Employment Update, Germany - September 2008

26 August 2008

Catharina Klumpp

Cases

Dangerous generosity – the granting of voluntary benefits

Background

Under German law, an employee may obtain a contractual entitlement against the employer as a result of a so-called “operating routine”. Such a routine results from a repeated, unreserved and uniform benefit provided by the employer. This occurs, for example, where an employer pays for a voluntary benefit at least three times in a 13th month period. Since the employer regularly grants the employee the same benefit, the employee can rely on the benefit continuing to be paid in the future. This results in the benefit becoming a contractual entitlement. As an exception to that, such an entitlement could not, by prevailing case law, be claimed if the written employment contract included a stipulation according to which any changes or amendments to the contract are required to be in written form. Any modification to this “written form” requirement, is also required to be in written form (the so-called “double written form requirement”).

Facts

In this Federal Labour Court case, the claimant was working for a German company in China. His employment contract included a “written form” clause as mentioned above. The employee’s residential rent was paid by the employer, without a written agreement referencing the arrangement. After the employee’s dismissal without notice, the employer refused to continue reimbursement of rent. In the following action against the validity of the dismissal, the parties agreed on a termination of the employment relationship with notice, but the employee claimed furthermore for the reimbursement of his rent until the end of the notice period. The employer denied the claim referring to the “double written form requirement” within the contract.

The Federal Labour Court affirmed the employee’s entitlement to the reimbursement of the rental costs based on the principle of an “operating routine”, notwithstanding the double written form requirement. The employment contract, which was concluded in the form of standard terms and conditions, could not avoid such claims as the stipulation in the contract was considered ineffective due to the special regulations on standard terms and conditions. According to these regulations contract clauses are ineffective if they are to the disadvantage of the employee against the principle of good faith.

The court stated that the written form requirement in the underlying contract was ineffective since it suggested to the employee that all non written agreement would be ineffective, including such stipulations without a worthy interest in the invalidity.

Effect on employers

As most employment contracts are based on standard terms and conditions, a “double written form requirement” clause will no longer avoid the incurrence of claims from a repeatedly and uniformly granted non-contractual benefit. Consequently, employers have to be careful, even with the existence of a corresponding clause, not to establish continuing claims by granting voluntary benefits. Employers should therefore grant non-contractual benefits only under the explicit reservation of granting the benefit without admitting legal liability for the future, or to grant it as a one-time benefit for the current year, otherwise their generosity could generate a long lasting obligation.

Federal Labour Court decision, 20 May 2008 (9 AZR 382/07)