In contrast to the political discussion, it was quiet around the topic of equal pay in labor law consulting for quite some time. 

Since the introduction of the German Remuneration Transparency Act in 2017, employees have had a statutory right to information from employers with more than 200 employees on how much employees of the opposite sex in comparable positions earn on average. However, the fulfillment of the right to information has so far not been associated with serious consequences for the employer, as employees, according to unanimous opinion, could not derive any financial claims from unequal pay disclosed in this way. 

In a recently published, however, the Federal Labor Court of Germany (BAG) has now significantly strengthened the position of employees (BAG ruling of January 21, 2021, ref: 8 AZR 488/19). 

Companies may now be threatened with high back payments and salary adjustments.

 

The ruling of the BAG

"If a woman's pay is lower than that of a group of male colleagues in a comparable position, there is a presumption that the discrimination occurred precisely because of her gender." 

This is the guiding principle of the new decision on the Remuneration Transparency Act, which has not yet been published in full – so far only a press release has been made available - but has already been the subject of much discussion.

In the case decided by the BAG, the female employee in question, who was employed as a department head, demanded information from her employer about how much her male colleagues in comparable positions earned. 

The employer then informed her that, according to the legally prescribed method of calculation, both the basic salary and the bonus of the plaintiff employee were lower than the salary of the male department heads in the company.

The employee then took legal action to retroactively recover the difference between her salary and the average salary of her male colleagues.

Referring to European law, the BAG ruled that the employer's notification that the employee's salary was below the average of the male department heads already created a rebuttable presumption that the employee had experienced the pay disadvantage because of her gender. The BAG therefore referred the legal dispute back to the lower court for further clarification.

Before, the State Labor Court (LAG) of Lower Saxony had dismissed the employee's claim. The lower court considered it problematic in particular that the law stipulates that the comparative salary of employees of the opposite sex is not calculated on the basis of the average value, but on the basis of the statistical median. However, according to the LAG, the median is not meaningful and the lawsuit failed for this reason. 

In fact, using the median salary to examine equal pay can lead to questionable results.

The difference in the calculation method is illustrated by the following example: Assuming that seven employees with comparable jobs each earned an average of EUR 1,600, 1,800, 2,000, 2,100, 2,700, 2,900 and 3,400 in the last calendar year, the median would be EUR 2,100 per month; the average, on the other hand, would be approximately EUR 2,357. In extreme cases, the median of female employees can even be higher than the median of male employees, although the female employees earn less on average.

However, the objections of the LAG were obviously not convincing to the BAG. Rather, the BAG was crucially concerned that the legislator itself considers the statistical median to be suitable for revealing pay inequalities. The fact that the German legislator has some leeway in the way it implements the requirements of European law on equal pay must not in fact mean that employees are unable to effectively enforce equal pay before the German courts at all. 

The ball is now back in the legislator's court, which should feel compelled by the decisions to find a solution that is fairer for all parties involved.

 

Consequences of the presumed unequal treatment 

The employer can only rebut the presumption of discrimination based on the below-average wage if he can present and, if necessary, prove facts showing that reasons other than gender were exclusively decisive for the level of remuneration. Such evidence can be very difficult to provide in individual cases. This is particularly the case since the BAG has not yet presented any criteria in its press release which could be used to refute the accusation of unequal pay.

The employer will probably be best able to demonstrate a non-discriminatory pay policy on the basis of a (point) scheme in which objective criteria are weighted differently and at the end of which there is a comprehensible formula for determining the salary. 

Comprehensible reasons for a different salary could be, for example: 

  • Length of service
  • Academic degree
  • Final grade and job references
  • Relevant work experience
  • Objective target achievement in the past
  • Additional qualifications (certificates, further training, etc.)
  • Demonstrable soft skills (e.g. based on an externally conducted assessment)

 

For companies with more than 500 employees, the Remuneration Transparency Act already provides for a mandatory company audit procedure with the involvement of the works council. In companies with fewer employees where there is a works council, on the other hand, it is particularly useful to establish remuneration principles as part of a company agreement.

 

Effects of the decision 

If the employer does not succeed in justifying the difference in salary on the basis of objective circumstances, employees could, if necessary, attempt to demand retroactive payment of the difference up to the statute of limitations (so-called "upward adjustment") and also demand that the employer equalizes salaries in the future. This is reason enough for employers to pay even more attention to the issue of equal pay following the BAG's decision.

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