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Reduction of a Special Payment Possible Despite Unrestricted Granting for Years

On 23 August 2017 the Federal Labour Court decided that despite the unrestricted granting of a special payment for multiple years, the employer may reduce the amount of a special payment in the future provided that the employment agreement contains a reservation in this respect (docket number 10 AZR 97/17).

The employee and later plaintiff was employed by the defendant from 1999 and received through the years, in addition to her regular salary, a Christmas payment. Until 2013 this Christmas payment amounted to the equivalent of one monthly gross salary. The payment method was that employees regularly received with the May payroll an advance payment of half a gross monthly salary and the other half with the November payroll.

The employment agreement contained a provision saying that the employer provides for a Christmas payment as voluntary compensation. The amount of such Christmas payment had to be determined annually by the employer and would currently not exceed a full monthly salary whereby an advance payment of half a monthly salary was to be made in June.

In May 2014, the defendant paid half a monthly salary in addition to the regular salary which appeared as “Part payment annual payment” on the employees’ pay slips. Due to a negative prognosis for the annual operating profit, the defendant decided and informed the employees accordingly that no further annual payment could be granted for this year.

The plaintiff found the contractual provision not transparent and claimed the full monthly salary as an annual payment. She further pointed out that the full monthly salary had been paid for years without restriction.

The Federal Labour Court considered the relevant contractual provision as General Terms and Conditions pursuant to sec. 305 et seqq. German Civil Code and stated that for its interpretation one had to consider how the contractual text had to be understood from the point of view of participants who typically participate in this kind of business. Accordingly, the employees had an entitlement to an annual Christmas payment whereby half of it should be paid at mid-year. However, the Federal Labour Court found that the amount of the annual payment and its advance could be determined by the defendant at its reasonable discretion in accordance with sec. 315 German Civil Code as the employment agreement only stated that the amount would “currently” not exceed one full monthly salary. Therefore, the contractual provision left open in a recognizable way whether the amount of the Christmas payment should remain the same, be increased or decreased in future years.

In addition, the Federal Labour Court found that the advance payment in May did not bind the defendant to the full monthly amount. An advance payment is a payment of a debt which has not yet been due. The payment of the advance with the May payroll in the amount of half a monthly salary had not been a declaration by the defendant that the Christmas payment for that year would remain a total amount of a full monthly salary. It was only an implied statement that the Christmas payment for that year would at least amount to half a monthly salary.

The conclusion is that even if a payment is granted for multiple years without reservation, this can only have binding consequences such as the development of an operational custom if there is no explicit agreement in place.