German Federal Labor Court: Better negotiation skills no reason for lower pay

In its landmark ruling on the non-discriminatory payment of men and women of February 16, 2023, the BAG decided that it is a violation of the equal treatment principle (“equal pay for equal work”) if an employer justifies a female employee’s lower salary on the grounds that the male colleague with the same work tasks and responsibilities has demonstrated better skills in salary negotiations. In the future, employers will have to establish equal pay by ensuring that whenever they accept a salary demanded by a male employee, they must also pay a higher salary to an equally qualified and experienced female employee who has been assigned the same tasks.

In the specific case, the BAG awarded the plaintiff compensation in the amount of EUR 2,000 in addition to the lost wage difference.

Facts

The plaintiff employee was employed as sales representative in a metal-working company in Saxony and was, on the basis of her employment contract, entitled to an initial monthly salary of EUR 3,500 gross. Subsequently, her salary was based upon a company agreement which also provided for the introduction of a new pay group system. 

Due to a regulation also provided for by the company agreement, according to which salaries were to be increased to the new salary group only “gradually” (“capping regulation”), the plaintiff was not directly classified in the corresponding pay level. Rather, her employer increased her salary, in accordance with the new capping regulation, only by EUR 120 gross per month. (If the plaintiff had been classified directly, she would have earned EUR 4,140 gross per month.)

In addition to the plaintiff, the defendant also employed a male sales representative who joined the defendant’s company almost at the same time as the plaintiff and to whom the defendant had also offered a basic salary of EUR 3,500 gross/month when the contract was concluded. However, the employee had rejected such offer and had initially agreed with the employer temporarily on a monthly gross salary of EUR 4,500 and subsequently on EUR 4,000. When the company agreement came into force, the defendant paid the male employee a collectively agreed basic salary in the same pay group as the plaintiff, which was increased to EUR 4,120.00 gross/month after application of the “capping regulation”.

The plaintiff, who was represented in the legal dispute before the BAG by an association specializing in discrimination issues, which conducted the proceedings as a test case, considered this to be a violation of the equal treatment principle. Consequently, she demanded that her employer pay her the difference in remuneration – in relation to her male colleague – and appropriate compensation, as she had been discriminated against due to her gender.

After the lower courts dismissed the woman’s claims, the appeal before the 8th Senate of the Federal Labor Court was largely successful; the court remained significantly below the plaintiff’s request only with regard to the compensation payment.

How does the BAG justify its decision?

The plaintiff had been subject to gender discrimination because – although she and the male colleague performed the same work – she received a lower basic salary than the male colleague. The mere fact that the plaintiff received a lower basic salary than her male colleague for the same work already establishes the legal presumption that the discrimination was based on gender. The defendant also failed to rebut such presumption.

In particular, the employer cannot plead that the higher remuneration payment to the male colleague is based on the fact that the male colleague negotiated better (i.e., more favorable for him) during the salary negotiations. In addition, the plaintiff’s higher remuneration claim is based directly on the company’s collective bargaining agreement.

Such agreement’s capping regulation does not apply to the plaintiff’s remuneration claim as she previously received a salary which was not based upon a collective agreement but on an individual contract. In addition to the remuneration difference to be paid in arrears, the claim for compensation on the grounds of gender discrimination is justified.

Practical advice

It is already incomprehensible that the employer has allowed this legal dispute to continue all the way to the appellate court, so that there is now a “model decision” that will attract imitators. In the worst case, this will result in (unplanned) additional economic expenses for employers. It is also not immediately comprehensible why a treatment is deemed discriminatory if someone was initially content with the offered wage and only feels treated unfairly in retrospect because someone else successfully demanded and received a higher payment.

As a corresponding claim for (subsequent) remuneration would not have been granted if the lower-paid female employee had been a male employee, the question arises: Is the decision really suitable for ensuring legal peace in companies and promoting equal treatment? The BAG quite obviously subordinates the principle of personal responsibility to the protection against discrimination.

In order to prevent disputes from arising in practice, we recommend that employers explicitly state in the job advertisement that the salary is negotiable. The question of whether male and female applicants then achieve the same (good) negotiation results can then be left open.