When Equal Pay Goes to Court

Why do you pay what you pay?

If you’ve read one of my articles before, you know that my mantra is:

Can you explain why you pay what you pay?

Because if you can’t explain in objective terms to your employees how their pay & compensation package was put together, you are making it really hard to defend yourself if an employee takes you to court.

And I was reminded of that, when I read a newspaper article last week about an important Equal Pay case in Germany. What happened?

A female employee at the third management level asked the court for the same pay as a male colleague at the same level. The court found that his salary was higher than the average for men in the same group, while her salary was lower than the average for women. Because of this, the court decided there wasn’t enough evidence to say that the pay difference was due to gender discrimination.

The woman couldn’t get a full salary adjustment, only a raise based on the difference between the average salaries of men and women in her group. She was awarded 130,000 euros out of the 420,000 euros she had requested to compensate the past five years. But the regional labor court did allow an appeal to Germany’s highest labor court because the case is considered important in light of the latest Pay Transparency and Equal Pay legislation.

Back in February 2023, the German Federal Labor Court (BAG) reinforced the principle of equal pay, meaning that employers can no longer argue that a man negotiated a better salary than a woman.

And so, this case is going to the Higher Court supported by the Gesellschaft für Freiheitsrechte (GFF). They argue that “according to the law, pay discrimination is presumed if the salary deviates from the median of the male peer group or from the salary of a specific colleague. The employer must then prove that there are objective reasons for this that have nothing to do with gender.”

The GFF sees the ruling of the regional court as contradictory to the rulings of the BAG and the European Court of Justice. With the appeal to the Higher Labor Court, they aim not only to correct the first instance’s decision but also to legally establish that employers must justify salary differences between genders based on objective criteria.

I don’t know where this case is headed, but the argument to appeal the judgement is clear: if an employer can’t explain pay on objective criteria, employees will assume that pay changes are partly based on subjective factors. And today, the proof of burden is on the employee.

With the new EU Pay Transparency Directive, that changes. The proof of burden moves to the employer. And combined with the other requirements of the Directive (pay transparency before and during employment), open conversations about pay levels become the norm. Employees will be able to see how their compensation packages compares to that of their colleagues.

That does not mean that you have to disclose individual salaries. Not at all. But you do have to publish mean and median overviews, and that means that employees will discover how their individual pay stacks up against that of their peers.

And when they discover differences, will you be able to explain in objective terms why those differences are justified, based on factors such as experience, performance, or job responsibilities? Exactly! Let’s get to work!

Wait, there is more…

Equal Pay cases are more common than you think, and with pay transparency becoming the norm, employees find it easier to discuss this with their colleagues. Here are a few other cases for illustration:

• Public sector workers in France In 2023, a group of female public sector workers in France won a significant equal pay case. The court ruled that their lower salaries compared to male colleagues in similar roles constituted discrimination. This case highlighted ongoing pay disparities in the public sector and led to calls for more comprehensive pay audits. The French unions have called for action this Friday.
• Retail Equal Pay Claims: While not a single case, the ongoing equal pay claims against major UK supermarkets including Asda, Tesco, Sainsbury’s, Morrisons, and Co-op continue to progress through the legal system. These cases, involving over 112,000 store staff, argue that predominantly female store workers should be paid the same as predominantly male distribution center workers. Next has been ordered to pay more than 30M to their female retail staff. The Next case ruling is expected to have significant implications for the ongoing claims.
• Google agreed to a $118 million payout to over 15,500 female employees across 200 job titles in 2023. The settlement addressed allegations of gender-based pay discrimination dating back to 2013. It also includes a clause that independent experts must review Google’s hiring practices and pay-equity studies. However, Google admitted no wrongdoing as part of the deal.

When you peel off the layers of these cases, the common factor is the inability of companies to explain the salaries of employees. How were they determined? What factors contributed? Which ones played no role? And what do we tell the employee?

I rest my case. When it comes down to winning the Pay Transparency battle, make sure that you can explain why you pay what you pay!