According to the German Federal Bureau of Statistics, there is a measurable difference (7 percent) between the remuneration paid to men and that paid to women who have the same qualifications, whereas the average hourly wage, regardless of sector, shows a difference in income of 22 percent. In order to rectify these wage injustices, the German Federal Ministry for Family Affairs, Senior Citizens, Women and Youth sent a first preliminary ministerial draft of the German Equal Pay Act (Entgeltgleichheitsgesetz) to the German Federal Chancellery on December 9, 2015.

The draft mainly deals with meeting the prerequisites for equal pay for equal and equivalent work by creating transparency within the company. To this end, both individual employees and the works council or staff council are vested with individual or collective rights to be provided with information. Furthermore, the draft provides for companies that as a rule have more than 500 employees to introduce an internal company procedure by way of which pay equity is to be actually reviewed. In addition to publishing the results of the mandatory company procedures, these companies will also be required to report about how the procedures are implemented and how the principle of equal pay is complied with.

General Definitions and Scope of Application of the Planned Act

  • Personal Scope of Application

According to the draft, employers are natural and legal persons and partnerships with legal capacity. If staff members are provided to a third party for work (temporary employment), the user undertaking will also be deemed an employer within the meaning of this act. Staff members are employees, apprentices and quasi-employees, § 5 (2), (3) of the draft.

  • Remuneration

According to § 5 (1) of the draft, remuneration within the meaning of this act is all base or minimum remuneration and all other payments rendered directly or indirectly in cash or in kind on the basis of an employment relationship. In using this broad definition of remuneration, the act follows the rulings of the European Court of Justice and the German Federal Labor Court (e.g., Federal Labor Court, judgment of Aug. 14, 2007 – 9 AZR 943/06).

  • Determination of Equal or Equivalent Work

The act assumes that work is equal or equivalent within the meaning of § 4 (1) if the staff members can be regarded as being in a similar situation based on an aggregate of factors, such as type of work, educational/training requirements and working conditions. The actual requirements that are essential for the work in question, irrespective of the performance of the employees concerned, are relevant in this regard. If an employer has a remuneration system, it must be considered in its entirety, according to § 4 (2), sentence 3.

  • Relationship with the German General Equal Treatment Act (AGG)

Gender discrimination is supposed to be excluded in the area of wages, where equal or equivalent work is performed, beyond the provisions of the General Equal Treatment Act, the validity of which will not be affected by the Equal Pay Act, according to § 2 (2) of the draft. The lawmakers considered themselves required to create a non-constitutional regulation in the form of the Equal Pay Act, although gender discrimination is already prohibited under the General Equal Treatment Act also in the area of wages.

Individual Entitlement of Individual Employees to Equal Pay, § 7

  • Prerequisites

-    Unequal Treatment

According to § 3 of the draft, unequal treatment is considered to exist if lower remuneration is agreed on or paid for equal or equivalent work because of gender. The same applies to direct or indirect discrimination with respect to remuneration components or remuneration conditions.

-     No Justification

According to § 3 (3) sentence 1 of the draft, unequal pay can be considered justified if it is objectively justified by a lawful target and the means to achieve the target are proportionate and necessary. This justification is to be viewed in conjunction with § 3 (2) of the General Equal Treatment Act. Sentence 2 extends the justification under sentence 1 by labor market criteria. The European Court of Justice has confirmed, for instance, different payment because of a longer length of employment or better performance if this can be attributed to objective criteria (ECJ, Collection 1989, 3199). The same applies if the employer had to pay a higher wage as a financial incentive because of a shortage of skilled workers (ECJ, Collection 1993 I-05535). By introducing the double proportionality review, the lawmakers intended to make sure that the employer does not overstretch the justification, which would result in equal wages being paid only in the rarest of cases.

  • Legal Consequences

According to § 7, all employees have a claim against their employer for payment of such remuneration that ought to have been paid if there had been no direct or indirect gender discrimination with regard to remuneration. According to § 18 (3) of the draft, such a claim lapses three months after publication of the non-discriminatory remuneration provision if the employer remedies the wage inequity within six months after publication of the report on the results of the review procedure.

  • Limitation Period

The three-year limitation period under § 195, § 199 of the German Civil Code (BGB) applies, according to § 7 (1) of the draft; retroactive payment is thus explicitly intended. At the same time, however, arrangements in employment or collective bargaining agreements that usually provide for shorter preclusion periods for mutual claims are invalid, § 7 (2) of the draft. There is no recourse to the provision under § 15 IV of the General Equal Treatment Act, which provides for a preclusion period of two months. It is obvious that the employers' retroactive duty to render subsequent payments will not exactly contribute to harmony at the workplace, let alone legal certainty in employment relationships. Besides the additional financial burden, any possible subsequent wage payment will also involve considerable expenditure for employers in terms of accounting. A subsequent wage payment might result in a higher progressive wage tax burden for the employee.

  • Right of Action of the Employee Concerned

If an employer does not meet the employee's request or does not answer the inquiry or does not answer it properly, the employee may enforce the claim by filing a lawsuit. As an alternative, the employee may file a complaint with the works council, which will then support the employee's cause if it considers the complaint justified, § 12 (4) of the draft. The previous legal situation does not change for the employee.

 

Rights of the Works Council

  • Participation Right

According to § 12 (2) of the draft, the results of an individual request for information must also be communicated to the works council. The works council can then support the employee at its own discretion.

  • Initiative Right

Irrespective of this, § 12 (3) of the draft provides for the works council's option to request at its own initiative that the employer review the wage classification of certain employees and make any necessary adjustments if there are objective indications of a violation of the Equal Pay Act. In addition, according to § 19 (4) of the draft, the works council may force the employer to conduct a company review procedure if several cases of discrimination suggest that the wage structure is generally discriminatory with respect to remuneration.

  • Codetermination Right

It is intended to give more responsibility to the works council with regard to the Equal Pay Act, via the introduction of an additional codetermination right in § 87 (1) of the German Works Constitution Act (BetrVG. The planned No. 12 [The works council shall have a right of codetermination in the following matters in so far as they are not prescribed by legislation or collective agreement:] thus reads:  "implementation of measures within the meaning of Numbers 10 and 11 to enforce actual equality of women and men with respect to pay."

  • Right to Sue

The works council's right to sue if the employer breaches its duties under § 6 or § 10 results directly from § 6 (5) of the draft. The works council's right to sue and codetermination right burden the employer with additional possible costs.

 

Internal Company Procedures

  • Individual Right of the Employee to be Provided with Information, § 10

Every employee, whether male or female, has a right to be provided with information by the employer. The employer must respond to an inquiry in text form within one month, § 11 (1). According to § 10 (1) No. 1 of the draft, the right includes information about the criteria and the procedure for fixing the employee's own wage. According to No. 3, the right to be provided with information also covers the statistical median of a group of at least five staff members performing the same or the same type of work. No. 2 covers rights to be provided with information about a certain pay group and about work that is performed mainly (60 percent and more) by the other gender. According to § 11 of the draft, the applying employee may not receive any information about the specific remuneration or the amount of individual remuneration components of individual employees. In its response, the employer must, above all, protect the privacy of the personal data of the employees affected by the request for information. Consequently, the employer must render the data on the basis of which the average remuneration is calculated anonymous in order to exclude application of the German Data Protection Act (BDSG) without the consent of the affected persons with whom the employee is compared. This is undoubtedly possible in large companies. Whether it is possible in smaller companies, however, to render data anonymous to such extent that no conclusions as to the identity of the affected employees can be drawn at all appears doubtful. In such borderline cases, the employer must limit the answer according to the justification for § 11 (4) of the draft and refrain, for example, from indicating the median within the meaning of §10 (1) No. 3 of the draft.

  • What Does the Employee's Right Mean for the Employer?

The employer is legally obligated to take the required measures to prevent any discrimination against women and men, § 6 (1). Companies that as a rule have more than 500 employees must, in addition, establish a company review procedure. This procedure must satisfy a number of requirements and also be certified by the Federal Antidiscrimination Agency. In particular, remuneration arrangements and their application must be reviewed, evaluations of the situation, analyses and reports on results must be generated, and documentation of the processes and results must be produced, § 13 of the draft.

  • Legal Consequences in the Event of an Invalid Remuneration Arrangement

If the report on the results shows gender discrimination with regard to pay that can be attributed to company or individual remuneration arrangements, the relevant remuneration arrangements must be eliminated without delay. Moreover, the company must draw up an implementation plan for their elimination and display it publicly in the company, § 18.

 

Changes for Employers

Many changes for employers will come into force. They will, for example, have to satisfy numerous obligations to provide information. In detail, they will have to:

  • Inform the staff pursuant to § 18 if the report on the results of the company review procedure shows any signs of gender discrimination with respect to remuneration that is attributable to company or individual remuneration arrangements. The same applies to the following implementation plan pursuant to § 18 (2) of the draft.
  • Inform the employees of the execution and results of the review procedure, § 19.
  • Inform the employee representation regularly of the course of the procedure and of the results of the company review procedure pursuant to § 19.
  • Inform the public. If the company is obligated to draw up a management report pursuant to § 289 of the German Commercial Code (HGB), the report on the advancement of women and equal wages must be integrated into it and sent to the Federal Bureau of Statistics (Statistisches Bundesamt), §§ 20, 22. Otherwise, the report must be published in any case six months after the end of the business year on the company's Web site.
  • Report to the works council at staff or department meetings and at works council meetings about the status of gender equality in the establishment, particularly about the status of equal pay for women and men, § 19.
  • Inform the works council about the company review procedure. In detail, employers must report on the course of the procedure and the results. The works council or staff council must be involved in the conducting of the procedure. This includes informing them about the plans and the course of the review procedure, presenting the required documents
  • Inform the parties to collective bargaining agreements pursuant to § 17 if the report on the results of a company review procedure contains objective indications of gender discrimination with respect to remuneration that are directly attributable to remuneration arrangements under collective bargaining law.
  • Draw up an implementation plan for the elimination of wage inequalities and publish it internally by displaying it pursuant to § 18 (2).
  • Do not yield to each claim to information raised by the employee. According the § 11 (4) of the draft, an employer may refuse to provide information if the demand for information obviously does not concern the principle of equal pay or if the employee has already expressed a demand for information during the last two years, § 11 (2).
  • Employers must make sure, in case of a lawsuit, that they do not satisfy a claim for information incompletely or not obviously incompletely, because otherwise the burden of proof will be reversed in favor of the employee. According to § 11 (5) of the draft, discrimination with regard to remuneration is presumed to exist. In the event of a dispute, therefore, the employer always bears the burden of proof.
  • Moreover, employers in companies having usually more than 500 employees must, if they do not yet have a wage concept, draw up a viable concept that can meet the prerequisites of § 13 et seqq. of the draft and can withstand a review by the Antidiscrimination Agency.
  • Employers must heed the competencies of parent companies and subsidiaries. If the parent company is responsible for the assessment of remuneration, the parent company, in addition to the subsidiary, can also be obligated to carry out a company review procedure, § 16 (1) sentence 2.
  • Ultimately, employers must be mindful, according to § 6 (3) of the draft, of the fact that they must indicate in a future job advertisement the minimum wage for the advertised position as provided for under applicable collective bargaining agreements or by law or other norms of collective legislation. This means that it must be feared that an employer will also have to subject positions that are not covered by collective bargaining agreements to a job evaluation in order to bring about equal pay. According to § 6 (3) sentence 3, the job advertisement must also include the willingness to pay more than the specified salary. According to sentence 2, the specification of the minimum salary applies also to small establishments that are not bound by collective bargaining agreements or statutory regulations or to job descriptions to which the arrangement under a collective bargaining agreement does not apply.

 

Perspective

Especially for larger companies with more than 500 employees, the presentation of their own remuneration model to the Federal Antidiscrimination Agency must be viewed especially critically. One reason for this is that it is uncertain how long the procedure will take, and another is that internal operating resources are necessary to warrant compliance with all of the procedural rules contained in §§ 13 et seqq. of the draft in order to have a review procedure certified. The obligation will also be imposed on employers to check and revise their own procedures every three years, or where they are organized under collective bargaining agreements every five years. In addition, the internal operating resources needed to respond to the requests for information, to meet obligations to provide information and to exercise the new codetermination rights will be considerable.

Whether the act can be expected to be adopted in 2016 is doubtful, even if this is planned according to the Minister's schedule. So far, the act awaits interdepartmental consultation in the Federal Chancellery.