German Federal Labor Court: Employers Can No Longer Use Better Negotiating Skills as an Argument for Unfair Pay

In the past, the argument was often made that a female employee may not be entitled to a differential compensation claim due to lower pay compared to a male colleague if the higher salary of the male colleague who performs the same or equivalent work for the same employer resulted from his better negotiating skills in the context of salary negotiations. The point was made that employers have an interest in recruiting employees and this justifies salary differences in individual cases. According to the lower courts, employee recruitment was an objective criterion for differentiation. This view was clearly rejected by the German Federal Labor Court in its decision of February 16, 2023 (file number 8 AZR 450/21).

In principle, a female employee is entitled to the same salary for the same work or work of equal value if the employer pays a higher salary to male colleagues on the basis of gender. If a female employee receives a lower salary than a male colleague for the same work or work of equal value, this justifies the (rebuttable) presumption under Section 22 of the General Equal Treatment Act (AGG) that the discrimination is based on gender.

The current decision of the Federal Labor Court was based on the complaint of a sales representative. The case concerned, among other things, the fact that her basic salary agreed in her individual contract was EUR 3,500.00 gross per month. At about the same time as the female employee, a male sales representative was also hired. The employer also offered him a monthly gross salary of EUR 3,500.00 when he was hired. However, the male colleague refused a salary in this amount and negotiated. He demanded a basic salary of EUR 4,500.00 gross per month from the employer – at least until the introduction of a performance-related compensation component. The employer ultimately gave in to this demand in order to be able to fill the position.

Since both the Plaintiff and her male colleague performed the same job but earned different salary amounts, it was presumed that the unequal treatment was due to gender. In principle, such a presumption can be rebutted on the basis of objective criteria. However, in the view of the Federal Labor Court, the employer did not succeed in this case. The Federal Labor Cours did not consider better negotiating skills to be a suitable criterion to justify unequal treatment on the grounds of gender. The employer’s argument that the higher-paid male colleague had replaced a female employee who had left the company and who had also earned more due to management duties was also not valid in the view of the Federal Labor Court.

The employee therefore received the differential remuneration sued for on the basis of Art. 157 TFEU (Treaty on the Functioning of the European Union), §§ 3 (1), 7 EntgTranspG (German Remuneration Transparency Act) and a compensation payment pursuant to § 15 (2) AGG (General Equal Treatment Act) due to the discrimination that occurred.

The current decision of the Federal Labor Court considerably restricts the objective, gender-neutral criteria that can justify different pay for the same or equivalent work. Negotiating skills are now ruled out as a justification for a higher salary in any case. However, differences in qualifications or professional experience continue to be recognized as objective criteria for differentiation.