Holiday pay is not creditable against the statutory minimum wage

On 25 September 2015, the Higher Labour Court (Landesarbeitsgericht, LAG) Berlin-Brandenburg (docket number: 8 Sa 677/15) was concerned with the question, whether holiday pay is creditable against the statutory minimum wage. However it ruled, that the holiday pay is not creditable against the statutory minimum wage without an effective change of the employment contract. Substantially it agreed with the judgment of the Labour Court (Arbeitsgericht, AG) Berlin dated 4 March 2015 (docket number: 54 CA 14420/14), which was concerned with this fundamental question for the first time in Germany.

In the present case, the parties argued about the effectiveness of a modification dismissal (Änderungskündigung), which was given by the employer because of the introduction of the minimum wage in the amount of €8.50 per hour with effect of 1 January 2015. The employer paid the employee holiday pay, in addition to the basic remuneration in the amount of €6.13 per hour. The employer intended to eliminate the holiday pay with the modification dismissal, as an offset to the minimum wage, which increased the basic remuneration. The employee claimed for dismissal protection before the Higher Labour Court.

The Higher Labour Court considered the modification dismissal as socially unjustified and invalid for the following reasons:

Firstly, the modification dismissal is not superfluous according to the case law of the Federal Labour Court (Bundesarbeitsgericht, BAG 1 January 2012 – docket number: 2 AZR 102/11). Secondly the employer missed to state the operational reasons for the modification dismissal.

  1. The holiday pay is not creditable against the statutory minimum wage without an effective change of the employment agreement. A holiday pay, amounting 50% of average hourly earnings for annual leave, can only be regarded as an additional holiday pay. The employer warrants this additional holiday pay only to bear the additional costs of the employee during annual leave. In principle holiday pay does not compensate the employee’s normal performance. Although holiday pay has partially a compensation character (mixed character), the court ruled, that this fact does not exclude the consideration as an additional payment. Therefore, the holiday pay can only be deleted by an socially justified modification dismissal.
  2. According to the Minimum Wage Act (Mindestlohngesetz) employees can claim higher total annual remuneration, because there are no statutory regulations, whether additional payments of the employer are creditable against the statutory minimum wage. A modification dismissal, which intends to delete holiday pay and consequently reduce the total remuneration to the amount before the minimum wage act came into force, has to meet the prerequisites of a modification dismissal for remuneration reduction (Änderungskündigung zur Entgeltreduzierung). The employer did not adequately state the fulfillment of these prerequisites (existence hazard by continued payment of previous remuneration).