Germany: Equal pay gains momentum - Female manager successfully fights for back pay

In October 2024, the Baden-Württemberg Regional Labour Court ruled that a female employee of a major German automobile manufacturer was entitled to back pay for a period of five years in the amount of the difference between the female median salary and the male median salary of the managers at her management level - i.e. around EUR 130,000.00 gross.

(LAG Baden-Württemberg from 01.10.2024 - 2 Sa 14/24)

Equal pay claims have received little attention in Germany to date. However, the Baden-Württemberg Regional Labour Court has now dealt with a claim for pay adjustment due to gender-based discrimination for the second time in a short space of time – and once again the decision was to the disadvantage of the employer. This could be a harbinger that companies in Germany will increasingly have to face equal pay claims in the future. Employers are therefore urged to review their pay structures and documentation status now.

Employee demand: Salary comparison with the highest male earner

The employee, a female manager at the third management level, demanded a gross back payment of approximately EUR 420,000.00 from her employer for the period from 2018 to 2022. She based this claim on a settlement of her individual remuneration with that of the highest-paid male manager at her management level. She cited the fact that her salary was below the median salary of both the male and female peer group as an indication of gender-related pay discrimination.

Regional Labour Court: Pay comparison only between the median pay of the female peer group and the male peer group

Although the Regional Labour Court rejected such an "upward adjustment", it awarded the employee back pay in the amount of the difference in median pay between the female and male peer group, rounded up to a total of EUR 130,000.00 gross.

In detail - Examination of a claim for equal pay:

Pursuant European and German law direct or indirect discrimination on the grounds of gender is prohibited with regard to all pay components and pay conditions for equal or equivalent work. 

The examination of gender-related pay discrimination in three steps: 

Formation of peer group

A peer group was formed consisting of female and male managers who performed similar tasks to the female employee.

Indication of gender-related pay disadvantage within the peer groups

In the present decision, the Regional Labour Court saw an indication of gender-related pay discrimination in the fact that the median pay of the male peer group was higher than the median pay of the female peer group.

It did not follow the employee's view that the difference between her individual salary and the male median salary and the salary of the best-paid man within the male peer group was already an indication of gender-related pay discrimination. According to the Court, individual salaries or top salaries within the comparison groups are not admissible reference values for the assumption of gender-related pay discrimination.

Justification of discrimination by the employer

As soon as there is an indication of gender-related pay discrimination, it is directly presumed that the pay discrimination is actually due to gender. This leads to a statutory reversal of the burden of proof: it is then up to the employer to rebut this presumption in order to defend against a claim for a pay adjustment/back payment. The employer can only do this if it can demonstrate and prove that the difference in pay is based on objective differentiation criteria that were weighted in a non-discriminatory manner.

The employer did not succeed in doing so in the present decision. The employer based the difference in median pay between the female and male peer group on the criteria of longer length of service and the quality of work of the male peer group. Although the court considered these criteria to be legitimate in principle, it criticised the fact that the employer had not sufficiently explained the weighting of the aforementioned criteria and their influence on the pay determination.

Conclusion: Transparency and justification count

The decision of the Baden-Württemberg Regional Labour Court makes it clear that employers can only justify differences in pay between female and male peer groups if they can transparently explain the differentiation criteria applied and their weighting. Lump sum statements – such as that the employees in one peer group have a longer period of employment or better work performance – are not sufficient. For example, in the present case, the employer could possibly have justified the pay difference if it had provided detailed information on the length of service of the male peer group and the weighting of this criterion in the pay structure. Furthermore, the employer should have provided sufficient objective evidence, such as target agreements or performance evaluations, to justify the criterion of the quality of the work. 

The decision of the Baden-Württemberg Regional Labour Court shows once again that companies in Germany must face equal pay claims already now and should prepare for them. They should not wait for the EU Pay Transparency Directive (2023/970) to be implemented into German law but take care now to document their pay structures and pay levels objectively and comprehensibly in order to avoid the risk of high back pay and/or pay adjustments for the future in the event of an equal pay claim. 

The Regional Labour Court has allowed both parties to appeal to the Federal Labour Court (Bundesarbeitsgericht) due to the fundamental importance of the case. It remains to be seen whether and how the Federal Labour Court will rule on the case.