Anyone who fails to pay his debts on time and comes into default of his payment obligations must pay default interest. In addition, the creditor may demand a lump sum for default costs in the amount of EUR 40.00 due to sec. 288 para. 5 of the German Civil Code (Bürgerliches Gesetzbuch, BGB) if the debtor is an entrepreneur. As of the introduction of that regulation by the legislator in 2014, it has been disputed whether sec. 288 (5) of the German Civil Code also applies to employment law situations. A large number of regional labor courts had previously affirmed the application of that regulation and decided that employers which were in default of their payment obligations towards their employees had to pay the default lump sum.

With the latest decision (docket number: 8 AZR 26/18), the Federal Labor Court has now clearly positioned itself – and has spoken out against the applicability of the default lump sum payment in employment law situations.

The Federal Labor Court decision was based on the following case:

The plaintiff worked for the defendant for several years. He filed a claim against the defendant for late payment from May to September 2016. In addition, he demanded three lump sum payments for default on the basis of sec. 288 (5) of the German Civil Code for the months July to September 2016.

The lower courts upheld the action. The Federal Labor Court was of a different opinion.

In the event of an employer’s default of payment of remuneration, the employee is not entitled to a lump sum for default in accordance with sec. 288 (5) of the German Civil Code. This results from sec. 12a  para. 1 sent. 1 of the Labor Court Act (Arbeitsgerichtsgesetz. ArbGG). The regulation states that the parties have no right to claim extrajudicial costs from the opposing party incurred by them in proceedings before the labor court. The Federal Labor Court regards sec. 12a of the Labor Court Act as a special regulation. The regulation not only excludes a claim for reimbursement of procedural costs but also the corresponding material claim for reimbursement of costs. Thus, the claim for the lump sum for default according to sec. 288 (5) of the German Civil Code is also excluded in employment law situations.

The ruling of the Federal Labor Court creates clarity and legal certainty. The EUR 40.00 default lump sum no longer plays a role in employment law.