Individually negotiated salaries are not an argument for gender pay gap

Summary of the case

The female plaintiff and employee was employed by a company active in the metalworking industry with about 180 workers. The employer offered her € 3,500 gross as basic salary during the negotiation of her employment contract. The employee, who was recruited as a sales representative, accepted the offer without demanding a higher gross salary.

However, a male colleague also employed as a sales representative, whose employment contract was concluded three months before the plaintiff’s contract, did so. He was also offered € 3,500 gross as basic salary, which he did not accept. Instead, he demanded a basic salary of € 4,500 gross, which was granted to him. The remaining conditions remained unchanged.

Hereinafter, both basic salaries were used as starting point for wage increases. As a matter of fact, the subsequent differences of € 1,000 gross or € 500 gross respectively – the male colleague’s gross salary was reduced by € 500 gross in favour of performance bonuses – between the plaintiff’s and her colleague’s monthly salary remained in place.

The employee considered this as an unequal treatment based on her gender. In her opinion, even though she also received performance bonuses, the difference in the basic salaries constituted pay discrimination. For this reason, she demanded additional compensation in the amount of the difference in gross salaries. This was rejected in both first instances. Now, however, the Federal Labour Court has ruled that there is a claim to the requested additional remuneration.

It was undisputed between the parties that both employees performed the same work of equal value with the same responsibilities and powers. From this and from the difference in the gross wages paid, the Federal Labour Court derived a prima facie case of gender-based pay discrimination pursuant to Section 7 Pay Transparency Act (“Entgelttransparenzgesetz”) which notion of equal payment for the same work applies to all employers regardless of the companies’ size. Therefore, the employer must prove that the unequal treatment of employees is justified by objective reasons, Section 22 General Equal Treatment Act (“Allgemeines Gleichbehandlungsgesetz”, AGG). But the hurdles for justification are high.

The employer argued that the differences had resulted from the individual contract negotiations, which had started with the same basic offer of a monthly basic salary of € 3,500 gross. Moreover, he claims, in order to recruit new employees, which had been urgently required due to other terminated employment relationships, he had felt compelled to meet the wage demand of the male sales employee. In addition, the male salesperson had taken the place of a better-paid female colleague. Finally, the employer argued that the male employee had negotiated better, which was not the employer’s responsibility and was guaranteed by party autonomy. The plaintiff argued that party autonomy was permissibly limited by the prohibitions of discrimination. Neither the succession of a better paid colleague nor the better negotiation could justify unequal treatment.

While the Dresden Labour Court and the Saxony Labour Court of Appeal emphasized the employee’s contractual autonomy and the principle of personal responsibility, the Federal Labour Court ruled in favour of the plaintiff. It stated that the high hurdles of justifying unequal treatment of employees with discriminatory characteristics cannot be overcome by referring to the different contractual negotiations.

Conclusion

Ultimately, the prohibition of discrimination is tightened by the Federal Labour Court to the effect that men and women are to be paid equally, without taking into account individual contractual negotiations, insofar as they perform the same work and work of equal value. This is also to apply if the employer made the same initial offer in the contract negotiations, but an employee was able to negotiate a higher salary. The factual consequence is that those (opposite-sex) employees who perform the same and equivalent work must also benefit from the better contract negotiations of a colleague. Those employees of the same sex, on the other hand, do not benefit. Whether this is conducive to peace within the company can be doubted.

Nevertheless, with this decision the BAG has put a strong exclamation mark on the principle of “equal pay for equal work”. However, differentiation remains possible if justified by objective criteria. These can be, among other things, the type of work, the training requirement, the qualification, the work efficiency or the extent of the responsibility to be borne.

If such a distinction between workers is not possible, the contractual conditions of workers performing the same or equivalent work must be observed in contract negotiations, i.e. if there is a gender difference; this is also likely to work in all directions.

It remains to be seen how the BAG justifies its decision in detail. However, it should already be clear that there is a need for action.

Feel free to ask our Practice Group Labour Law to review your employment contracts. We will be happy to advise you on questions of prohibitions of discrimination.