There has been a lot of talk about the Pay Transparency Directive adopted by the Council of the European Union in 2023. The aim of the Directive is to reduce the gender pay gap and ensure equal pay for equal work. The requirements of the Directive must be transposed into the law of all Member States by 7 June 2026 at the latest, but Estonia decided to take a different path at the last minute.

Although discrimination against employees in terms of pay has been prohibited for a long time, the general rules in place so far have not been sufficient to eliminate unjustified pay differences between female and male employees. The Directive requires the Member States to implement additional measures to ensure that employees are better informed about pay and pay gaps and to encourage employers to design their pay systems more objectively.

Although the requirements of the Directive must be transposed into the law of all Member States by 7 June 2026 at the latest, and preparations for this have been ongoing for some time, the Government of the Republic of Estonia announced in April that it did not intend to transpose the Directive in full by this deadline, but was seeking a two-year postponement of its entry into force, and its amendment. As a reason, the Government has cited the need to avoid increasing the administrative burden on Estonian businesses.

However, not all the principles set out in the Directive will be abandoned. The Government has decided to incorporate some of the employer’s obligations set out in the Directive into the Employment Contracts Act, for which a corresponding draft bill has also been prepared:

  • before a job interview, a candidate must be informed of the wages or pay range for the position being offered;
  • candidates must not be asked about their previous wages;
  • employers must not prevent employees from discussing their wages (by referring to confidentiality, etc.).

At the same time, the Government has stated that it will not proceed with the transposition of those obligations arising from the Directive which require additional work from employers:

  • creating a detailed pay structure;
  • regular reporting for larger employers;
  • duties to give explanations relating to pay.

Despite the appeals from Estonia and some other Member States to postpone the entry into force of the Directive and to review it, the European Commission announced last week that it did not intend to simplify the Directive or change the deadlines, as it considered the Directive essential for ensuring equal pay for men and women. Those Member States that had hoped for a postponement of the entry into force of the Directive are now approaching the 7 June 2026 transposition deadline knowing that the European Commission requires the Directive to be implemented in accordance with the original schedule and may initiate infringement proceedings against the states (including Estonia) that have not taken the required steps.

The Pay Transparency Directive is not directly applicable, and the obligations set out in the Directive will only arise for employers once the relevant local regulations have been adopted in each Member State. From the employers’ perspective, the current situation means that compliance with the requirements of the Directive has been temporarily postponed, except for the few less onerous requirements mentioned above. It is not yet clear when employers will have to start implementing the requirements of the Directive in full, nor exactly how these will be transposed into Estonian law.