Employment Law29.06.2026 Newsletter
Focus on Employment Law - First half of 2026
What labour law developments should international employers have on their radar? In this edition of our International Employment Law Newsletter, we highlight key recent German labour law decisions and regulatory trends, focusing on the practical implications for multinational organisations, international HR functions and cross-border workforce management.
1. New Case Law
1.2 Equal work – equal pay: Pay transparency also applies to managing directors as well!
1. New case law
1.1 Pay Transparency: New case law on the right to information and points to be borne in mind in Germany once the implementation deadline has passed
The Federal Labour Court (“BAG”) recently addressed the scope and extent of the right to information under the German Pay Transparency Act (“EntgTranspG”), particularly with regard to the time limit and the company-specific nature of the right (judgement of 19 February 2026, docket no. 8 AZR 83/25). The decision dates prior to the expiry of the implementation deadline for the EU Pay Transparency Directive (“EUPTD”) and sets a precedent for how requests for information should best be handled today - now that Germany has failed to implement the Directive.
Key points:
- The right to information under the German EntgTranspG only applies to the last concluded calendar year prior to the request for information. A calendar year is defined as the period from January 1 to December 31 of a given year.
- Furthermore, the right to information is limited to the business establishment as defined by the German Works Constitution Act. There is no company-wide right to information. This establishment-specific limitation follows from the clear wording of the law and is not superseded by EU law requirements.
- The obligation to provide information therefore covers only pay arrangements that are applied within the same establishment and by the same employer.
- EU law provisions, in particular Art. 157 TFEU (Treaty on the Functioning of the European Union), do not require a more extensive obligation to provide information, but rather concern only the right to equal pay itself.
- As the deadline for implementing the EUPTD expired on 7 June 2026, and Germany, like many other European countries, has not yet even produced a draft bill, employers specifically face the problem of how employees’ claims for information should be handled from 8 June 2026 onwards.
Whilst public employers are directly and mandatorily subject to the EUPTD from 8 June 2026, it has no direct effect on private employers. Employees cannot therefore derive any direct claims against their employer under the EUPTD. However, the labour courts already have to interpret existing national law in line with the Directive and will be guided by the requirements of the EUPTD even without its formal implementation unless this would clearly conflict with the wording of the current law.
At present, companies are already obliged pursuant to the currently applicable version of the German EntgTranspG, and case law derives the principle of substantive pay equality from Article 157 TFEU, a provision that has a direct effect on relations between private parties. Therefore, employers should take requests for information under the EntgTranspG seriously - even if Germany has failed to implement the EUPTD - and should respond in a timely manner in accordance with current EntgTranspG and in consideration of the above key points.
This is particularly important as the Federal Labour Court has already paved the way with the so-called ‘pair comparison’ judgement dated 23 October 2025 (docket no. 8 AZR 300/24). In its opinion, just one single person of the opposite sex (pair comparison) is sufficient as a benchmark to substantiate a claim for equal pay. The employer must merely demonstrate and, where necessary, prove that it pays the claimant a lower wage than that paid to the person of the opposite sex who has been used for the comparison, and that the claimant performs the same or at least equivalent work. This alone, within the meaning of Sec. 22 of the German General Equal Treatment Act (“AGG”) – when interpreted in accordance with EU law – establishes the presumption of a discrimination on grounds of sex. Even if the comparison group is in fact larger or the median salary is lower than that of the designated person used for the comparison, according to the Federal Labour Court, the employer is obliged to pay the remuneration that it paid to the person used for the comparison in the pair comparison if it cannot rebut the presumption of discrimination on grounds of sex.
This makes the consequences of an interpretation of the current laws in line with the Directive crystal clear; namely, a minimum comparison group within the meaning of Sec. 12(3) sentence 2 of the EntgTranspG or the median pay is ultimately no longer relevant. Therefore, companies must prepare for a heightened burden of proof and disclosure obligations regarding equal pay claims.
Isabel Hexel
1.2 Equal work – equal pay: Pay transparency also applies to managing directors as well!
The Bochum Regional Court granted a female managing director a claim for gender-based pay discrimination in its judgment of 2 December 2025, docket no. 17 O 56/24. The Reginal Court upheld the gender-based discrimination – despite differences in areas of responsibility, turnover as well as staff management.
Key points:
- The German Pay Transparency Act (“EntgTranspG”) is to be applied to managing directors who do not hold an interest in the company (Fremdgeschäftsführer), since they are considered employees under EU law.
- Neither the difference in responsibility for the number of employees nor the revenue for which the Managing Directors were responsible precluded that they fulfilled equivalent tasks.
- From an objective perspective, administrative tasks are indispensable for the functioning of a company, even if they do not generate turnover. In this respect, turnover and staff numbers do not constitute a sufficient criterion for differentiation.
Both managing directors had signed identical service agreements in 2020, which differed only in the amount of the base salary: the male colleague’s base salary was EUR 180,000 gross and the claimant’s was EUR 150,000 gross. Both held university degrees, though in different fields. They were subsequently assigned to different business divisions. The claimant was responsible, amongst other things, for HR, IT management and the legal department. Her colleague, on the other hand, was assigned to the areas of social insurance, digital administration, marketing and finance. There was also a significant difference in turnover and staff numbers. The claimant was responsible for 124 employees and approximately 17% of total turnover, whereas her colleague was responsible for 308 employees and approximately 83% of total turnover.
In the view of the Regional Court, this nevertheless constituted work of equal value, meaning that, under Sec. 22 of the General Equal Treatment Act (“AGG”), a presumption of gender-based pay discrimination applies. The company was unable to rebut this presumption. The job posting merely stipulated a university degree in general as a prerequisite. Hence, it could not be relevant for the tasks at hand, that the claimant and her colleague acquired degrees in different fields of studies. Furthermore, as the assignment of business divisions was not finalised until after the service agreement had been concluded, this could not have had a sufficient influence on the setting of the salary. Consequently, the company was unable to prove that reasons other than gender led to the lower salary.
Even if the reasoning behind the ruling is not entirely convincing, it nevertheless shows that the courts are serious about implementing the principle of “equal pay for equal work” at the executive level. Companies should therefore not wait for the EU Pay Transparency Directive (“EUPTD”) to be implemented in Germany, but should begin now to introduce transparent compensation systems based on objective, gender-neutral criteria at all levels of the organization. This is necessary to successfully defend against wage discrimination claims.
Anja Dombrowsky
1.3 General Counsel ignores whistleblowing policy: Labour Court confirms dismissal without prior warning
Senior managers, especially those responsible for legal affairs and compliance, have a heightened duty to ensure proper internal investigations and compliance with internal whistleblowing policies.
Key points of the decision:
- The deliberate failure to comply with a set of procedural rules governing the handling of reports of compliance breaches following receipt of a report from a whistleblower constitutes a circumstance which, in itself, is capable of constituting good cause for a dismissal with immediate effect within the meaning of Sec. 626 German Civil Code (“BGB”).
- Even without a prior warning, dismissal for misconduct is justified if executives fail to ensure proper investigation, timely reporting, and involvement of internal audit.
- German courts expect compliance and whistleblower protection to be actively lived in day-to-day management – not just documented on paper. Formal rules or a “positive attitude” are not enough; managers must take concrete action.
The Offenbach Labour Court (judgment of 25 September 2025, docket no. 1 Ca 136/25) leaves no doubt: senior executives with overarching responsibility for legal affairs and compliance, such as General Counsels, are subject to special duties of supervision, control, and damage prevention. As Compliance Officer, the claimant was obliged to adhere strictly to the rules of procedure which he himself had drawn up. In particular, he should have been required to involve the Group Internal Audit department in cases where there were serious indications of compliance breaches. His failure to do so, together with his downplaying of the matter and, in some instances, untruthful communications to the whistleblower and third parties, constitute serious breaches of duty. Such failures, even by a long-serving executive and committee member, are so grave that the employer cannot reasonably be expected to continue the employment relationship – making a written warning unnecessary.
Compliance and whistleblower protection demand more than formal policies or a “positive attitude.” Companies need to ensure that compliance processes are not just documented but genuinely implemented and enforced at all management levels. Delegating responsibility or relying on others is not a valid excuse for neglecting one’s own monitoring and control obligations. Increasingly, courts are examining whether compliance structures truly work in practice, rather than simply existing on paper. International companies and their German subsidiaries should therefore review their compliance and whistleblower policies to ensure they are robust, effective, and properly implemented. In Germany, these procedures should be clearly defined in binding policies, ideally in consultation with the (group) works council.
Marko Vraetz
1.4 Trouble with matrix structures: Primary responsibility of the general works council for the organisation of working time in cases involving links across multiple sites
The German Federal Labour Court (“BAG”) has set new standards for executive integration in several company sites and voting rights for works councils in matrix organizations last year. Now a further judgment followed from the Rhineland-Palatinate Regional Labour Court (judgment of 4 February 2026, docket no. 3 TaBV 21/24) addressing when cross-site teams and work processes supersede the co-determination rights of local works councils in favour of the general works council requiring further action.
Key points of the decisions:
- Matrix managers employed in one site with staff at another site assigned by dotted reporting lines to them are considered to be also part of the workforce of such other site where their subordinates are working. They are therefore also eligible to vote in the works council elections of the other site; the contractual situation is not decisive (BAG judgement of 22 May 2025, docket no. 7 ABR 28/24).
- Matrix managers are integrated in a company site if they work under the direction of that business and the business owner has, at least in part, the right to give them instructions regarding the content, location and timing of their work. This also applies to foreign-based managers who are employed on a contractual basis by other (foreign) group companies (BAG judgement of 23 September 2025, docket no. 1 ABR 25/24).
- Where work processes are linked across different sites, matters relating to the start and end of the daily working hours – including breaks – as well as the distribution of working hours and the shortening or extension of the standard working hours can no longer be regulated by a local works council (Rhineland-Palatinate Regional Labour Court, judgment of 4 February 2026, docket no. 3 TaBV 21/24). Hence, in case of technical and organisational interconnection across different sites (as is often the case in matrix organisations), there may be an objective and compelling need for cross-site regulation and, consequently, the competence of the group works council.
Managers, regardless whether they are domestic or foreign based, integrated into multiple establishments may thus vote in each relevant works council election and each works council must be notified before taking on the leadership role. A local employment contract nor physical presence is required to trigger these rights. The multiple integration of matrix managers also influences the competence of works councils, as can be drawn from the new judgment of the Rhineland-Palatinate Regional Labour Court. If, therefore, cross-site teams are existent, as is particularly the case in companies with domestic matrix structures, also existing shop agreements, for example dealing with working time, should now be reviewed. The good news is: if a company-wide regulation is envisaged because teams collaborate across multiple sites, this can be implemented uniformly with the involvement of the general works council as well as in a timely and cost-efficient manner.
Alexandra Groth & Annabelle Marceau
1.5 Warning sign for companies: Federal Labour Court overturns blanket clauses on garden leave in standard employment contracts
In its judgement of 25 March 2026, docker no. 5 AZR 108/25, the Federal Labour Court (“BAG”) has declared blanket clauses on a release from duties (“garden leave”) in pre-formulated standard employment contracts to be invalid. The ruling has significant practical implications for the drafting of employment contracts as a whole.
Key points:
- Blanket garden leave clauses in employment contracts, which grant the employer an unrestricted right to release the employee from work following termination are invalid.
- The right to being employed up to the end of the employment relationship is indirectly protected by fundamental rights and cannot be undermined by a standardised advance waiver.
- Clauses which do not require compelling business interests as a prerequisite for the garden leave therefore place employees at an unreasonable disadvantage. However, garden leave clauses remain valid if they provide for a genuine balancing of interests and specifically set out justifying, objective reasons.
The claimant had been working as a regional manager in field service. The company provided him with a company car for this purpose, which he was also permitted to use for private purposes. The use of the company car was revocable in the event of his release from duties. Following his own resignation, the employee was released from duties and asked to immediately return the company car. To this end, the company pleaded a clause in the standardised employment contract which allowed it to “release employees from their duties upon or following the giving of notice of termination – regardless of which party gave notice – whilst continuing to pay their remuneration”. The BAG hold the blanket garden leave clause to be invalid and emphasized that the right to release an employee from their duties arises in any event from the balancing of interests on a case-by-case basis. The BAG referred the case back to the Regional Labour Court of Lower Saxony, which must now carry out such a balancing of interests in the specific case.
Companies should therefore proactively review their model employment contracts. It is anticipated that countless existing garden leave clauses will fail to meet the new standards and will need to be amended if employers are to ensure interests are balanced on a case-by-case basis before granting any garden leave.
Linda Neu
Your contacts for employment law:
Moritz Coché
Anja Dombrowsky
Alexandra Groth
Isabel Hexel
Dr. Johannes Kaesbach
Jörn Kuhn
Pia Löffler
Annabelle Marceau
Dr. Martin Nebeling
Linda Neu
Lisa Striegler
Fjolla Sulejmani
Dora Udovičić
Kathrin Vossen
Marko Vraetz
Dr. Alexander Willemsen
