Equality reform (V): risk of indirect discrimination in bonus schemes

The judgment of the Spanish Court of Appeal of December 27, 2018 reminds us that the employer’s power to unilaterally establish a remuneration system is limited due to respect for work-life balance, and particularly, due to compliance with the principle of non-discrimination established in article 14 of the Constitution. It also proves the risk that bonus schemes can cause indirect discrimination between workers of a different gender. Following a legal challenge made by the trade union CGT, the court analyzed a case of indirect discrimination caused by an incentive scheme unilaterally established by the companies Teyame and Datono.

The court partially annulled the bonus scheme because it imposed requirements that were detrimental to pregnant employees, new mothers, breastfeeding employees and those undertaking adoption or fostering.

Apart from the interest of the case at hand, this judgment is interesting because in addition to exemplifying the risk that the bonus system may cause indirect discrimination, it has an impact on what is a highly topical issue in the area of pay and benefits: the gender pay gap.

This issue plays a key role socially and politically worldwide, and in the legal sphere in Spain. In Spain, Royal Decree Law 6/2019 of March 1 recently came into force; it introduces urgent measures to guarantee equality of treatment and opportunities between men and women in employment and occupation, in an attempt to bridge the gender pay gap.

Of the changes brought in by the royal decree law, we highlight the obligations to (i) establish a registry of disaggregated salary information by gender and professional classification, and (ii) justify the gender pay gap in companies with over 50 employees when it reaches 25%.

Here is the connection with the judgment by the Court of Appeals of December 2018, because a justification of the gender pay gap may be the effect of a bonus system when the requirements for accrual have not been met, providing the requirements were not related to the gender of employees.

The reality is that it is difficult to find instances where someone is paid less merely due to their gender, but it is not so difficult to find bonus systems that could cause indirect discrimination, because of including salary add-ons and bonuses that reward availability and presence, making it harder for people exercising their right to work-life balance due to circumstances such as pregnancy, labor, birth and childcare to meet the targets to receive the salary items.

The court’s judgment concludes that the establishment of remuneration plans unilaterally by the company is one of the business management and organization powers recognized in article 37 of the Constitution and in article 20 of the Spanish Workers Statute. However, these powers are restricted due to respect for workers’ fundamental rights and due to observance of the law.

In the case analyzed, the Court of Appeals ruled as follows regarding each of the items of Teyame’s and Datono’s bonus system that the trade union challenged:

• First, regarding the challenge of the requirements to be present in the company for at least one calendar month in the corresponding period, and to be an active company employee on the date on which the incentive is paid out, the court partially annulled those requirements for cases in which the person is not an active employee due to pregnancy, childbirth, breastfeeding, adoption or fostering, to guarantee work-life balance and thus guarantee effective equality between men and women.
• Another challenge was on the requirement for entitlement to the bonus accrued during the period of reference that a certain percentage of absenteeism due to illness, non-occupational accident or occupational accident could not be exceeded, when prevention measures have not been observed. However, the court considered this requirement lawful.
• It also found the proportional reduction in the bonus according to the number of days worked in the month of payment in the cases of maternity and high-risk pregnancy to be lawful, because it is a reflection of the suspension of the employment contract.
• Finally, the court annulled the requirement of not having been given a written warning in the two months before the month in which the bonus is paid out, because this is a clear sanction on salary (“multa de haber”) banned by article 58.3 of the Spanish Workers Statute.

Based on the judgment, case law and Royal Decree Law 6/2019, it is clear that company remuneration policies must be evaluated to avoid indirect discrimination.