Equal pay for men and women: negotiating skills are not an objective differentiation criterion

Judgment of the Federal Labour Court of 16 February 2023 in Case No. 8 AZR 450/21<

The Federal Labour Court held that – regardless of the skill with which they negotiated their salary – women and men should earn the same salary when they perform the same or equal work.

Facts of the case

A female employee had been working as a member of the company sales team since 1 March 2017. When she started working for the company, her gross basic salary was EUR 3,500.00. Two male employees worked on the same team. One of the male employees commenced work for the company on 1 January 2017, almost the same time as the female employee. The employer initially offered this male employee a gross basic salary of EUR 3,500.00, which he refused. After negotiations, the employer increased the gross salary offer to the male employee to EUR 4,500.00. According to the employer, this difference was justified because the male employee was employed to replace a better-paid female sales representative, who had left the company.

The employee claimed payment of salary in arrears amounting to the difference between her salary and the salary paid to her male colleague for the period from March 2017 to July 2019. The employee argued that she should earn the same basic salary as her male colleague as both performed the same work. In addition, the employee demanded the payment of appropriate compensation of at least EUR 6,000.000 for the discrimination suffered due to her gender with respect to her salary. Both the Labour Court and the Regional Labour Court dismissed her claim.

The judgment

The employee succeeded in her appeal to the Federal Labour Court (Bundesarbeitsgericht, BAG). The BAG affirmed that the employee had been discriminated against due to her gender because the employee had been paid a lower basic salary than her male colleagues, although they performed the same work. Therefore, in the view of the BAG, the employee had a claim to the same basic salary as her male colleagues under Article 157 of the Treaty on the Functioning of the European Union (TFEU), §§ 3(1) and 7 of the Transparency in Wage Structures Act (EntgTranspG). The fact that the employee was paid a lower basic salary for the same work substantiated the assumption that the discrimination was due to gender. The BAG further held that the employer’s claims, that the male employees were better negotiators or replaced a better-paid saleswoman who had left the company, could not rebut this assumption. With respect to the payment of compensation for discrimination based on gender, the BAG awarded the employee EUR 2,000.00.

Consequences for practice

The judgment of the BAG targets the elimination of wage disparities due to gender. The BAG has now decided the question of whether better negotiating skills are an individual characteristic of each employee or whether differentiating based on these skills instead forms the basis for discrimination due to gender. In the Court’s view, negotiating skills alone are not an appropriate objective criterion to justify a difference in pay between women and men. In this way, the equal treatment laws limit private autonomy when concluding employment agreements. These laws aim to close the existing pay gaps between women and men. According to the BAG, it would be contradictory if employees could agree on higher pay for workers of one gender compared to workers of another gender for the same or equal work, without clear additional objective criteria for the difference.

Practical tip

Employers should be prepared for other employees to follow this example and bring claims of discrimination due to gender with respect to salary negotiations. Employers are therefore advised to avoid claims for wage disparities due to gender by not basing wage differences on the better negotiating skills of a worker in the future. Salary differences are still permitted, providing any such differences are based on objective, gender-neutral criteria. Where a remuneration system has not yet been established, we recommend that employers establish a system with objective criteria to determine salaries. Such criteria can, for example, include qualifications obtained, international experience, language proficiencies (if the company would benefit from these languages) or the number of years that the employee has worked for the company. In any case, good negotiating skills do not belong on this list.

Nora Nauta