German Minimum Wage Act: First guidance on the attribution of extra payments to the basic wage
To what extent extra payments and special payments of all kinds which are paid in addition to a regular hourly wage can be attributed to the statutory minimum wage of EUR 8.50 is an issue which has been discussed well before the German Minimum Wage Act (MiLoG) came into effect. One factor which has contributed to this uncertainty is the fact that the MiLoG does not clarify which type of payments are included in the minimum wage. Although the necessity to specify this statutorily was addressed in the legislative procedure, it remained undone.
In its court decision from 4 March 2015 (Case No. 54 Ca 14420/14) the Berlin Labour Court has now laid the initial foundation for clarifying this issue which is of extreme practical significance. At the same time, the court has possibly created a very high obstacle to for the possibility to adjust the prior remuneration structure on account of the MiLoG.
This decision was prompted by an action against unfair dismissal with the option of changed terms of employment. The plaintiff received a basic remuneration of EUR 6.13. The parties additionally agreed on a performance bonus subject to the achievement of agreed targets, extra payments for late and night shifts, additional holiday pay, as well as an annual special payment based on years of service.
The gross hourly wage last paid by the defendant was EUR 6.44. At the end of September 2014, the defendant gave notice of termination on the employment for urgent operational reasons and offered the plaintiff continued employment from 1 March 2015 onwards for a gross hourly wage of EUR 8.50. Whilst the agreed extra payments for late and night shifts were to be retained, the other extra payments and special payments were no longer to be paid. The plaintiff accepted the offer subject to the proviso that it was socially justified.
Only payments which compensate normal performance in the period in which it is rendered are attributed to the minimum wage
The action filed by the plaintiff was successful. The Labour Court held the dismissal with the option of changed terms of employment to be invalid.
For the question of which payments can be attributed, the Court based its decision on the case law of the German Federal Labour Court on minimum collectively agreed wages (BAG (German Federal Labour Court) judgement of 16 April 2014 – 3 AZR 802/11), i.e. the objective pursued by the employer with the payment in question. Based on the assumption that the minimum wage only serves to compensate regular performance, the court held that only payments which are intended to compensate the normal work performance and are therefore “functionally equivalent” increase the wage and can therefore be attributed. The Court expressly refused to make an overall economic assessment.
In addition to the purpose of the remuneration paid, the Court also stated that the attributability also depends on the payment deadline of two months provided for in Section 2(1) No. 2 of the MiLoG. Accordingly, one-off payments could therefore not be apportioned on the annual average.
The Court therefore did not take the additional holiday pay and the annual special payment for company loyalty into account as extra payments when calculating the wage in the meaning of the MiLoG. According to the Court, neither of these compensation elements were linked to the work performance normally owed, which the minimum wage was intended to secure.
The Court did not have to comment on the disputed treatment of payments granted for extraordinary performance since it was irrelevant for its decision. It did, however, state that it was inclined to hold that such payments were not functionally linked to the minimum wage either.
Unilateral adjustment considered impermissible circumvention by employer
Having established that the payments were not attributable to the minimum wage, the second question was to what extent the employer still had possibilities to adjust the prior remuneration structure in the form of dismissal with the option of changed terms of employment. The Court fundamentally ruled against this, stating that all actions aimed at having payments attributed to the minimum wage although these were not eligible for it constituted circumvention and were impermissible for this reason alone.
The principles regarding redundancy with the option of changed terms of employment to reduce wages are applicable
The Court also ruled that the strict requirements which case law places on a dismissal with the option of changed terms of employment to reduce wages also had to be observed when adjusting wages to comply with the MiLoG. According to the Court, reducing wages by dismissal with the option of changed terms of employment was possible only if the company’s economic existence was threatened. Although the employee appeared to be in a better financial position after the introduction of the minimum wage, even without the extra payments, than before, the changed terms offered to the employee ultimately had the effect of reducing the wage. It was therefore decisive to compare the actual wage level before and after the changed terms offered to the employee take effect.
Should the legal opinion of the Berlin Labour Court set out above be followed by other courts in the future, it would appear that any unilateral adjustment based on the MiLoG will s be effectively ruled out in the majority of case for any remuneration systems that are already established.
The situation is likely to be different for future employment contracts. As this judgement shows, it is advisable for employers to take a critical look at the remuneration principles they have in place, both with respect to their purpose and their payment options and, if necessary, to make adjustments in due time which also take future increases of the minimum wage into account.
Any questions? Please contact: Jacek Kielkowski
Practice Group: Employment & Pensions