Equal Pay and the Pay Transparency Act
The “Equal Pay” principle aims to eliminate direct or indirect wage discrimination based on gender: men and women performing equal or comparable work should be paid equally at all levels within companies.
Without a valid reason for unequal treatment in compensation, disadvantaged individuals are entitled to compensation for underpaid wages. This is already a liability risk for employers due to the EU Pay Transparency Directive, as highlighted by a case from Baden-Württemberg.
Manager Files a Wage Discrimination Lawsuit
A part-time manager at the third leadership level felt discriminated against in terms of her pay compared to a specific male colleague at the same leadership level and compared to the average pay of male colleagues in general.
Her salary was:
- Below the average salary of the female comparison group,
- Significantly lower than the average salary of the male comparison group, and
- Far below the salary of the highest-paid male colleague at the same leadership level worldwide.
As a result, she demanded a higher fixed salary and proportionally higher variable pay components from her employer.
Mainly, she demanded the difference between her (total) compensation and the pay of the highest-paid male colleague at the same leadership level. Alternatively, she sought the difference between the median salaries of male and female employees comparable to her.
Manager Partially Wins the Case
The LAG Baden-Württemberg did not grant a claim for retroactive payment based on the pay difference compared to the highest-paid male colleague, as the manager could not prove gender-based wage discrimination in this regard.
However, based on the difference between the average male and female salaries at the third leadership level, the court did recognize a right to retroactive payment for her.
Burden of Proof in Wage Discrimination Cases
A key issue in the decision was the burden of proof in such wage discrimination cases.
Simply because a male colleague earns significantly more is not considered evidence of gender-based wage discrimination.
However, a substantial indication of discrimination arises from the difference in the median salaries of the male and female comparison groups. The fact that the median salary of men is significantly higher than that of the comparable woman is, according to the court, sufficient to assume gender-based discrimination.
Employers must now prove that there is no violation of the equal pay principle if they want to avoid extensive retroactive payment claims. Differentiations in pay must be justified by objective, gender-neutral factors. In line with European Court of Justice case law, only “neutral” differences based on factors such as professional experience, seniority, or job quality are permissible.
Need for Action in Companies
If there are differences in average pay between male and female employees in comparable positions, this is no longer just a theoretical issue: obvious pay discrepancies now have legal and financial consequences, posing compliance risks.
Employers must address this issue by reviewing the current situation and, if necessary, actively redesigning compensation structures within the company. This should be completed by mid-2026 at the latest, as the EU Pay Transparency Directive will either be implemented into German law or applied directly by then.
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Summary of the key facts
- The “Equal Pay” principle applies to management positions as well.
- The difference in median salaries between male and female comparison groups is a key indicator in wage discrimination cases.
- Employers must proactively address wage discrimination to mitigate liability risks.
