Federal Labor Court Strengthens Equal Pay for Women and Men

If a woman's salary is lower than the salary of male colleagues in a comparable position and this is disclosed by the employer, it gives rise to the refutable presumption of discrimination on grounds of gender pursuant to Section 22 of the German General Equal Treatment Act (AGG).

"Equal pay for equal work"

A principle that may sound self-evident in 2021 - enshrined in both the EU Treaties (Article 57 (1) TFEU) and the Act to Promote Transparency in Pay Structures (EntgTranspG) since 6 July 2017 - is far from being reality in the corporate world. Countless statistics show that women in Germany still earn less than men - despite doing the same work, or work of equal value. The reason is obvious: The compatibility of family and career is far from being a matter of course in Germany. Many women still have to work to the edge of their capability to coordinate the two. Last but not least, women often tend to accept less salary with their eyes open. They don't fight for a salary increase - often because they fear that they won't be able to handle work and family life in another job. And let's be honest, which employer doesn't accept this - at least partly?

Now a woman has sued her employer for payment of the difference between her own salary and the salary of corresponding male comparators all the way to Federal Labor Court - and ultimately got justice. In its judgement of January 21, 2021 (Case No.: 8 AZR 488/19), the Federal Labor Court ruled that it regularly gives rise to the refutable presumption of discrimination in pay on the grounds of gender, in the case a woman claims for equal pay for the same work or work of equal value (Article 157 TFEU, Section 3 (1) and Section 7 EntgTranspG), and her salary is less than the salary of male comparison employees notified by the employer pursuant to Sections 10 et seq. EntgTranspG (median salary).

The Case

In August 2018, the plaintiff, who was employed by the defendant employer as a department head, received information pursuant to Sections 10 et seq. EntgTranspG. These showed, among other things, that the plaintiff received a lower base salary as well as a lower bonus in comparison to male department heads according to the “statistical median of full-time equivalents" pursuant to Section 11 (3) EntgTranspG.

In her action, the employee claimed from her employer - as far as this is of interest for the appeal proceedings - payment of the difference between her base salary as well as the allowance paid to her and the higher median payments notified to her in the period of August 2018 to January 2019.

The Decision

The regional Labor Court initially upheld the claim. At second instance, Regional Labor Court amended the judgment of the Labor Court and dismissed the action (LAG Lower Saxony, judgment of August 1, 2019 - 5 Sa 196/19). The appellate court stated that there was insufficient circumstantial evidence within the meaning of Section 22 AGG to justify the presumption that the plaintiff had experienced the pay disadvantage because of her gender.

However, the Federal Labor Court decided in its judgment of January 21, 2021 (Case No.: 8 AZR 488/19), that the plaintiff had experienced a direct disadvantage within the meaning of Section 3 (2) sentence 1 of the German Equal Treatment Act (EntgTranspG) compared to the male comparative persons notified to her by the defendant, because her remuneration was lower than the payments to the comparative male colleagues. For the Federal Labor Court, this circumstance justified the presumption - which can be refuted by the defendant – within the meaning of Section 22 AGG that the plaintiff experienced the pay disadvantage "because of gender". Since the Federal Labor Court was ultimately unable to determine whether the defendant had refuted this presumption in accordance with the requirements of Section 22 AGG, interpreted in conformity with Union law, and since the parties must be given the opportunity to submit further arguments, the case was ultimately referred back to the Regional Labor Court for a new hearing and decision.

Fair Salary Structures in Companies?

Employers are familiar with the principle of "equal pay for equal work or work of equal value". This has always been a demand of the trade unions. Many companies have also been laying the foundations for fair pay for women and men for years with appropriate remuneration systems. This is good - but as always, the devil is hidden in the details.

With the judgement of the Federal Labor Court of January 21, 2021, the requirements have now been raised high for employers. In any case, an employee has already had an individual right to information on the remuneration components of colleagues who perform the same or equivalent work (comparative work) since July 2017 in accordance with Section 10 EntgTranspG. In addition, the Federal Labor Court now assumes that in the case of lower salary for a woman in relation to male comparators doing the same or work of equal value, there is a refutable presumption of discrimination on grounds of gender within the meaning of Section 22 AGG. The decision of the Federal Labor Court is not objectionable, but a consistent implementation of applicable (EU) law.

Every employer may therefore critically ask himself or herself whether his or her salary structures actually meet these high requirements for the principle of "equal pay for equal work or work of equal value". Do all women really receive the same salary as their male colleagues for the same work or work of equal value? Could the employer, if necessary, refute the presumption in case a female employee in his company receives less salary for the same or equivalent work, this has nothing to do with discrimination on the grounds of gender? The decisive question at this point will often be: Can the employer answer all these questions in the affirmative for executives as well? The case in question involved a female department head who was successful in her claim for differential pay. Particularly in the case of managers, salary often diverges. The reasons for this are complex; ultimately, the remuneration of executives is often based on the negotiating skills of the individual. If women in particular fall by the wayside, this can be expensive for the employer in many cases.

Conclusion

It cannot be made clear enough to companies how advisable it is to establish fair salary structures right up to the management levels from the start and, if necessary, to adjust and possibly disclose them.