What’s New on Pay Transparency

Legal Insights Germany

December 05, 2025

In its judgment of 23 October 2025 (case reference: 8 AZR 300/24), the German Federal Labour Court (BAG) confirmed the “pair comparison” and thereby significantly facilitated equal pay lawsuits. The higher salary of a single male colleague gives rise to the presumption of gender-based pay discrimination (the so‑called “pair comparison”). The decision is connected to the Pay Transparency Directive (EPTD), which must be implemented by June 7, 2026. The Commission on the Low‑Bureaucracy Implementation of the Pay Transparency Directive published its final report on 7 November 2025. This offers initial guidance but also raises several questions.

Legal Background

Men and women are entitled to equal pay for equal work or work of equal value. A reversal of the burden of proof applies to claims for equal pay: If a female employee demonstrates that her pay is lower than that of male colleagues performing equal work or work of equal value, it is generally presumed that the pay differential is due to sex. If the employer cannot rebut this presumption, the female employee is entitled to payment of the male colleagues’ remuneration.

The BAG had initially limited this reversal of the burden of proof to the pay differential relative to the median pay of the male comparison group. The median pay is the remuneration value within the comparison group for which half of the employees receive a higher and the other half a lower remuneration. In 2023, the BAG decided that, at least for very small comparison groups, comparison with a single colleague (the so‑called pair comparison) may suffice. It remained open whether the pair comparison is also possible when the comparison group is sufficiently large.

Facts and Lower Court Ruling

The plaintiff had been employed as a department head for over 15 years. In her claim, the employee sought the same remuneration as a male colleague whose pay was significantly above the median pay of the male comparison group.

In the view of the Baden‑Württemberg Regional Labor Court (LAG), a claim exists only for the difference between the median pay of the female and the male comparison group. There is no “predominant” probability supporting the presumption of pay discrimination. This is because the colleague used for comparison earns significantly more than the average of comparable male colleagues. Moreover, the plaintiff’s pay is below the average pay of comparable female colleagues. Due to the large number of male comparators, the plaintiff cannot rely on a single comparator.

Decision of the BAG

The BAG held that equal pay claims can be based on pair comparison. For the presumption of discrimination on grounds of sex, the pay differential relative to a single colleague of the other sex performing equal work or work of equal value is sufficient. The number of comparators and the amount of the median pay for each sex are irrelevant for the presumption. Contrary to the lower court’s view, there is no need for a “predominant” probability of sex‑based discrimination.

Outlook and Practical Significance

The LAG must now examine whether, in the individual case, the presumption of sex‑based disadvantage is rebutted by objective and gender‑neutral justification grounds. The defendant argued that the plaintiff’s performance was below average.

The BAG’s decision significantly facilitates equal pay claims. Employers should therefore document the reasons for pay differences as carefully as possible. In addition to superior qualifications and relevant professional experience, a tight labour market situation has thus far also been recognized as a possible justification.

Implementation of the Pay Transparency Directive –Recommendations of the Commission

The BAG’s decision is also important in the context of the EPTD, which must be implemented into national law by 7 June 2026. The EPTD, in particular, significantly expands employers’ reporting and disclosure obligations. In line with the coalition mandate of the federal government, Federal Minister Karin Prien established a commission on the Low‑Bureaucracy Implementation of the Pay Transparency Directive, which issued a final report immediately following the BAG decision. The proposals are not legally binding, but they are likely to shape the draft bill expected in January 2026. However, representatives of differing interests sat on the commission and resolutions were therefore not always adopted unanimously and by consensus.

Further Preferential Treatment for Employers Bound by Collective Agreements?

According to the commission, a presumption of appropriateness should at least apply where the comparison group is formed on the basis of the pay scale group. In principle, this would mean that, as before, the correctness of the comparison group formed according to the pay scale group is to be assumed. For example, in the scope of application of the collective framework agreement for the metal and electrical industry (ERA), comparison groups could be formed on the basis of job descriptions (e.g., industrial electrician - Betriebselektriker/-in 1) and pay scale groups (e.g., EG 7). A correction should only be required if the employee demonstrates that the pay scale group violates Article 4(4) EPTD. Accordingly, employers may initially form the comparison group (for the right to information and for reporting on the pay gap for groups of employees under Article 9(1)(g) EPTD) according to the pay scale group (e.g., pay‑scale job description and pay‑scale group). The question of the extent to which the statutory presumption of appropriateness for collectively agreed pay systems, which still applies at present, will remain compatible with the EPTD in the same scope is disputed. The commission has also not taken a definitive position on this.

Furthermore, the commission proposes that collective agreements whose application violates the EPTD should lose their mandatory effect. In line with the legal situation governing collective agreements with after‑effects, such collective agreements should also be replaceable for the future by agreement between the parties (including between the employer and the individual employee); co‑determination at establishment level should likewise revive in this respect.

Burden of Proof and Justification Grounds

The commission expresses the desire that a pay transparency report showing a gender pay gap of less than 5% should be suitable to rebut the appearance of gender‑based pay discrimination. Accordingly, employers could in future rebut the presumption of gender discrimination, which under the above decision can be based on a pair comparison, by submitting a corresponding report. In such a constellation, the individual employee would then have to set out and prove that pay discrimination on grounds of sex exists.

Involvement of workers’ representatives

The commission predominantly takes the view that “workers’ representatives” within the meaning of the EPTD are the competent works councils. In undertakings without a works council, participation should remain voluntary and a “joint” pay assessment should therefore be dispensed with. The involvement of workers’ representatives should be limited to determining the criteria under Article 4(4) EPTD, defining the comparison group, and conducting the joint pay assessment. The commission largely rejects genuine participation in the preparation of pay transparency reports and points instead to a right to “be heard on the accuracy of the information.” The same applies to the assessment of whether there is an obligation to remedy (Article 9(10), sentence 3 EPTD). In the view of the majority of the commission, information to the workers’ representatives is sufficient.

Right to Information, Article 7 EPTD, and Reporting Obligation, Article 9 EPTD

According to the commission, employees should in the future have the right, once a year, to information on the average pay of the comparison group. The commission discussed without result whether reporting at group level could satisfy subsidiaries’ reporting obligations. There is a risk that the gender pay gaps of individual companies within the group could be offset, because only the group as a whole would have to report, not the individual entities. The commission agreed only that the reports of the individual entities could be consolidated at group level.

The term “pay” in this context should extend to the remuneration actually paid according to the payroll. Accordingly, voluntary elective benefits (e.g., gym subsidies, job bikes), benefits not granted by the contractual employer (e.g., stock options, phantom stocks, etc.), and payments unrelated to work performance (e.g., severance payments) may be excluded. With respect to variable and supplementary pay components (e.g., supplements, profit shares, performance bonuses), companies should be able to decide for themselves whether to report these in aggregate or individually.

Employers should be permitted to prepare reports separately for different locations (e.g., sites in different federal states with varying pay levels) as well as for legacy contracts that have developed historically. Accordingly, in the future, comparison groups could take into account, in addition to skills, effort, responsibility, and working conditions (Article 4(4) EPTD), location and time of hire.

Conclusion

The commission’s proposals provide important guidance for national implementation. However, the final report sometimes addresses very granular individual issues and leaves numerous practical questions unanswered. The commission emphasizes that there was no consensus on certain key points. The special opinions express well‑founded criticism of the conformity of the (predominant) view of the commission with EU law. One thing is certain: the stricter requirements under the EPTD are coming, and the prospects of success for equal pay claims are increasing significantly in light of the BAG decision mentioned above.

Employers should therefore already review existing remuneration systems and any gender pay gaps in the company. Where, for equal work, there are significant pay differences between the sexes that cannot be explained by objective criteria, employers should use the remaining time to correct individual and structural pay differences.

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