(No) Direct application of the EUPTD in domestic law in the event of failure to transpose it within the prescribed period

1. The principle: No direct horizontal effect of EU directives in national law, particularly not vis-à-vis non-state legal entities

EU directives are, pursuant to Article 288 (3) of the Treaty on the Functioning of the European Union (TFEU), binding on EU Member States as regards the objectives to be achieved, but leave the choice of form and means to the national authorities. Unlike EU regulations, they do not apply directly ‘in the Member States’, but rather ‘to the Member States’ as the addressees of the rules. Consequently, non-state entities – and here, in particular, legal persons under private law – are affected by the consequences of an EU directive that has not been properly transposed, at most indirectly, through the interpretation of the relevant domestic law in accordance with the directive. The lack of direct (= horizontal) effect of directives has been consistently confirmed by the European Court of Justice (ECJ) in its established case law since the Paola Faccini Dori judgment (ECJ C-91/92).

2. The exception: Direct vertical application in individual cases to organisations or bodies subject to the state or its supervision and endowed with special rights for this purpose

In individual cases, a corresponding exception may apply if (1) the deadline for transposing the directive has expired without the Member State having implemented it fully and correctly, and (2) a specific provision of the directive is formulated in terms that are unconditional and sufficiently precise. In such cases, the ECJ has, since its Marshall judgment (Case 152/84), recognised the direct effect of the relevant provisions of the Directive on employment relationships with organisations or bodies subject to the State or its supervision and endowed with special rights in this regard, which go beyond those arising from the provisions applicable to relationships between private individuals. This includes local authorities or bodies which, irrespective of their legal form, have been entrusted by an act of state with the provision of a service in the public interest and under the supervision of the state.

Direct vertical application of the EUPTD after the expiry of the transposition period may be considered for these legal entities in respect of those provisions of the EUPTD which are absolutely and sufficiently defined in their respective content and therefore do not require any additional – legislative – clarification by the (domestic) legislature.

Such definiteness of content can be affirmed, inter alia, for:

• the assessment of the same or equivalent work in accordance with the (core) assessment parameters of competence, workload, responsibility and working conditions set out in Article 4 (4) EUPTD, and the admissibility of further suitable distinguishing criteria as stated in recital 26 of the preamble,
• the applicant’s right to information on pay in accordance with Article 5 (1) EUPTD regarding the starting salary (Article 5 (1)(a) EUPTD) and – in the case of employment relationships governed by collective agreements – regarding the relevant provisions of the collective agreement and, consequently, in particular the applicable pay scale under the collective agreement;
• the annual employee’s right to information on pay in accordance with Article 7 EUPTD, including information on the average pay of employees performing the same or equivalent work, whereby pay comprises all monetary and non-monetary remuneration components (Article 3 (1)(a) EUPTD) and the employer must provide the employee with the relevant pay data in a format that is accessible to persons with disabilities and takes account of their specific needs;
• the joint remuneration assessment with employee representatives (= works council/staff council) in accordance with Article 10 EUPTD, insofar as the underlying obligations are sufficiently specified and do not require further national implementation.

3. Indirect application of the EUPTD to non-state legal entities through a directive-compliant interpretation of the EntgTranspG I?

A possible indirect application of the relevant provisions of the EUPTD through a directive-compliant interpretation of the relevant existing provisions in the EntgTranspG I is currently being discussed in practice.

The requirement for an interpretation in conformity with the Directive is based on the duty to transpose the Directive correctly, as set out in Article 288 (3) TFEU, which applies not only to the legislature but also to the courts of the Member States. Interpretation in conformity with the Directive serves to choose between several possible interpretative outcomes. It takes precedence over the classical canon of interpretation (which consists of the grammatical, historical, systematic and teleological interpretation of the relevant legal provision) as a preferred rule and, to this end, includes a two-stage approach to the interpretation of the relevant national legal provision: at the first stage, the legal practitioner must examine whether the relevant national provision offers several reasonable possibilities of interpretation. If this is the case, the second stage involves examining whether, and which of the various possible interpretations, are consistent with the relevant requirements of the EU Directive concerning the specific subject matter of the regulation. In this respect, the limits of an interpretation in conformity with the Directive are set by the wording and the fundamental legislative intent of the national provision. If the wording and, in particular, the underlying legislative intent do not permit the relevant interpretation of the provision in accordance with the EU Directive, there is no scope for an interpretation that complies with the Directive. If such an interpretation is possible for one of the possible outcomes, this interpretation that complies with the Directive must (mandatorily) be given priority.

4. Possible EUPTD-compliant interpretation of the relevant provisions of the EntgTranspG I and the associated regulatory matters

In applying these principles of interpretation, employers must, from 7 June 2026 onwards, take into account the EUPTD-compliant interpretation of the following provisions in the continued application of the EntgTranspG I:

• Assessment of the same or equivalent work performed by comparable employees pursuant to Section 4 (1) and (2) EntgTranspG I, based on the expanded catalogue set out in Article 4 (4) third sentence EUPTD regarding skills, workload, responsibility and working conditions, as well as any further factors relevant to the specific workplace or position. This recommended interpretation in accordance with the Directive arises from the substantive structure of Section 4 (1) and (2) EntgTranspG I as a catalogue of rules and examples, the wording of which already permits such an extension of the assessment criteria.
• Specification of the employer’s burden of proof regarding the gender-neutral structure of remuneration in accordance with Section 22 of the German Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz, AGG, based on the substantive requirements of Article 18 EUPTD.

5. No possible application of individual EUPTD provisions through a directive-compliant interpretation of the EntgTranspG I

By contrast, the following EUPTD provisions are not applicable through a directive-compliant interpretation of the EntgTranspG I prior to their transposition into domestic law:

• Extension of the group of persons entitled to information on pay pursuant to Section 10(1) sentence 1 EntgTranspG I to include job applicants in accordance with Article 5 (1) EUPTD. Section 10 (1) sentence 1 of the EntgTranspG I defines only employees as persons entitled to information, and the group of persons defined as employees in Section 5 (2) of the EntgTranspG I does not, according to its wording, permit any extension to job applicants.
• Extension of the remuneration components subject to disclosure, which are limited in Section 10 (1) sentence 3 EntgTranspG I to the average monthly gross remuneration and up to two further remuneration components, to all remuneration components in accordance with Article 3 (1)(a) EUPTD. The wording of Section 10 (1) sentence 3 EntgTranspG I does not permit such an extension of the scope of information to all remuneration components.
• Joint remuneration assessment with employee representatives (= works council/staff council for public-sector employers who cannot be classified as state employers in accordance with point 2) in accordance with the provisions of Article 10 EUPTD. Under the current provisions of the German Works Constitution Act (Betriebsverfassungsgesetz, BetrVG), the works council does indeed have a right of inspection of the gross salary lists and the co-determination rights under Section 87 (1) no. 10 and 11 BetrVG regarding company wage structures; however, these works constitution regulations do not include the list of matters for discussion set out in Article 10 (2) EUPTD. Nor do the staff representation regulations applicable to individual non-state public-law employers contain any provisions that, in substance, grant the staff council a right to discuss the list of matters set out in Article 10 (2) EUPTD.

6. Conclusion and Outlook

Following 7 June 2026, should the German legislature fail to transpose the EUPTD into the EntgTranspG I within the prescribed timeframe, the EUPTD will not be directly applicable to the remuneration systems of the vast majority of employers. At the same time, there is no question that the substantive provisions of the EUPTD will be transposed into German law in a binding manner in the foreseeable future. It is therefore not advisable to ‘sit back and wait’ until a concrete draft bill is presented.

The legal situation outlined in this Client Alert indicates that employers – unless they have already done so – must develop or update a framework for objective, gender-neutral remuneration criteria for the relevant fixed and variable remuneration components of the individual employee groups by the second quarter of 2026 at the latest. Timely implementation is also advisable because the subsequent statutory implementation is expected to provide only limited transition periods and, as experience shows, existing remuneration systems require a considerable amount of work to adapt.

In particular, the framework must include a suitable, uniform assessment logic for the recording and evaluation of equal or equivalent work, specifically for the fixed remuneration of employees not covered by collective agreements – and to this end, individual employers may appropriately base their approach on a suitable points, grade or level system. As with all other aspects of remuneration practice, the following applies: the framework relating to the (fixed) remuneration of individual employee groups must be designed taking into account the employer’s specific operational, HR policy and remuneration-related circumstances, and, in particular, there should be no ‘copy-paste’ approach based on supposedly identical market examples when designing the specific structure of the remuneration framework.

In any case, employers must closely monitor the domestic legislative process for the implementation of the EUPTD and, following the publication of the first draft bill, continue to press ahead with internal planning and the relevant steps for implementation.