In a judgement of 16 February 2023 (case no. 8 AZR 450/21), the German Federal Labour Court [Bundesarbeitsgericht – BAG] awarded the difference in salary, plus lump sum compensation equal to 15% of the difference, to a female field sales agent whose salary had been approx. EUR 1,000.00 lower than that of her male co-worker also employed in field sales. By this ruling, it set aside the judgment of the District Labour Court [Landesarbeitsgericht – LAG] of Saxony, which had dismissed the complaint in its entirety. 

The BAG made its ruling by reference to a judgment of 2021, which had already found that: “If a court determines that the principle of equal pay is breached for male and female workers performing the same or equal work, it has to order […] that the remuneration withheld in breach of the principle of equality be paid subsequently.” According to the German Transparency in Wage Structures Act [Entgelttransparenzgesetz – EntgTranspG], which has been in force since 2017, the fact that one party receives lower pay than the other gives rise to the (rebuttable) presumption of discrimination. Therefore, the judgment of 16 February 2023 is not a landmark.

What is new, however, is that a person’s negotiating skills are not accepted as justification for better pay for equal work. A cap under collective bargaining arrangements is also not applicable if the difference in pay is unlawful, as it was in the case in question. In other words, what is decisive is the level of equality in pay in the individual case in question.

More details will become known only when the judgment grounds are published. However, already today some of the takeaways from this are clear:

• Men and women have a right to equal pay for equal or similar work.
• Employees (and the works council) may make differences in pay transparent in accordance with the EntgTranspG. Differences in pay can no longer be justified by “negotiating skills”. 
• In addition to lost wages, the court may award compensation. In the case in dispute, these damages were equal to 15% of the wage difference to be paid subsequently. Consequently, if the average gender pay gap is EUR 10,000.00 per year in a business employing a workforce of 100 made up of an equal number of male and female employees, provisions of EUR 600,000.00 must be formed per year of employment and plus interest.

There are many indications that suggest the judgment lacks justifying grounds and does not alter in principle the existing rules on the burden of proof, although this will only become clear once the statement of reasons for judgment is issued:

• The current rule is that if there is indeed a pay gap (which the female worker in the disadvantaged position has to prove), the employer has to demonstrate facts and adduce evidence to the full satisfaction of the court [Vollbeweis] which prove that the difference in pay is due only to reasons other than gender.
• Gender alone is and will no longer be a valid measure of differentiation to justify lower pay. There are even indications suggesting that longer experience in the profession, i.e. seniority, can no longer per se be used as justification for higher pay. 
• However, this makes it clear enough already what needs to be examined in practice today:
• The works council [Betriebsrat] (or works committee [Betriebsausschuss], if applicable) has rights to be provided with information under Sec. 13 EntgTranspG. The employer has to allow the works committee to inspect the lists of gross wages and salaries of its employees and must break those figures down appropriately. These lists must state all remuneration elements, broken down by gender, including bonuses in excess of the collective agreements and payments that have been individually negotiated and are paid on an individual basis.
• Workers have a right to be provided with information and, apparently, also to be informed about objective reasons for differentiation.
• If no such reasons can be stated – the Act mentions the nature of work, training requirements and working conditions by way of example –, an employer has to expect that it will have to pay the difference subsequently.
• This will make contractually agreed preclusion periods more important than ever. The difference in remuneration is not subject to any statutory preclusion periods, but (unlike what is true for the minimum wage) preclusion periods agreed by contract apply, just as limitation periods do.

Policymakers have taken the gloves off in battling gender inequality, not only at board level (e.g. by the “Stay on Board” initiative to allow board members to suspend their board mandate for extended periods of absence), but also in normal employer-employee relationships, and case law is putting this into practice by denying any legitimacy to outdated lines of argument (“he did a better job in negotiating”, “he is able to put up with tougher conditions”, etc.). This is another example of the increasing persuasiveness of political agenda and objectives in all aspects of life, including employment law, in this case with a view to achieving equal pay and ending the gender pay gap.

Businesses would be well advised to subject their remuneration schemes to critical scrutiny and come up with solutions, even if they do not exceed the threshold of 500 employees requiring internal company evaluation procedures as stipulated by the EntgTranspG.