No compensation for loss of income over an indefinite period following discriminatory failed recruitment

Authors: Verena Braeckeler-Kogel, MAES (Basel) and Meike Christine Rehner

Entitlement to compensation for financial loss resulting from discriminatory failure to recruit a candidate may cease when the applicant has found suitable new employment and that employment relationship has become established

The Federal Labour Court has ruled that the right to compensation for financial loss arising from discrimination in the recruitment process does not continue indefinitely. If the applicant who has been discriminated against has found new employment appropriate to their qualifications and this employment has become established, the causal connection between the initial discrimination and the subsequent loss of earnings may no longer apply.

The General Equal Treatment Act (AGG) protects, among other things, job applicants from discrimination in the recruitment process on legally protected grounds. If an employer breaches the prohibition of discrimination, they are, in principle, obliged under Section 15 (1), first sentence, of the AGG to compensate for the resulting financial loss. This may include, in particular, loss of earnings if the applicant would have been recruited if the discrimination had not occurred and would have had a higher income as a result. The obligation to pay compensation is not inherently limited in terms of amount or duration. However, it still has to be established that the damage claimed is legally based on the discrimination.

The Federal Labour Court has clarified that the causal connection arising from the discriminatory refusal to recruit may decline over time if the person affected assumes a new, suitable position and continues to hold it on a permanent basis. The decisive factor is therefore whether the loss of earnings claimed can still be attributed to the discriminatory rejection of the job application or is meanwhile based on other circumstances. If the applicant has found new, appropriate employment and has settled into it, the connection between the original discrimination and subsequent loss of earnings may be severed. A compensation claim therefore does not necessarily continue until the hypothetical end of a person’s working life or until they reach retirement age.

Background

The trial was based on a claim of discriminatory refusal to recruit in 2009. The defendant had rejected the claimant’s application for a traineeship on the basis of his age. In prior proceedings, the Hessian Regional Labour Court had ruled that the defendant was obliged to compensate the claimant for all future financial losses that he would incur as a result of the failure to recruit him.

In his subsequent claim, the claimant demanded approximately 236,000 euros as compensation for lost earnings for the years 2020 to 2023. He argued that the defendant should continue to compensate him for the difference between the hypothetical earnings he would have received had he been recruited in 2009 and the income he actually earned. After the Labour Court and the Regional Labour Court dismissed the claim, the Federal Labour Court also dismissed the appeal.

Key Issues

The Federal Labour Court clarified that, whilst Section 15(1), first sentence, of the General Equal Treatment Act (AGG) is intended to ensure effective compensation for material damage actually incurred, liability remains subject to the general principles of damage law. This means that the decisive factor is not merely whether the original discrimination was unlawful, but also whether the loss of earnings subsequently claimed can still be attributed to that discrimination. Accordingly, once a liability to pay compensation has been established, this does not automatically give rise to a claim for compensation for hypothetical differences in income that continues indefinitely.

If the applicant subsequently enters into suitable new employment and that employment relationship becomes established, their subsequent career development and associated income may no longer be attributable to the original discrimination, but rather to the general risks of life. In the case at hand, as the claimant had been in suitable employment for several years, the causal connection between the failure to recruit him in 2009 and the claimed loss of earnings for the years 2020 to 2023 was disrupted in the view of the court. Consequently, the claimed loss of earnings for the years 2020 to 2023 was not compensable.

This decision gives employers important clarity: long-term claims for damages following a discriminatory rejection do not continue indefinitely once the applicant has re-established a permanent foothold in the workforce. The assessment, however, requires an individualised examination of the suitability and sustainability of the new position in each case.

Practical Point

• In the case of long-term claims for damages under Section 15 (1), first sentence, of the General Equal Treatment Act (AGG), employers should not only examine the original discrimination but also consider whether the claimed loss of earnings can still be attributed to it. In this context, employers can have information claims under the law that should be carefully examined and used comprehensively.
• If the applicant has since found suitable employment and this has become established, the causal connection with the discriminatory decision not to recruit may no longer apply. The specific circumstances of the further course of the career are decisive.
• Even an obligation to compensate for future financial loss that has already been established does not automatically imply that compensation for hypothetical differences in income is payable for an indefinite period. In case of settlement negotiations, employers should pay particular attention to comprehensive settlement clauses.