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06.03.2023 | KPMG Law Insights

Ruling on equal pay – the end of salary negotiations?

Ruling on equal pay – the end of salary negotiations?

If an employer pays a woman a lower salary than a comparable male colleague, he cannot claim that the man negotiated better. This was decided by the Federal Labor Court (Bundesarbeitsgericht – BAG) on February 16, 2023 (Ref.: 8 AZR 450/21).

A female sales employee had filed a lawsuit because she received a lower base salary than her two male colleagues despite doing the same work. In her lawsuit, she demanded payment of wages in the same amount as her colleague who was hired almost at the same time. The employer argued that the male colleague had negotiated better and had also succeeded a female employee with higher earnings.

The lower courts had dismissed the employee’s claim. The BAG, on the other hand, ordered the employer to pay a total of 14,000 euros in back pay and compensation of 2,000 euros.

Negotiating skills do not justify unequal treatment

The BAG ruled that the plaintiff had been discriminated against on the basis of her gender, as she received a lower basic salary than her male colleagues despite doing the same work.

Pursuant to Section 22 AGG, it is presumed that discrimination has occurred on the basis of gender. The employer would have had to disprove this. In the opinion of the BAG, however, he did not succeed in doing so. The argument that the male colleague had negotiated better was not sufficient for the BAG. Even the assertion that the colleague had succeeded a better-paid employee who had left the company could not rebut the presumption of discrimination.

 

Significantly less leeway remains for pay above the collective wage agreement

The ruling has far-reaching consequences for employers who do not apply fixed remuneration systems or pay salaries or allowances above the general pay scale. The scope for freely negotiated salaries is likely to become significantly smaller with the current decision. Even though the reasons for the ruling are not yet available, it can be assumed: If the employer pays employees of one gender higher salaries than those of the other gender for the same job, it will only be able to rebut the presumption of discrimination in a very limited number of cases.

 

How should employers act now?

With regard to threatened compensation due to discrimination, companies should analyze their salary structure for possible unequal treatment and document factual reasons for the identified salary discrepancies.

In order to avoid possible legal disputes in the future, it can be advantageous for employers if uniform and transparent compensation systems apply to all employees. The reasons for the court’s ruling may provide further approaches for the design of compensation systems, which should be taken into account by employers after publication. These remain to be seen.

 

 

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