Discrimination (Contract Law)

by Jan D Lüttringhaus

1. Non-discrimination and contract law

All European private law systems rely on freedom of contract as a guiding principle. The parties to an agreement may freely decide if and with whom they enter into a contractual relationship.

Thus, freedom of contract also encompasses freedom to discriminate against a person with certain qualities, eg a member of a particular ethnic group. Discrimination on the grounds of race and gender has been banned under several international agreements as contrary to human rights and dignity. Indeed, human rights and fundamental rights (ChFR and ECHR) vested for example in Arts 21 and 23 Charter of Fundamental Rights of the European Union (ChFR) now explicitly forbid all discrimination. The aforementioned Charter does not only apply to race and gender issues, but comprises 16 criteria that may no longer be raised to justify the differentiated treatment of a person. Yet, according to Art 51 ChFR, it does not offer comprehensive protection against discrimination in contractual relationships between citizens. The ECJ has only given ‘horizontal effect’ to the principle of non-discrimination laid down in Art 157 TFEU/141 EC (ECJ Case 43/75 – Defrenne II [1976] ECR 455) and, at least under certain circumstances, also to the prohibition of discrimination on the ground of nationality in Art 18 TFEU/12 EC (ECJ Case 36/74 – Walrave [1974] ECR 1405). The legislation of the majority of the Member States of the EU and the EFTA had not covered the field of non-discrimination before the European legislature intervened on the basis of Art 19 TFEU/13 EC and Art 157 TFEU/ 141 EC. It is therefore surprising that the ECJ stated that the principle of non-discrimination on the grounds of age is a principle common to all legal orders of the Member States (ECJ Case C-144/04 – Mangold [2005] ECR I-9981).

Directives 2000/43 and 2004/113 have carried the principle of non-discrimination directly into contractual relationships. Since the transposition of the directives, the contract law of all Member States provides protection against discrimination as far as concerns the conditions for access to (self-) employment and the access to and supply of goods and services available to the public.

Although the directives on non-discrimination in contract law are modelled after the earlier directives regarding discrimination in employment law (discrimination (employment law)), their scope is relatively limited. Directives 2000/ 43 and 2004/113 only cover discrimination based on a person’s race, ethnic origin or sex. Many EU Member States, eg the United Kingdom and Germany, have decided to extend the protection against discrimination in contract law to age, religion, disabilities and sexual identity (§ 19 AGG; ss 4 ff Equality Act 2010), thus choosing a more comprehensive approach in their respective national anti-discrimination laws.

Direct discrimination shall be taken to occur where persons possessing certain attributes are, because of those attributes, openly treated less favourably than others in a comparable situation. Indirect discrimination shall be taken to occur where an apparently neutral provision, criterion or practice would put persons with certain characteristics at a particular disadvantage as compared with other persons. An instruction to discriminate against individuals on the grounds of certain criteria is also deemed to be discriminatory in itself. The same is true for racial or sexual harassment when an unwanted conduct related to racial or ethnic origin or gender takes place with the purpose or effect of violating the dignity of a person and of creating an intimidating, hostile, degrading, humiliating or offensive environment.

The ban on discrimination covers the entire field of contract law and, in particular, tenancy and insurance law. Article 14(b) Dir 2000/43 and Art 13(b) Dir 2004/113 state expressly that the principle of equal treatment also has to be observed as far as ‘… rules governing profit-making or non-profit-making associations’ are concerned. As of 2012, Art 4 Dir 2010/41 prohibits all discrimination on grounds of sex in relation to the establishment, equipment or extension of a business. Thus, non-discrimination law even extends to the law of associations and company law. Germany, for instance, adopted special rules for company boards (§ 6(3) AGG) and the membership in certain associations (§ 18 AGG). The United Kingdom’s anti-discrimination legislation covers the position of a partner in a partnership (ss 44 ff Equality Act 2010). The most far-reaching strategy in this field is to be found in a country that is not a member of the EU: in Norway, at least 40 per cent of the members of the company board of a public limited company must be female. In spite of the danger of ‘reverse discrimination’, such ‘positive action’ is, at least in principle, permissible under the non-discrimination directives (eg Art 6 Dir 2004/113; Art 5 Dir 2010/41). Spain, France and the Netherlands have already followed the Norwegian example. The discussion on whether or not this approach should be embraced at the European level has just begun.

The principle of non-discrimination in contract law covers the access to and supply of those goods and services which are available to the public, including housing. However, neither the directives nor national law provide clear definitions as to those terms.

The principle of non-discrimination must be respected in contracts that are usually entered into in an undefined number of cases under the same conditions regardless of the individual characteristics of the contracting parties (mass contracts). Moreover, discrimination on the grounds of racial or ethnic origin is banned in all contractual relationships in the fields of social security, welfare, health-care and education. By contrast, discrimination on the grounds of sex are only forbidden in private law when they take place outside of private or family life (Art 3(1) Dir 2004/113).

A different treatment based on a certain attribute may also be justified by a legitimate aim. Yet, as Art 5(2) Dir 2004/113 was found to be incompatible with Arts 21 and 23 ChFR, a different treatment of men and women is no longer permissible in insurance contracts even if it is based on exact mathematic and statistical data proving that the criteria in question are a decisive factor in the process of risk-assessment (ECJ Case 236/09 – Test Achats [2011] ECR I-0000).

As far as the personal scope of application is concerned, all parties to contractual relationships, public and state actors as well as private actors are generally bound by the non-discrimination principle. In a proposal for a new non-discrimination directive (COM(2008) 426 final), the European Commission seeks to exclude transactions that are not related to a professional or commercial activity. While further development on the European level is not yet foreseeable, the exclusion of all ‘private’ transactions from the protection against discrimination is clearly not desirable, as this would jeopardize the aim of anti-discrimination law, which is to comprehensively eradicate such tendencies from society. It is true though that, in most cases, the directives and the national provisions transposing secondary EU law will in practice oblige the providers of services and goods. Accordingly, the persons demanding such services and goods are the main beneficiaries of anti-discrimination law. But although this group will often consist of consumers, the principle of non-discrimination is not a specific question of consumers and consumer protection law: in anti-discrimination law, there is much more at stake than the protection of a weaker and less informed party from a more experienced and well-informed counterpart. Discrimination affects and even negates the individual value and human dignity of a person and must therefore be banned without exception. Moreover, a distinction between discrimination during ‘private’ and ‘commercial’ activities can hardly be carried out with rigidity and would lead to major difficulties.

Whenever a less favourable treatment is based on certain criteria and materializes in disadvantageous contractual provisions or even the refusal to enter into a contractual relationship, such discriminatory behaviour has to be sanctioned. Contractual clauses that are contrary to the principle of equal treatment are null and void. Moreover, civil remedies are available. These include damages and may also comprise further remedies such as injunctions. In addition, most national non-discrimination laws provide further sanctions in criminal and/or administrative law. Anti-discrimination law aims to enforce the principle of equal treatment in the Member States by resorting to various remedies and sanctions that might even be considered as an ‘enforcement mix’.

European non-discrimination law goes beyond the mere protection of the individual victim. It is a tool to lay the ground for a more open and more tolerant society. It aims to establish a basic ‘pan-European social order’ founded on the principle of non-discrimination. Even though anti-discrimination law strives for nothing less than complete and factual equality, the impact of this legal instrument and its capacity to transform society is rather limited. Anti-discrimination law can only be one among many other elements in a more comprehensive strategy of fighting discrimination.

2. Tendencies and evolutions in the field of non-discrimination

The ChFR mentions the principle of non-discrimination in Arts 21 and 23. Therefore, the ban on discrimination in contract law is now rooted in primary European law. In the Mangold case, the ECJ held that the principle of non-discrimination on grounds of age is to be regarded as ‘a general principle of Community law’ (ECJ Case C-144/04 – Mangold [2005] ECR I-9981). The ChFR goes beyond the existing non-discrimination provisions in the directives as far as contract law is concerned: the Charter covers 16 criteria and does not limit itself to certain scenarios. Article 21 ChFR prohibits, inter alia, discrimination based on any ground such as colour, social origin, genetic features, language, political or any other opinion, membership of a national minority, property or birth. Following the green paper ‘Equality and non-discrimination in an enlarged European Union’ (COM (2004) 379 final), an effort has been made to modify the existing acquis communautaire in the field of anti-discrimination law by including discrimination on grounds of genetic features and social origin. The aforementioned criteria are already protected in some Member States. In France, for instance, discrimination on the grounds of genetic features is punishable under Art 225-1 Code pénal. The proposal for a Council directive implementing the principle of equal treatment between persons irrespective of religion or belief, disability, age or sexual orientation (COM(2008) 426 final) extends the protection against discrimination in contract law by including the grounds of disability, religion, age and sexual orientation. The non-discrimination acts in Germany and in the United Kingdom already cover those attributes.

A brief look at the history of 50 years of anti-discrimination legislation in the United States reveals that this field of law is characterized by a continuous development of scope of application and, in particular, by an extension to ever new criteria and areas of life. This evolution suggests that the enhancements made on the national and EU level in Europe are very likely only the first steps in a long-term development. At least in the field of insurance contracts, the standards of European anti-discrimination law have recently become even stricter than in the US (ECJ Case 236/09 – Test-Achats [2011] ECR I-0000).

3. Discrimination in contract law—a variety of national approaches

The anti-discrimination directives oblige Member States to ensure that effective judicial and/or administrative procedures for the enforcement of obligations under the directives are available to all victims of discrimination. If a state opts for judicial remedies, Art 8 Dir 2000/43 and Art 9 Dir 2004/113 require that the burden of proof be shifted to the respondent of an anti-discrimination suit in accordance with the state’s national judicial system. Article 7 Dir 2000/43 and Art 8 Dir 2004/113 stipulate that associations, organizations or other legal entities may under certain conditions engage, either on behalf or in support of the complainant, with his or her approval, in any judicial and/or administrative procedure provided for the enforcement of obligations under the directives. The national anti-discrimination legislation of some Member States, eg Portugal and Spain, gives such entities a prominent role in the enforcement of the principle of equal treatment (Art 5 Lei 18/2004; Art 31 Ley 62/2003). Belgian and Austrian law even provides for collective remedies and, in particular, associational suits regardless of the individual claims of victims of discrimination (Arts 34, 35 Loi du 10 mai 2007; § 12(4) GBK/GAW and § 13 BGStG).

According to Art 14 Dir 2004/113 and Art 15 Dir 2000/43, penalties available under European anti-discrimination law must be effective, proportionate and dissuasive. The Member States have chosen very different approaches. To assure protection against discriminations in contract law, they either resort to private law remedies or to a combination of private and public law remedies. Thus, even though the principle of non-discrimination mostly applies to contractual or at least pre-contractual situations, the remedies available to the victims are neither limited to instruments of contract law nor to private law remedies in general.

a) Private law and protection against discrimination

While Dir 2000/43 mentions civil remedies as one of many instruments of transposing the directive, Art 8(2) Dir 2004/113 expressly states that all prejudice caused to the victims of discrimination has to be compensated. Under the anti-discrimination law of the Member States, every violation of the principle of non-discrimination generally entitles the victims to damages, though there may be additional sanctions available, eg under national criminal and/or administrative law. Discrimination is often considered as a violation of (pre-)contractual duties and/or as a tort, thus leading to general private law remedies or special remedies as codified under some national anti-discrimination laws. Depending on the national private law system, the liability for discriminatory behaviour in pre-contractual dealings can be assured by the instrument of culpa in contrahendo. Some Member States, eg Germany and Austria, have created special remedies (§ 21 AGG; § 38 GlBG). Discrimination is often, although not necessarily, insulting and debasing. For this reason, victims are entitled to compensation for pecuniary as well as for non-pecuniary loss. Furthermore, the victims may protect themselves against future discrimination by way of injunctive relief or similar national remedies. Although anti-discrimination law aims to enforce the principle of non-discrimination with regard to the conclusion of contracts, an obligation to contract is mentioned neither in the European directives nor the national anti-discrimination legislation of the Member States. Nonetheless, an obligation to contract may arise according to the general rules of national private law.

Whenever a Member State has chosen to provide protection against discrimination mainly or even exclusively through private law remedies such as damages, European law expressly states that these sanctions must be effective, proportionate and dissuasive (ECJ Case 14/83 – von Colson [1984] ECR 1891; Art 15 Dir 2000/43). Claims for damages under those national anti-discrimination laws therefore go beyond mere compensation: Given the dissuasive functions intended by such claims, European non-discrimination law relies on deterrence by means of private law. This development is also reflected in Art II.-2:104(2) DCFR. The dissuasive function of the remedies must not be obstructed by limiting the amount of damages available or by imposing high standards for establishing the defendant’s fault (ECJ Case 177/88 – Dekker [1990] ECR I-3941; ECJ Case 180/95 – Draehmpaehl [1997] ECR I-2195). Although the directives give the Member States freedom to choose between the various solutions appropriate for sanctioning discrimination, the directives nevertheless require that, where a Member State opts for a sanction found under the rules on civil liability, any infringement of the prohibition of discrimination is per se sufficient to make the violating party fully liable.

b) Administrative and penal remedies

Even though the non-discrimination legislation of the Member States vary on this point, public bodies always play a role in assuring compliance with the prohibition of discrimination in contract law. The main reason is that Directives 2000/43 and 2004/113 oblige the Member States to create bodies for the promotion of equal treatment. In Germany, France and the Netherlands, these agencies are organized as public administrative bodies. The agencies provide information and support for the victims of discrimination as far as the enforcement of their claims is concerned. They may commence conciliatory proceedings or procure further support for the victims through private anti-discrimination organizations. Some Member States even enforce the principle of non-discrimination through administrative or penal proceedings. In Portugal, a person guilty of an infringement of the prohibition of discrimination may be fined (Art 13 Lei 18/2004). France and Belgium also rely on penal sanctions to ensure respect for the principle of non-discrimination in contract law (Arts 225-1 ff Code pénal; Arts 26 ff Loi du 10 mai 2007).

4. Non-discrimination and the harmonization of private law

The Member States have chosen different means for transposing the non-discrimination directives. A considerable variety of approaches and instruments can be found as far as the scope of application and the enforcement of the principle of non-discrimination are concerned. Despite the guidelines provided by EU law, the success of the efforts towards harmonization of European anti-discrimination law seems relatively limited at the current stage. This is especially true for contract law. Given the Member States’ widely varying recourse to penal and/or public law instruments, the question arises whether or not the protection from discrimination should really be treated as a problem of contract law. Nonetheless, given Dir 2004/113 and Dir 2000/43, the principle of non-discrimination has undoubtedly become part of the acquis of European private law. And while the PECL did not mention the prohibition of discrimination, non-discrimination plays an important role in the latest efforts to harmonize European contract law. Arts II.-2:201 ff DCFR as well as Arts 3:201 ff Acquis Principles prohibit discrimination and provide civil remedies to sanction any infringement. It is important to note that the DCFR and the Acquis Principles even go beyond the status quo in the EU in the field of non-discrimination in contract law. Specifically, there are differences concerning the exemptions from the prohibition of discrimination and the justification of discriminatory behaviour. But above all, the directives only partly give specifications concerning the method of enforcing the principle of non-discrimination and the nature of the sanctions. By contrast, Art 3:201 and Art 3:202 Acquis Principles provide civil damages for pecuniary as well as for non-pecuniary losses. The DCFR develops a concept of protection from discrimination in which the principle of non-discrimination is designed as a contractual duty. Whenever a party to a contract discriminates against his or her co-contractor, the victim is entitled to the remedies available for non-performance according to Art II.-2:104(1) DCFR. This does not foreclose recourse to further remedies that may be available, eg under tort law. Unlike the anti-discrimination directives and unlike the national legislation in some Member States, the Acquis Principles and the DCFR explicitly and primarily draw upon European private law and, in particular, on the instruments of contract law in order to combat discrimination.

Literature

Evelyn Ellis, EU Anti-discrimination Law (2005); Christa Tobler in Office for Official Publications of the European Communities (ed), Remedies and Sanctions in EC Non-Discrimination Law (2005); Jörg Neuner, ‘Protection Against Discrimination in European Contract Law’ [2006] ERCL 35; Mark Bell, Isabelle Chopin and Fiona Palmer, in Office for Official Publications of the European Communities (ed), Developing Anti-Discrimination Law in Europe (2007); Dagmar Schiek, Lisa Waddington and Mark Bell, Cases, Materials and Text on National, Supranational and International Non-Discrimination Law (2007); Bob Hepple, ‘The Aims of Equality Law’ (2008) 61 CLP 1; Stefan Leible, ‘Non-Discrimination’ in Reiner Schulze (ed), Common Frame of Reference and existing EC Contract Law (2008) 127; Malcom Sargeant (ed), The Law on Age Discrimination in the EU (2008); Jürgen Basedow, ‘Der Grundsatz der Nichtdiskriminierung im europäischen Privatrecht’ (2008) 16 ZEuP 230; Jan D Lüttringhaus, Grenzüberschreitender Diskriminierungsschutz (2010).