Towards an inclusive workplace culture

Whilst Diversity, Equity & Inclusion (DE&I) may have historically been considered a matter for the Human Resources Department, we are ­increasingly seeing it being elevated to a board and management level issue, along with ESG and sustainability issues.

Although employees may still from time-to-time express views such as: “We don’t have a DE&I problem here,” and “DE&I is at odds with our meritocracy,” there is ever more recognition by company leaders that diversity brings true benefits to businesses. It offers different opinions, ideas, ways of working, life experiences, social backgrounds and cultures for businesses to draw from. As a result, any ­employer that wants to truly maximize the potential of its workforce, ensure talent retention and encourage innovation must embrace DE&I initiatives.

Business benefits aside, there are also regulatory changes, which are forcing companies to focus on DE&I.

Regulatory changes at EU Level

The European Commission’s Gender Equality Strategy frames the Commission’s work on gender equality and sets out policy objectives and key actions, including legal measures to criminalize violence against women and ensure pay transparency, and greater gender balance in business and politics.

The following directives have already been adopted pursuant to this strategy:

• The Women on Boards Directive requires (among other things) that, by 30 June 2026, at least 40% of non-exe­cutive director positions in listed companies must be held by members of the underrepresented sex. If companies decide to apply the target to both executive and non-executive directors, the target will be 33% of all director positions. Member States have until 27 December 2024 to transpose the Directive into national law.
• Under the EU Pay Transparency Directive, EU-based companies with at least 100 employees will be required to provide information about their gender pay gap. The Directive also seeks to: (i) ban terms in employment contracts which prevent employees from discussing salaries or seeking information about the same or ­other categories of workers’ pay; (ii) require Member States to impose penalties on companies in breach of the rules; and (iii) shift the burden of proof in pay discrimination claims from the worker to employers. The Directive also includes intersectional discrimination and will require job vacancies and titles to be gender neutral. Member States have until 7 June 2026 to transpose the Directive into national law.

Companies will need to be prepared for these changes once they take effect in national law.

Employment law challenges

The “Equity” part of DE&I focusses on remedying the fact that certain minority groups may be disadvantaged in comparison to others. Equity goes beyond equal treatment and requires thoughtful consideration of what changes should be made to policies, practices and working environments to ensure that all groups are able to reach their full potential, and may necessitate treating certain groups or individuals differently in order to do so. These DE&I initiatives are often referenced as positive measures or positive action. Examples of positive measures frequently implemented by organizations are mentoring and sponsoring programs for underrepresented talent, as well as targeted recruitment measures.

The implementation of positive measures to attract and retain a diverse workforce needs to be balanced against the risks of positive discrimination under employment laws.
In Germany, employees are protected against discrimination on the grounds of race or ethnic origin, gender, ­religion or belief, disability, age, or sexual orientation ­under the provisions of the General Equal Treatment Act ­(Allgemeines Gleichbehandlungsgesetz – AGG). ­Generally, pursuant to the AGG, any such discrimination is unlawful, particularly if it relates to conditions for ­access to employment, including selection criteria and recruitment conditions.

However, pursuant to § 5 AGG, unequal treatment of ­employees is permissible where suitable and appropriate measures are adopted to prevent or compensate for dis­advantages arising on the grounds of race or ethnic origin, gender, religion or belief, disability, age, or sexual orientation (so-called positive action).

Mentoring or sponsoring programs and targeted recruitment measures for women and persons from an underrepresented population could therefore be considered suitable and appropriate if they are objectively suitable, necessary, and proportionate overall to prevent or compensate for disadvantages (e.g., if women and persons from an underrepresented population are represented far less frequently in the company than in the population at large.)

If positive measures are not considered suitable, necessary and proportionate to the purpose, then there is a higher risk of such measures being considered to involve positive discrimination, which would be unlawful.

Take as an example a diverse recruitment strategy that ­requires 50% of the candidates interviewed for a vacant position to be from an underrepresented population. The purpose of the strategy is to contribute to a more diverse candidate pool and to prevent unconscious bias in the run-up to the application process.

Since the strategy only stipulates that at least 50% of interview candidates must be from an underrepresented population, without making any statement as to who will ultimately be hired, it can be argued that this interview quota has been introduced to provide women and persons from underrepresented populations with additional opportunities to facilitate their career. It is also intended to prevent/compensate for disadvantages due to gender, race or ­ethnic origin and thus reduce discrimination against persons from underrepresented populations. Accordingly, the strategy creates equal opportunities which are per­mitted as positive action pursuant to § 5 AGG. None­theless, it would still be necessary to ensure that the interview candidates from the underrepresented population actually meet the requirements of the vacant position ­before they are invited to an interview.

Quotas for the actual hiring of candidates from an underrepresented population have the potential to be more problematic, especially if they are considered to be rigid quotas. German case law has ruled that rigid quotas and unconditional priority rules (i.e., provisions that automa­tically favor female candidates in a hiring process irrespec­tive of their qualifications) are inadmissible. However, quotas could be considered to be more acceptable if

• the female candidates have the same, equivalent or at least almost the same qualifications as their male ­fellow candidates;
• female candidates are not given absolute and unconditional priority;
• the selection procedure is transparent and verifiable, and based on objective criteria; and
• all criteria concerning the person of the candidates are taken into account.

Whilst it is undeniable that DE&I is a positive force for change within organizations, as this article demonstrates, there are still legal and regulatory challenges faced by ­organizations as they evolve on their journey towards a more inclusive workplace culture.