Discrimination based on gender, background and other prohibited personal characteristics is not only illegal and unethical, but can also be expensive. Following a recent decision by the European Court of Justice (ECJ), this cost risk has increased by a new component: namely, litigation costs and legal fees. Employers are therefore well advised to ensure compliance with the prohibitions on discrimination.

Brief recap of the basics

  • All people are equal. At least in our Western culture, this is not only a fundamental ethical principle, but also a fundamental right. This goes hand in hand with a prohibition of discrimination, such as treating men and women unequally on the basis of their gender without an objectively justifiable reason. Prohibitions of discrimination exist not only at the constitutional level. Anti-discrimination legal norms have also been implemented at the European level and at the national level. The German legislature implemented the European anti-discrimination directive with the General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz – AGG). It prohibits direct or indirect discrimination on the basis of certain personal characteristics, such as gender, disability or background.
  • Violations of the AGG may result in claims for compensation due to violation of general personal rights and/or claims for damages. However, a claim for the employment of a discriminated applicant (m/f/d) does not exist in principle due to the prohibition of a contracting obligation. Due to the reversal of the burden of proof in favor of the allegedly discriminated person, even honest employers sometimes get into this predicament.
  • Under German labor court procedural law, each party bears “its” own costs. Claims by the successful party against the unsuccessful party for reimbursement of the costs of the proceedings and attorney’s fees are excluded. This serves to protect employees.

ECJ: Exclusion of reimbursement in discrimination cases overruled

What was it about?

A Spanish authority discriminated against a male pensioner — despite an ECJ ruling to the contrary — by withholding certain pension components from him. Female pensioners, however, received these. The pensioner filed a lawsuit against this and the corresponding administrative practice. Spanish law provides for an exclusion of reimbursement of legal costs and attorney’s fees corresponding to German law. The referring Spanish court asked the ECJ whether, in the event of a breach of the principle of equal treatment of men and women, the payment of compensation is required to enable the damage caused by the discrimination to be compensated in full — including the legal costs and attorney’s fees incurred by the person concerned in these proceedings — in accordance with the applicable national provisions. Since reference questions regularly sound very complex, let us simplify once again: Whether the discriminated party must have his/her/its costs reimbursed?

What did the ECJ say?

The ECJ said yes. There was no question that the administrative practice discriminated against the pensioner because of his gender and violated the principle of equal treatment of men and women. It was therefore also clear that the pensioner was entitled to compensation for the withheld pension payments. According to the ECJ, however, this is not the end of the story. European law beats (once again) national law in the sense of an application priority and displaces the conflicting national exclusion of the reimbursement of costs. What is required by (European) law is rather the compensation of the full damage. Such damage suffered due to prohibited discrimination must be actually and effectively compensated and replaced in a dissuasive and reasonable manner.

Lessons learned and best practices

So what follows from this? In a nutshell:

  • Increasing cost risk: There is now an increased cost risk in discrimination cases. It can be assumed that German labor courts will follow the ECJ and leave the principle of exclusion of reimbursement of litigation and attorney’s fees in (any) discrimination cases under the AGG unapplied.
  • Policies and compliance as preventive measures: Robust anti-discrimination and DEI policies and compliance systems are therefore worthwhile not only from a regulatory point of view, but also financially. They represent best practice in preventing discrimination and help with the corresponding monitoring.
  • Training/education to create (and maintain) awareness: (Regular) training on DEI and anti-discrimination is recommended as another worthwhile preventive measure. (Successful) participation could also be included as a “goal” in variable compensation systems. This, too, should not only have a positive cultural effect, but also provide substantial (pecuniary) motivation to observe the basic values of DEI and anti-discrimination requirements.
  • Seek legal advice on job advertising and awarding: The vast majority of AGG litigation revolves around the job application process. To avoid unpleasant surprises, employers should discuss job advertisements and applicant selection with an expert.


Photo of Dr. Nadine Kramer Dr. Nadine Kramer

Dr. Nadine Kramer is a special counsel in Covington’s labor and employment law and executive compensation and employee benefits department. She has many years of experience in advising on labor law aspects with respect to M&A transactions, complex HR topics and reorganizations, especially…

Dr. Nadine Kramer is a special counsel in Covington’s labor and employment law and executive compensation and employee benefits department. She has many years of experience in advising on labor law aspects with respect to M&A transactions, complex HR topics and reorganizations, especially with a focus on negotiations with works councils, and a corresponding networking within the law firm as well. Furthermore, she has a great experience in drafting of social plans, evaluating of pension liabilities and managing labor law-related proceedings, especially with regard to wrongful termination litigations at all levels of seniority and management participation programs.