Germany: New Case Law Increases Risks for Employers Regarding Equal Pay Claims Due to Gender Discrimination

If an employee’s remuneration is lower than that of a colleague of the other gender who performs the same or equivalent work, this circumstance regularly gives rise to the presumption that this deviation is based on gender. If the employer cannot refute the presumption arising from such a comparison, they are obliged to pay the remuneration that they paid to the colleague used for comparison.

The German Act to promote Transparency in Wage Structures among Women and Men (Entgelttransparenzgesetz – EntgTranspG) came into force in Germany in 2017 and represented an important step towards achieving the principle of equal pay. However, as the law does not provide for any clear sanctions in the event of violations and the resulting claims are rarely used in practice, the law has not been particularly effective to date. The importance of the issue is emphasized, for example, by decisions of the Federal Labour Court and, in particular, the EU Pay Transparency Directive (2023/970/EU, EUPTD), which must be transposed into national law by June 7, 2026.

 

Background

The Federal Labour Court recently dealt with a case in which a female employee sought retroactive financial equality with certain male colleagues with regard to several components of her remuneration. To justify her claims, she relied, among other things, on information provided by the employer in a dashboard, which is used on the company intranet to provide information within the meaning of the German Transparency in Wage Structures Act. The income of the colleagues used by the plaintiff for comparison purposes was above the median pay of all male employees at the same hierarchical level.

The employer argued that the colleagues used for comparison did not perform the same or equivalent work as the plaintiff. In addition, the difference in remuneration was due to the plaintiff’s poor performance. For this reason, the plaintiff was also paid below the median remuneration of the female comparison group.

 

Key Issues

The Federal Labour Court ruled that, contrary to the assumption of the lower courts, there is no need for a high probability of gender-based discrimination in an equal pay lawsuit. Such a requirement would be incompatible with the provisions of primary EU law. For the presumption of gender-based pay discrimination – which must be refuted by the employer – it is sufficient for the plaintiff to demonstrate and, in the event of a dispute, prove that her employer pays a higher salary to another colleague who performs the same or equivalent work.

The size of the male comparison group and the median pay of both gender groups are irrelevant for the presumption to apply. With reference to the information in the dashboard, the court found that the plaintiff had presented sufficient facts to assume gender-based pay discrimination. The legal dispute was referred back to the regional labour court, where the final outcome will depend on whether the employer can refute the presumption of gender-based pay discrimination by presenting objective reasons for the different treatment of the female employee compared to the male colleagues she referred to.

Practical Points

• The ruling emphasizes the importance of the equal pay principle and gives employees the opportunity to name individual colleagues of the other gender as comparators and thus claim discrimination.
• Employers should therefore take action, especially in view of the EU Pay Transparency Directive, which is soon to be transposed into national law. The following steps are therefore recommended:
  1. Existing remuneration structures should be carefully reviewed and evaluated.
  2. If it is determined that the existing system does not meet the requirements of the EU Pay Transparency Directive, a new, transparent remuneration system should be developed.
  3. The new, non-discriminatory remuneration system should then be implemented for both existing and newly hired staff.
  4. Objective reasons for deviations between genders when making pay-related decisions should be documented for the purpose of refuting the presumption of gender-based pay discrimination in case of dispute.