Equal pay: reversal of the burden of proof in the event of suspected unequal treatment

(LAG Baden-Württemberg, 19 June 2024 - 4 Sa 26/23)

Partial success regarding basic salary and dividend equivalent

The parties are in dispute about the amount of remuneration, which was lower for the female employee than for the male peer group. The lawsuit has so far only been successful with regard to two remuneration components (basic salary and dividend equivalent). No decision has yet been taken with regard to the claim for equal pay with regard to the company bonus.

Entitlement to dividend equivalent based on the principle of equal treatment

The court is of the view that the dividend equivalents in dispute are part of the remuneration to which the principle of equal treatment under labour law applies despite the freedom of contract. This requires that the employer grants remuneration (components) according to a specific, recognisable and generalising principle. This was the case here. In this respect, individual employees may only be excluded from this remuneration component if there are objective reasons for doing so. In this respect, the principle of equal treatment under labour law is the "steering wheel and corrective of incentive-motivated remuneration control".

According to the court, the principle of equal treatment under labour law prohibits not only the arbitrary discrimination of employees within a group, but also the formation of groups that are not relevant. In the present case, the employer itself determined a company peer group with which the employee also compared herself. However, the employer was unable to explain the reasons for the different distribution of dividend equivalents in relation to the female employee and the male peer group, meaning that the court found a breach of the principle of equal treatment. The plaintiff was therefore to be treated in the same way as comparable employees in the company's peer group with regard to the allocation of dividend equivalents.

Entitlement to basic salary pursuant to Art. 157 TFEU, Section 3 (1) and Section 7 (1) of the German Act on Equal Pay (EntgTranspG)

According to the court, the employee's entitlement to equal pay for equal work and work of equal value is based on Art. 157 TFEU and Section 3 (1) and Section 7 (1) EntgTranspG.

The European provision of Art. 157 (1) TFEU establishes the principle of equal pay for men and women for equal work or work of equal value. Sections 3 (1) and 7 (1) EntgTranspG prohibits gender-based discrimination with regard to all pay components and pay conditions for equal work or work of equal value. When work is "equal" or "equivalent" within the meaning of Art. 157 TFEU it is determined by the courts according to national law - in Germany currently according to Section 4 EntgTranspG. In accordance with the highest court case law, the court found that the reversal of the burden of proof under Section 22 of the German Equal Treatment Act (AGG) also applies in legal disputes regarding equal pay for equal work and work of equal value in accordance with Section 3 (1) and Section 7 (1) of the EntgTranspG. Accordingly, employers bear the burden of proof that there has been no violation of the principle of equal treatment in the event of suspected discrimination, in this case on the grounds of gender.

According to the case law of the European Court of Justice and the Federal Labour Court, gender-neutral differentiations, such as professional experience, seniority or quality of work, are permissible. The employer argued that the male colleagues had been employed by her for slightly longer on average and that the plaintiff had "performed" below average. The court ruled that the employer had not explained how the criteria "professional experience", "length of service" and "quality of work" had been assessed and weighted in detail. As a result, effective monitoring and review by the court was not possible and the presumption of discrimination was not refuted.

Outlook: Pay Transparency Directive

The EU's Pay Transparency Directive (EntgTranspRL) came into force on 6 June 2023. The legislators of the member states now have until 7 June 2026 to transpose it into national law. The aim of the directive is to strengthen the right of employees to equal pay and to reduce the adjusted gender pay gap through transparent remuneration and compensation regulations.

Art. 18 of the EntgTransRL shifts the burden of proof to the employer in the event of credible evidence of discrimination. With the transposition of the EntgTransRL into national law, the corresponding application of Section 22 AGG to Section 3 (1) and Section 7 (1) EntgTranspG conducted by the court will therefore no longer be necessary. Furthermore, the Directive stipulates that this reversal of the burden of proof also applies in the event of a previous breach of transparency obligations. With of the EntgTransRL, assessment criteria for remuneration systems are also to be defined and employees' rights to information extended. Furthermore, independent bases for claims for damages and compensation in the event of gender-based discrimination are to be created. Finally, the implementation of Art. 23 of the EntgTransRL even introduces sanctions in the form of fines, which have not yet been included in the EntgTranspG.

Conclusion

The decision shows the high burden of presentation and proof required of employers in cases of suspected gender-based unequal treatment. The hurdles for such a presumption are not high. It is therefore essential that employers make their assessment criteria for remuneration (components) transparent and comprehensible in order to withstand judicial review. Employers must ensure that their remuneration structures are designed and applied in a gender-neutral and transparent manner down to the last detail. Otherwise, they expose themselves to claims for damages and compensation. In addition, there are possible sanctions following the implementation of the Transparency Directive. In order to avoid these consequences, it is advisable to create transparent pay structures at an early stage – and not just after the directive has been implemented.