Employment practices liability in Germany: cover for discrimination claims under the AGG
If you employ people in Germany, the General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz, AGG) applies to you from the first job advert. Applicants and employees can claim compensation without proving fault, and in the labour court each side pays its own lawyer at first instance, win or lose. What other markets call EPL is sold here as AGG-Versicherung: it assesses the claim, pays for the defence and settles what is justified.
Is German AGG insurance the same as EPL cover elsewhere?
In principle yes, in scope no. International EPL policies usually cover wrongful dismissal, discrimination, harassment and retaliation as one package. The German product is built around claims for damages and compensation under section 15 AGG, and many policies extend it to harassment and bullying. Claims for unpaid salary or severance are not insured. Protection against dismissal itself is a separate area of German law, and legal costs for those disputes are a matter for business legal expenses insurance.
What the AGG means for an employer
The AGG prohibits unfavourable treatment on grounds of race or ethnic origin, gender, religion or belief, disability, age or sexual identity. It covers the whole employment relationship, including recruitment. Section 15 gives two remedies: damages for financial loss, which require that the employer is responsible for the breach, and reasonable compensation for non-financial harm, which does not require fault at all.
Compensation is not capped by statute. The one exception concerns rejected applicants: if the person would not have been hired even in a selection free of discrimination, compensation may not exceed three months' salary. It is for the employer to show that this was the case.
Short deadlines, shifted burden of proof
A claimant must assert the claim in writing within two months, unless a collective agreement says otherwise. For applicants the period starts when the rejection arrives, in other cases when the person learns of the unfavourable treatment. An action for compensation must then be filed within three months of the written claim (section 61b of the Labour Courts Act). Miss either deadline and the claim is lost.
In court, section 22 AGG helps the claimant. Once they prove facts that suggest discrimination, the employer has to prove there was no breach. A job advert asking for a young team, or failing to invite a severely disabled applicant to interview, can be enough. In practice the outcome often depends on how well the selection was documented.
Why defence costs matter more than the award
German labour courts have a rule that surprises many foreign managers. Under section 12a of the Labour Courts Act the winning party has no right to recover its lawyer's fees at first instance. An employer who successfully defends an unfounded claim still pays its own lawyer. That is the cost AGG insurance is mainly bought for.
Some applicants apply without real interest in the job in order to claim compensation after the rejection. The Federal Labour Court dismisses such claims as an abuse of rights, but the employer has to prove the abuse in the individual case, and a history of earlier lawsuits is not enough on its own.
Standalone policy or add-on
Cover comes either as a standalone policy with its own limit or as a section of a D&O, professional indemnity or general liability policy. Add-ons are convenient but often carry a much lower limit; some are restricted to 100,000 euros and one claim a year. Inside a D&O policy the limit is also shared with claims against the directors.
Policies are written on a claims-made basis: what counts is when the claim is first made, not when the act happened. Check retroactive cover for unknown earlier acts and the extended reporting period after the policy ends.
What is covered
Assessment of whether the claim is justified
Defence against unfounded claims, in and out of court
Lawyers' and court fees, including the first instance in the labour court
Compensation for non-financial harm under section 15(2) AGG
Damages for financial loss under section 15(1) AGG
Claims by applicants, employees and former employees
Personal claims against directors, managers and HR staff
Depending on the policy: claims by customers, harassment and bullying
What is not covered
Intentional discrimination
Salary, severance and other payments that are owed anyway
Fines, penalties and contractual penalties
Circumstances already known when the policy started
Costs of reinstatement or of adapting a workplace
Claims before courts in the USA or Canada unless agreed
Who needs it
Companies that advertise vacancies regularly and reject many applicants
Foreign groups setting up a German subsidiary without local HR or legal staff
Employers whose line managers hire and appraise on their own
Associations and non-profits with paid staff
Companies going through restructuring or redundancies
Who does not need it
Freelancers with no staff and no vacancies
Companies whose D&O or liability policy already includes an AGG section with an adequate limit
Groups whose international EPL programme expressly covers German subsidiaries and German law
Wheel of misfortune
Spin the wheel of bad luck
Six things that really happen. The wheel picks yours and shows who pays.
Cost:
Budget policy Strong policy
See all six cases
Rejected applicant claims compensation, up to three months' salary plus your lawyer. Budget policy: pays, Strong policy: pays. The standard case. The insurer assesses, defends or pays, and bears first-instance legal fees even if the claim is dismissed.
Dismissal, alleged age discrimination, compensation at the court's discretion. Budget policy: pays, Strong policy: pays. Compensation for the discrimination is covered. Salary up to the end of employment and any severance remain the employer's own cost.
Harassment by a line manager, compensation and long proceedings. Budget policy: pays in part, Strong policy: pays. Basic tariffs insure only the company. Strong ones also protect the manager personally and name harassment and bullying expressly.
Customer alleges discrimination, compensation and defence costs. Budget policy: does not pay, Strong policy: pays. Claims by customers under the civil law part of the AGG are covered only if third parties are included as claimants.
Old case reported after inception, the full claim including costs. Budget policy: does not pay, Strong policy: pays in part. Without retroactive cover the case is not insured. With it, only if the breach was unknown when the policy started.
Back pay ordered by the court, the outstanding salaries. Budget policy: does not pay, Strong policy: does not pay. Salary, severance and other payments owed under the contract are not insured in any tariff.
What it costs
The premium depends mainly on headcount, the limit and the excess. Small and medium-sized companies can buy standard tariffs up to a headcount or turnover threshold; above that the insurer underwrites individually. We found no independently published price comparison for this class, so we give no sample figures.
What drives the premium
Number of employees and staff turnover
Limit per claim and annual aggregate
Excess, and whether it applies to defence costs
Sector and number of hires per year
Claims and proceedings in recent years
Territorial scope, especially staff in the USA or Canada
The premium is fixed in the quote. For an add-on it is part of the main policy premium and not always shown separately.
The policy levels on the market
01
Add-on to a main policy
AGG section inside D&O, professional or general liability. Usually a limited sum, sometimes one claim a year, terms follow the main policy.
02
Standalone policy
A separate limit for discrimination claims only, covering the company, its directors and employees. For employers that hire regularly.
03
Extended cover
Adds claims by customers, harassment and bullying, foreign law, a long extended reporting period, and costs for reputation and early legal advice.
How to recognise a good policy
Criterion
Minimum standard
Strong policy
Why it matters
Limit
100,000 euros, once a year
own limit, available several times a year
Several claims from one advert or one round of dismissals exhaust a small limit quickly.
Defence costs
deducted from the limit
paid in addition to the limit
Defence often costs more than the award.
Excess
also applies to defence costs
none, or only on the award
Otherwise you pay the frequent small cases yourself.
Insured persons
the company only
company, directors, managers and all employees
Claims are also brought against managers personally.
Claimants
employees only
applicants, former staff, agency workers and customers
Most cases start in recruitment.
Harassment and bullying
statutory AGG grounds only
harassment, bullying and retaliation included
In real disputes the allegations overlap.
Retroactive cover
none
unlimited for acts not yet known
The claim may arise from a decision taken before the policy started.
Extended reporting period
one year
several years, also if the insurer cancels
Some claims are made after the policy has ended.
Settlements
insurer can force a settlement
settlement only with your consent, no penalty for refusing
Some employers refuse to pay on principle to avoid copycat claims.
Insurers on the German market
AGG cover is written by liability and specialty insurers, as a standalone policy or within D&O or general liability. International specialists such as Hiscox, Chubb and AIG operate in Germany as branches of companies from other EU states and are therefore not on the BaFin list of insurers under federal supervision; they are missing below for that reason. This is a market overview, not a statement about who we work with.
Insurer
Background
Allianz
own claims-made policy wording for AGG cover
R+V
insurer of the German cooperative banks, AGG wording as a separate part of its D&O
Die Haftpflichtkasse
mutual liability insurer, AGG insurance for businesses sold through brokers
ARAG
AGG claims as a limited extension of its business liability policy
Markel
Munich-based specialty insurer, sells through brokers
From the BaFin register
142
142 insurers supervised by BaFin, the German regulator, are licensed for this class of insurance.
A separate contract with its own limit for discrimination claims. The clearest solution for companies that hire a lot.
AGG section of a D&O policy
Convenient, but the limit is shared with claims against the directors.
AGG section of general liability
Usually a low limit. Enough for occasional hiring, not for a series of claims.
Business legal expenses with employment law
Related cover: pays lawyers and court fees in employment disputes, but not the compensation.
International EPL programme
Group policy placed abroad. Check that German subsidiaries, German law and first-instance defence costs are included.
Myth or truth
True or false?
Five things people say about this insurance. Guess first, then see the answer.
An employee has to prove the employer was at fault to get compensation.
This is false.
No. Compensation under section 15(2) AGG does not require fault. Only damages for financial loss fall away if the employer is not responsible for the breach.
A claim made too late is lost.
This is true.
Correct. The claim must be asserted in writing within two months and the action for compensation filed within a further three months. Both are cut-off periods.
If you win in the German labour court, the other side pays your lawyer.
This is false.
Not at first instance. Under section 12a of the Labour Courts Act each party bears its own legal fees there, including the winner.
The AGG applies even to a company with a handful of employees.
This is true.
Yes. The Act applies to every employer regardless of size and already covers the recruitment process.
A serial claimant can be turned away simply by pointing to earlier lawsuits.
This is false.
No. Abuse of rights defeats the claim, but the employer must prove it case by case. Many previous claims are not sufficient on their own, according to the Federal Labour Court.
Common mistakes
Assuming a group EPL policy automatically covers the German entity and German law
Admitting or rejecting a claim before the insurer has been told
Deleting application files and selection notes before the deadlines have passed
Insuring the award but overlooking first-instance defence costs
Translating job adverts from English without checking them against the AGG
Confusing legal expenses insurance with AGG cover
Frequently asked questions
Questions and answers
Frequently asked
What does AGG insurance pay?
It assesses the claim, pays the cost of defending it and settles justified claims up to the limit:
compensation for non-financial harm and, depending on the policy, damages for financial loss.
Lawyers' and court fees are included, also out of court.
How much compensation can a German court award?
The law requires reasonable compensation and sets no fixed amount.
Only for rejected applicants who would not have been hired anyway is there a cap of three months'
salary.
Otherwise the court decides according to the seriousness and duration of the discrimination.
How long can someone wait before claiming?
Two months to assert the claim in writing,
counted from receipt of the rejection for applicants and from knowledge in other cases.
Then three months to sue for compensation.
Keep selection records at least until both periods have safely passed.
Why do I pay my own lawyer even if I win?
Because section 12a of the Labour Courts Act excludes recovery of legal fees at first instance.
The rule applies to both sides.
From the appeal stage the losing party also bears the other side's lawyer's fees.
Does the AGG apply to small companies?
Yes.
Unlike German dismissal protection, the AGG has no minimum headcount.
It applies to every employer and already to the recruitment process.
Are managing directors and managers insured personally?
In stronger policies yes: the company, its directors,
senior staff and often all employees are insured if they are sued personally.
Weaker policies protect only the company.
Does my German general liability policy cover AGG claims?
Only if expressly agreed.
General liability is designed for bodily injury and property damage.
Some tariffs include an AGG extension with a low limit;
the special conditions say whether and how much.
Is intentional discrimination covered?
No.
Deliberate discrimination is excluded.
Many policies still pay defence costs until intent has been established by a final judgment.
Why use a broker?
Because policies differ widely on limit, defence costs, insured persons,
retroactive cover and settlement clauses,
and an existing add-on often does less than expected.
We review your current policies, collect quotes and compare the wording.
The insurer pays our commission.
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