, this constitutes discrimination under EU law.

The directive, which has not been (properly) implemented, would thus not serve as an independent basis for claims, but as a precise benchmark for already applicable law. This effectively obliges companies to design remuneration systems as if the directive had been implemented on time – at least in cases where courts interpret EU law or directly apply fundamental EU rights. Courts can therefore enforce elements of the directive in the event of delayed or improper implementation in Germany, without the directive itself being "directly" applicable.

What companies should do now

Even though implementation is not due until 7 June 2026, the requirements of the directive are detailed, extensive and certain to come. Companies should therefore already

• review salary structures: Are the criteria objective, comprehensible and gender-neutral?
• strengthen documentation: Record decisions on classifications, bonuses and salary developments in a comprehensible manner
• improve data quality: clearly record employee groups, job profiles and remuneration components
• adapt recruitment processes: make salary ranges transparent and stop asking questions about previous salaries
• calculate the gender pay gap and identify risks – especially if it exceeds 5%

Incidentally, this not only makes legal sense, but can also improve employer branding and ensure fairer remuneration systems.

Conclusion

The Pay Transparency Directive sets new standards and, even without national implementation, will influence court practice. Companies should not view this period as a "waiting loop", but as an opportunity to make their remuneration systems future-proof. After all, clarity on salaries will not only be mandatory from 7 June 2026, but also an important competitive factor. Those who act now and have their remuneration system reviewed and, if necessary, adjusted will avoid costly attacks later on and thus the upward "adjustment spiral".