BAG on pair comparison: How employers should deal with salary differences

The Federal Labor Court (BAG) has issued another landmark decision on equal pay. In its ruling of October 23, 2025 (Ref. 8 AZR 300/24), it affirmed the claim of a female department head to higher remuneration by way of a pair comparison. In doing so, the BAG has significantly lowered the hurdles for employees who suspect gender-based discrimination in terms of salary and claim its elimination or compensation.

Background to the BAG ruling of October 23, 2025 (8 AZR 300/24)

The plaintiff was a female department head who had been earning less than a male colleague in a comparable position for years. The plaintiff compared her salary directly with that of a single, better-paid colleague (pair comparison). She then claimed the difference in pay in court.

The lower court had rejected the comparison with an individual employee and demanded that the compensation be based on the median of male colleagues and denied a predominant probability of gender-based discrimination. The BAG, on the other hand, considered the presumption of discrimination based on gender to be given. Even a comparison with a single better-paid colleague of the opposite sex gives rise to the legal presumption of pay discrimination. The employer must then prove that the difference is factual and not gender-related.

The BAG referred the decision back to the Regional Labor Court (LAG). There, the employer now has the opportunity to rebut the presumption of discrimination.

The ruling raises a number of practical questions.

How can employees access the salary data of the peer group?

According to Section 10 of the Remuneration Transparency Act, employees can request information on the average salary of comparable employees of the opposite sex. There is no provision for information on the salary of individual employees. Of course, employees can find out about their colleagues’ salaries in other ways. Many employers want to avoid this and include confidentiality clauses in their employment contracts. However, this is already generally ineffective today and the implementation of the Pay Transparency Directive will further strengthen this right, as disclosure of pay will then be enshrined in law in accordance with the European Directive. Employers must therefore expect even more than before that information about individual salaries will spread among the workforce without the employer being able to prevent this.

Who belongs to the peer group

Section 4 (2) EntgTranspG stipulates which employees can be used for comparison. According to this, a job is considered equivalent if it is comparable to another job on the basis of objective criteria such as training requirements or working conditions. It is not only the job title and job description that are important here, but also the actual structure. It is generally advisable to form comparison groups at an early stage – not just when employees make claims.

What justifies higher remuneration – and what doesn’t?

It will be interesting to see whether the employer succeeds in rebutting the presumption of discrimination in the further proceedings before the Higher Labor Court by presenting and proving objective and factual reasons for the unequal treatment. But what counts as an objective reason – and what does not?

These reasons can justify salary differences for comparable jobs

Permissible reasons for salary differences can be

Performance and individual target achievement

Different bonuses or salary increases can be justified if they are based on objectively measurable performance indicators that are transparently documented and comprehensible. In practice, a simple performance appraisal may not be sufficient.

Example: Employee A has objectively and verifiably achieved 20 percent more sales in the last year than employee B in a comparable position, so that a higher variable remuneration can be justified here.

Professional experience and qualifications
Higher remuneration can be objectively justified if an employee has more relevant professional experience, additional qualifications or specialist knowledge that are relevant to the job. However, the differences must have an impact on the quality or quantity of the work performed. Greater seniority alone is not sufficient.

Example: A project manager with 15 years of experience regularly manages larger and more complex projects, also as overall project manager, while a project manager with five years of professional experience manages smaller projects or sub-projects.

Market and location factors
In certain cases, regional labor market conditions or different cost structures may justify a different remuneration. However, this requires systematic and comprehensible application and documentation within the company.

Example: All employees in Munich receive a bonus that compensates for the higher cost of living in this city.

Monetary benefits for employees with children or funding for further training as part of support programs would also be conceivable. However, it is always important that objective and gender-neutral criteria are established for such additional benefits.

These reasons do not justify unequal pay

In practice, there are many other reasons for unequal pay, but these cannot be used to rebut the presumption of discrimination.

Pure negotiating skills

Better negotiating skills do not justify unequal pay, as the BAG already ruled in 2023. Differences based on this alone are not permissible.

Example: Employee A negotiates a basic salary of 80,000 euros p.a.; his colleague has accepted a basic salary of 65,000 euros.

Personal circumstances

Differences due to marital status, maintenance obligations or private situation are not permitted, unless the additional benefits are objectively equal and gender-neutral.

Example: An employee receives a salary increase because his wife has become unemployed.

Historically grown inequalities without justification

The salary history alone does not justify a continuation of the differences.

Example: X-GmbH was taken over by the company Y-AG. Employees of X-GmbH continue to receive their originally higher salary, even though the workforce has now completely merged.

Employers should review their remuneration structure

Companies should review their remuneration structure. All remuneration components – i.e. basic salary, allowances, bonuses and special payments – must be non-discriminatory. Each salary component must be based on objective and gender-neutral criteria. It is not sufficient to compensate for any differences in basic salary with higher bonuses or other additional benefits.

A job evaluation is suitable for the review, in which the requirements, responsibilities and working conditions of a position are classified and legally assessed independently of the person in question. On this basis, transparent salary bands can be developed that serve as a guide for remuneration. If there are deviations from these salary bands, these must be objectively justified and carefully documented so that all remuneration decisions are comprehensible and legally compliant.

What to look out for in performance-related remuneration components

For target agreements, companies should use objective and standardized evaluation procedures to ensure legally compliant and non-discriminatory remuneration. To this end, the use of clearly defined KPIs and standardized evaluation forms that are binding for all employees and make the evaluation criteria transparent is recommended. In order to minimize subjective influences, several people should be involved in the evaluation. The results must be documented in a comprehensible manner and the procedures must be regularly checked to ensure they are non-discriminatory. This ensures that qualitative target agreements are incorporated into performance-related remuneration in a legally effective, fair and objective manner.

Consultants and AI can support the implementation of Equal Pay

Consultants and artificial intelligence (AI) can support the implementation of equal pay. External consultants provide expertise and support companies, for example, in conducting equal pay audits, developing non-discriminatory job architectures and training managers to make fair compensation decisions. Modern AI tools can analyze large amounts of salary data, uncover possible discrepancies and patterns of unconscious bias and thus indicate the need for action at an early stage. In addition, AI systems can help to generate fair and objectively justified salary proposals and document deviations transparently. They can also support communication with the works council as a neutral authority.

How employers should react to the BAG ruling on the pairing comparison

The BAG ruling shows how dangerous unequal pay has become. The admission of the pair settlement opens up further scope for lawsuits for higher pay, as it makes them even more attractive.

If an employer cannot rebut the presumption of gender-based discrimination, it must regularly pay the difference in pay for the future and regularly also retroactively for a period up to the limitation period for claims. Employers can also be ordered to pay compensation for non-material damages. Violations of the equal pay principle can also cause considerable reputational damage, which can have a lasting negative impact on an employer’s image and attractiveness in recruitment.

In the event of a dispute, employers will only be able to refute gender-based discrimination if they have documented all remuneration decisions completely and precisely. There are only a few recognized reasons why individual employees can be paid more than others. Objectivity must be ensured, particularly in the case of performance-related remuneration components.

With the implementation of the Pay Transparency Directive by June 2026 at the latest, companies need a transparent and gender-independent remuneration system into which all employees must be grouped.