Employment Law31.03.2026 Newsletter
Focus on Labour Law - 1st Quarter 2026
In this first issue of 2026, we are highlighting landmark decisions that are reshaping key aspects of German employment law and require immediate attention from employers. In particular, two rulings by the Federal Labour Court redefine the integration and co-determination rights of matrix managers across company sites, while another decision significantly lowers the threshold for equal pay claims by accepting a single comparator. Further insights include a notable judgment extending pay transparency principles to managing directors and a strict ruling by the Offenbach Labour Court confirming dismissal without prior warning in cases of compliance failures.
Read on to explore the practical implications of these decisions and what they mean for your organization.
1. New case law
1.1. Double Trouble: Two Federal Labour Court Decisions challenge international reporting line structures
1.3. Equal work – equal pay: Pay transparency applies to managing directors as well!
1.4. General Counsel ignores whistleblowing report: Labour Court confirms dismissal without prior warning
1. New case law
1.1. Double Trouble: Two Federal Labour Court Decisions challenge international reporting line structures
Two recent decisions by the German Federal Labour Court (BAG) set new standards for executive integration in several company sites and voting rights for works councils in matrix organizations - requiring immediate action.
Key points of the decisions:
- Matrix managers who effectively work across several company sites may be eligible to vote in works council elections at each site, provided they manage staff there by dotted reporting lines; the contractual situation is not decisive (BAG, decision 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 managers who are employed on a contractual basis by other (foreign) group companies (BAG, decision of 23 September 2025, docket no. 1 ABR 25/24).
Under German labour law, a matrix organization is a corporate structure in which managers lead staff at another site or at another group company. In this setup, the manager usually is responsible for the functional authority whereas the disciplinary authority remains with the contracting employer.
Labour courts have increasingly been dealing with this organizational structure most recently in two rulings by the BAG.
In the first case, the question arises whether managers with staff assigned on a functional line are considered to be part of the workforce due to their executive function and are therefore eligible to vote in the works council elections. The second case was focused on whether foreign-based managers, who worked with employees in Germany virtually, are "integrated" under the German Works Constitution Act (BetrVG) and therefore the works council must be notified regarding a “employment” (Section 99 Abs. 1 BetrVG).
The BAG confirmed integration into a company side and thus the applicability of the BetrVG when the local employer has partial authority over a manager’s content, location, and time of work. A local employment contract nor physical presence is required. Managers integrated into multiple establishments may vote in each relevant works council election and each works council must be notified before taking on the leadership role. The BAG also stated that the aforementioned principles also apply to managers based abroad, thereby extending the BetrVG to employees who are actually subject to a foreign legal system.
Multinational groups should urgently review both executive assignment structures and works council election procedures in Germany, particularly as elections are currently underway. It is essential to document local employer authority and operational integration as works council involvement becomes mandatory. For works council elections, voter lists and organizational structures must be audited to ensure all matrix managers are properly included; failure to comply with risks, annulment of elections and operational disruption. These decisions also affect the size of works council bodies, potentially requiring more members to be released from regular duties as the decisions of the BAG significantly expand the electorate. The multiple integration of matrix managers also influences the competence of works councils, as responsibilities may concur even with the general or joint works council.
Multinational companies should therefore review their organizational structure carefully to meet the new legal standards and to avoid legal risks.
Alexandra Groth & Annabelle Marceau
1.2. Landmark BAG Ruling: Single Comparator Sufficient for Equal Pay Claims – What employers must know ahead of the EU Pay Transparency Directive
In its judgment of 23 October 2025 (8 AZR 300/24), the Federal Labour Court (BAG) clarified that, for the purposes of an equal pay claim, a comparison with a single person of the opposite sex (“pair comparison”) is sufficient. The thresholds for the presumption of causality have thus been significantly lowered – companies must prepare for a heightened burden of proof and disclosure, particularly with regard to the implementation of the Pay Transparency Directive by set for 7 June 2026 at the latest.
Key points of the decision:
- A pair comparison is sufficient: According to the BAG, an equal pay claim can already be successful if a specific comparator of the opposite sex is better remunerated for equal or equivalent work – regardless of the size of the comparison group or the median pay. The group comparison previously laid down in the Pay Transparency Act thus loses its practical significance.
- Easier presumption of causality: For the reversal of the burden of proof under Section 22 of the General Equal Treatment Act (AGG), it is sufficient that lower pay is paid compared to a specific person of the opposite sex. It is no longer necessary to demonstrate a preponderance of probability of gender-based discrimination; general justifications by the employer are insufficient.
The Federal Labour Court (BAG) has ruled that, in equal pay claims, a comparison with a single person of the opposite sex is sufficient to trigger a presumption of causality. This shifts the focus to pair comparisons, whilst the median comparison under Section 11 of the Pay Transparency Act (EntgTranspG) plays no role under EU law. For companies, this represents a significant tightening of the requirements regarding pay structure and the documentation of remuneration decisions.
Given that the Pay Transparency Directive is due to be implemented in all Member States by 7 June 2026 at the latest and since no transposition law draft exists yet for Germany so that such deadline will most likely be missed, particular caution is advised: if no national implementing legislation is enacted, the courts will need to interpret the existing Pay Transparency Act in accordance with the European Directive.
Companies should therefore not rely on the absence of new legislation but should immediately design and document their remuneration systems and HR processes in a non-discriminatory manner and in compliance with the Directive. Even without missing the aforementioned implementation deadline employers are already exposed today to the risk of pay discrimination claims and should therefore have established their job architecture and criteria for assessing equal and equivalent work, taking into account the four minimum criteria of the Directive, i.e. skills, workload, responsibility and working conditions. The BAG’s ruling thus sets new standards for practice and increases the pressure on employers to act in order to avoid legal risks and reputational damage.
Isabel Hexel
1.3. Equal work – equal pay: Pay transparency applies to managing directors as well!
The Bochum Regional Court granted a female managing director a claim for gender-based pay discrimination amounting to EUR 143,000 even though her male colleague managed a business division many times the size of hers.
Key points:
- Managing directors who do not hold a interest in the company are also entitled to non-discriminatory determination of their compensation and, in the event of a breach, to retriactive payment of the compensation difference.
- The value of an managing director’s work, and consequently their remuneratioin, is not to be determined from the subjective perspective of the employer but rather from an objective perspective. Hence, differences in areas of responsibility, the number of assigned employees, or the division’s revenue should only be considered when setting salaries if they objectively influence the value, for example due to market availability.
- Companies should introduce transparent compensation systems based on objective, gender-neutral criteria at all levels of the organization. This will significantly eases the burden of proof when it comes to claims for gender-based pay discrimation.
Both managing directors had signed identical service agreements in 2020, which differed only in the amount of the base salary. 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. Moreover, 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 its ruling of 2 December 2025, docket no.17 O 56/24 the Bochum Regional Court clarified that the Wage 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. Furthermore the court held that both managing directors fulfilled equivalent tasks. Neither the difference in responsibility for the number of employees nor the revenue for which they were responsible precluded this assessment. 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.
In the view of the Regional Court, this constituted work of equal value, meaning that, under Section 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.
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 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
1.4. General Counsel ignores whistleblowing report: 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 whistleblowing procedures.
Key points of the decision:
- Personal liability for compliance failures: Senior managers with overarching responsibility for legal and compliance matters face personal consequences if they culpably neglect their monitoring and control duties in whistleblower cases. Even without a prior warning, dismissal for misconduct is justified if executives fail to ensure proper investigation, timely reporting, and involvement of internal audit.
- Active implementation required: 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. If a General Counsel fails to ensure that internal procedural rules are followed in the handling of whistleblower reports, this constitutes a serious breach of duty. The same applies if they neglect to involve the group audit function or allow investigations to drag on or be conducted inadequately. 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
Your Contacts for Employment Law:
Martin Coché
Anja Dombrowsky
Alexandra Groth
Isabel Hexel
Dr. Johannes Kaesbach
Jörn Kuhn
Annabelle Marceau
Dr. Martin Nebeling
Linda Neu
Lisa Striegler
Fjolla Sulejmani
Dora Udovičić
Kathrin Vossen
Marko Vraetz
Dr. Alexander Willemsen
