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Equal pay for equal work in the case of a business transfer

Issues

Fighting discrimination and enforcing the principle of equal treatment has a great importance in employment relationships. Fighting the gender pay gap is an important facet of this problem, but not the only one.

Dániel Gera, Attorney at Law, Schönherr Hetényi Attorneys at Law and Dorottya Gindl, Associate, Schönherr Hetényi Attorneys at Law

Hungarian labor and anti-discrimination laws provide a solid legal basis for guaranteeing equal treatment in employment relationships. Still some situations, such as a business transfer (succession of employer), may present new challenges. We examine some of these on the basis of legal regulations and court practice.

Concept of a business transfer (succession of employer)

The concept of business transfer aims to protect employees’ rights in the case of a succession of employer. In such a case, employees are transferred to a new employer automatically and the law aims to ensure that they do not suffer any disadvantages as a result. The law prescribes that the new employer must honor the terms and conditions of transferred workers’ existing employment.

This can create two groups of employees at a given company: (i) “own” employees and (ii) transferred employees. The question is whether differences in the compensation structure of the two groups can result in the violation of the equal treatment principle.

Principle of equal pay for equal work

Equal pay for equal work is an important principle in employment law. The Labor Code sets out some factors to help establish the equal nature of work. These are: the nature and quality of the work, working conditions, required training and experience, responsibilities and labor market conditions.

Generally, differences in employees’ compensation based on the above objective grounds, do not give rise to equal pay claims.

The Hungarian Supreme Court stated that equal pay claims must be adjudged in the framework of equal treatment disputes. This means that the violation of the equal pay principle cannot be established without the employee rendering the indication of any protected attribute (e.g. sex, age, race) and suffered disadvantage probable. In other words, if the employee cannot name any protected attribute, it is unlikely that he or she would be awarded compensation.

Equalizing benefits

As noted above, a business transfer may result in an inequality between the compensation packages of employee groups. This may especially be problematic if the two groups include workers performing similar work. The question is whether employers must, and if so to what extent, harmonize or equalize the compensation of various employee groups.

Although the difference may arise by simply applying the laws so employers could defend against discrimination claims, they may still vary them. Though it is unlikely that without any other factual ground for discrimination (e.g. sex, age, etc.) courts would award such claims, the equal pay for equal work principle requires employers to take actions to harmonize benefits.

In what timeframe would benefits need to be harmonized? Can an employer use the business transfer as ‘an excuse’ for not providing equal benefits to certain employee groups?

Though, as stated above, an employee may not place a valid claim if the difference in benefits is a result of a business transfer, if the employee also has a protected attribute, defending against such claims may become more difficult for employers as time passes.
This is the direction in which the jurisprudence of other countries and the European Court of Justice is moving: a U.K. court pointed out that a business transfer cannot be used as defense against equal pay claims years after the transfer, especially if the employer reviewed compensation structures in between.

The ECJ pointed out that the directive on business transfer does not aim solely to safeguard the interests of employees in the event of a business but seeks to ensure a fair balance between the interests of “own” and “transferred” employees within an organization.

Comment

Employers enjoy freedom in establishing compensation systems, which is respected by courts. It is also clear that a business transfer cannot be a basis for a discrimination claim and the employer can use it as defense as an objective reason for differences. On the longer term, however it is still advisable to bring compensation packages in harmony (i) to comply with general principles, (ii) to avoid legal risks of discrimination, and (iii) to avoid wage tension within the organization.

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