Discrimination based on gender is prohibited – at least, that’s what Germany’s new General Equal Treatment Act says. The reality, however, is a bit different. According to recent surveys, the average hourly wage or annual salary of women in Germany is significantly below that of their respective male colleagues. Based on statistical data from the European Union, women in Germany earn 22 percent less than their male counterparts, compared to an EU average of 15 percent.

In this respect, Germany is among the worst EU member states; only Estonia, Slovakia, and Cyprus, with income gaps reaching up to 25 percent, are worse. Women face a disadvantage even in the best EU country – Malta, where the difference is 4 percent. Thus, while gender discrimination may be a European problem, Germany is more affected by it than most other states, a discrepancy German women are unlikely to tolerate for long. The enactment of the General Equal Treatment Act is merely the first step – and an important one – in a growing movement to correct this imbalance, and this article is an effort to predict the next steps and recommend appropriate action.

What Equal Tr eatment Is Ab out

Treating two employees differently in a comparable situation constitutes discrimination only if there is no justification for doing so. The General Equal Treatment Act actually permits unequal treatment on the basis of professional qualifications, religious practices, or age if the situation warrants it. However, there are no such provisions for the unequal treatment of women. This may be owing to the fact that legislators could hardly imagine a broad-based reason for gender discrimination. But this also raises the question of where to draw the line between discrimination and justified unequal treatment – and where the employer’s freedom to act ends.

Let’s start with a provocative question: Considering that employers are entrepreneurs, and further considering that entrepreneurs are interested in buying goods and services at the most favorable price, why should an employer be prevented from obtaining a woman’s work at a lower price than a man’s if both are hired at the same time and market conditions permit the employer to offer the woman less money for the same work? And why should the employer be prevented from defending himself against allegations of discrimination by arguing that the woman was willing to be hired at the lower rate? 

Fr eedom of Contract and Discr imination

The aforementioned questions strike at the core of the discrimination issue. First and foremost, German law is governed by the concept of freedom of contract. This principle allows parties to decide whether they want to enter a contractual relationship and what the content of that contractual relationship will be. The General Equal Treatment Act was not intended to abolish freedom of contract, but if this principle were to be applied in its purest form, the new act would be seriously weakened. German courts must not allow this to happen. The European Court of Justice requires EU member states to transpose EU directives into national law in an “effective way” (effet utile), and the General Equal Treatment Act is based on several EU directives.

The case law that resulted from the need to weigh an employer’s right to terminate an employment agreement against the principles of social protection suggests the European Court of Justice will sacrifice freedom of contract before protection against discrimination.

Accordingly, freedom of contract is limited in such a way that an employer is not permitted to reject a female applicant merely for gender reasons. An early court decision that seems capable of being generalized holds that if the employer discriminates by rejecting an employee but then decides not to hire anyone at all, there is no basis for a discrimination claim. In rare cases, giving up the intention to hire may be the last resort for an employer who does not want to hire a woman but finds no other reason to reject her. In all other situations, however, nondiscrimination will prevail over freedom of contract.

If it was left to an employer to hire a woman at less favorable conditions than a male employee simply because the job market seems to allow this, it may appear at first glance that the employer does not discriminate directly. After all, the employer is not responsible for the lower remuneration of women on the overall job market. However, the General Equal Treatment Act prohibits not only direct discrimination but indirect as well. The latter is deemed to exist if provisions, criteria, or practices that appear to be neutral in fact discriminate under one of the prohibited categories, e.g., gender, age, or disability. All this indicates that the courts would not accept market conditions as justification for less favorable remuneration for women. Offering unequal compensation on the basis of prevailing market trends could become an established practice, and the courts are thus likely to view it as a form of indirect discrimination.

The Burd en of Pr oof

At risk are not only those employers who actually discriminate, but even those who – when the need arises – are not in a position to prove that they don’t. The reason for this is the burden-of-proof rule under the General Equal Treatment Act, which provides that as a first step, employees have to present signs indicating possible discrimination. Thereafter, it is the employer’s obligation to present proof that there was in fact no discrimination. One might think that German employers are thus relatively safe against allegations of remuneration discrimination, since remuneration is traditionally treated in a confidential way. And indeed, a woman who believes herself to be the victim of discrimination might well have difficulty supplying the necessary signs. However, it is entirely possible that case law will develop in a different way, with the courts reducing the burden of proof for women as well as other groups of potentially disadvantaged employees.

A parallel may be drawn with the Termination Protection Act. This act states that the employee bears the burden of proof with respect to allegations of unjustified termination, but in practice, employers have usually had to show that the terminations were socially justified. The language of the General Equal Treatment Act is even more employeefriendly, imposing the burden of proof upon the employer, so a very employee-friendly interpretation of the General Equal Treatment Act by the courts is entirely possible. In addition, the employee position is often strengthened by the fact that the works council has a right to review wage and salary lists. 

Recomm ended Ac tions

In practice, an employer may well have legitimate reasons for paying different salaries, but these may not be apparent to an observer. Therefore, as is recommended for other cases of unequal treatment, employers should write down the reasons for any salary differences and establish a documentation routine. This will provide a paper trail, especially if the documents are prepared prior to a potential lawsuit. Another recommendation is to establish an ombudsman or another type of complaint procedure. For an employee, it simply would not look good in court to have waived the opportunity to complain before bringing a lawsuit. Further, employers might consider making use of “positive action” – steps which might appear discriminatory but which in fact are justified since they are intended to abolish earlier discrimination. Of course, the most important recommendation of all is to know the prohibitions of the General Equal Treatment Act and avoid them.