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Contract law

Exclusion of leave pay after notice of termination is permissible
(Federal Labour Court (BAG), Judgement of 2014-07-22 9 AZR 981/12)

In a current case the Federal Labour Court has ruled that an employer is allowed to promise supplementary leave pay in an employment agreement, but make it contingent upon the employment relationship not having been terminated at the time the leave is granted. According to the BAG such a condition is permissible in relation to leave pay as it was the only condition and the performance of the employee had no influence on the leave pay.

According to the Court, (further) conditions to benefits are only permissible if those benefits are not as it self already tied to the performance of the employee. By making a special benefit that is accrued by the services of the employee additionally subject to a further condition, such as company loyalty, the employee is treated unfairly with the consequence of rendering such clause invalid; the benefit must then be paid even if the additional condition is not satisfied. Otherwise a claim that the employee had already accrued could effectively be waived subsequently, which is unfair.

However, if the benefit is not tied to any performance of the employee, the employer may subject it to a condition such as ongoing employment at the time of granting.

In the case the claim to leave pay was bound to the leave entitlement. Following the leave entitlement, the claim for leave pay did arise no matter if the employee rendered his services, or not. According to the BAG, both the leave as well as the leave pay serve the purpose of rest and do not serve as payment for work performed. For both, only the existence of the employment relationship was a requirement for the claim to arise.

Recommendation for practice:
Employers should not attempt to obtain too much at once when offering benefits. Of course, when funds are made available for a benefit, it is tempting to require good performance of the employee, and furthermore to reserve to waive it in case of a termination by the employee or a bad financial result or a company crisis. However, it is advisable to restrain to a single condition or to split the funds and allocate them to two or more benefits, and make each of it subject to only one condition. Anyone who promises an employee something in exchange for his performance is not permitted to revoke the promise at a later time, when the employee has already rendered such performance, because of a new circumstance that has occurred, such as the employee having given notice of termination or a bad result of the financial year or the company experiencing a crisis. It is advisable for employers to check whether the benefits they have promised to their employees are subject to more than one condition each.

Sabine Feindura
Sabine Feindura, lawyer
and specialist lawyer for
labour law

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