The principle of equal pay for equal work has been a keystone in German as well as European law for many years, and it is no secret that the reality in Germany, in particular with regards to the pay gap between men and women, is very different.

The Federal Statistical Office (Statistisches Bundesamt) has been tracking the difference in pay between women and men in Germany since 2006. For 2023, they report that the average gross hourly earnings of women (EUR 20.84) were EUR 4.46 lower than those of men (EUR 25.30), resulting in an average of 18% less earnings per hour (which is the so called “unadjusted gender pay gap”). The so called “adjusted pay gap” takes into account that women work more often than men in sectors, occupations and at job levels where pay is lower or often has more part-time roles. According to the adjusted pay gap, female employees earned on average 6% less per hour than men in 2022, even with comparable jobs, qualifications and employment histories. Over the entire observation period from 2006 to 2022, women earned significantly less per hour worked on average than men. Over the past 16 years, the gender pay gap has narrowed down from 23% in 2006 to 18% in 2022 (unadjusted).

By international standards, the gender pay gap is very high in Germany and is significantly higher than the European average. In order to address that issue, the legislature has attempted to strengthen actual enforcement of the equal pay principle with the introduction of the German Pay Transparency Act (Entgeltransparenzgesetz, EntgTranspG) in 2017. Pursuant to Section 7 EntgTranspG, remuneration for the same work or work of equal value may not be agreed or paid at a lower rate than for an employee of the other gender on the grounds of the employee’s gender. However, according to Section 3 (3) EntgTranspG criteria related to the labour market, performance and work results may still justify a difference in pay, provided the principle of proportionality is observed. As there was no settled case law on those criteria though, a clear-cut distinction was still very difficult for companies.

In practice, it was commonly accepted that due to the principles of private autonomy and freedom of contract, difference in pay could be justified through individual contract negotiations. This commonly accepted approach to justify a difference in salary between a man and women by referring to the better negotiation skills of one employee was eliminated by a recent decision of the German Federal Labor Court (BAG) from last year. The BAG determined that an employer cannot rebut the assumption of gender discrimination indicated by a difference in pay between man and woman (as stipulated in Section 22 Equal Treatment Act, Allgemeines Gleichbehandlungsgesetz, AGG) with the fact that one employee (in this case the male colleague) had negotiated a higher pay (BAG, 8 AZR 450/21). Consequently, the BAG decided that the female employee was entitled retrospectively to a higher base salary, as well as compensation under Section 15 (2) AGG due to gender discrimination.

Employers can still justify a difference in salary between male and female employees based on criteria related to the labour market, performance and work results. For example, the BAG did previously confirm that length of service can be such a criteria (BAG, 8 AZR 488/19). However, the “easy way out” of referring to individual negotiations will no longer suffice.

It remains to be seen whether the feared wave of lawsuits will actually materialize. In any case, whilst individual salary negotiations will not generally come to an end, employers will need to reassess how and by what criteria salary adjustments and negotiations will be conducted in the future. In order to safeguard against potential equal pay claims, any difference in pay should be justifiable and well documented in advance by objective reasons. For more information or questions on how equal pay between women and man may impact your business and Human Resources, please contact your experienced attorneys at Reed Smith.