If the employer changes the existing remuneration principles in the company in breach of the works council’s right of co-determination pursuant to Section 87 (1) No. 10 BetrVG, the affected employees can demand remuneration based on the remuneration principles last introduced pursuant to the co-determination process.

Facts of the case

The parties are in dispute over claims for holiday pay for 2020. The three plaintiffs had been employed by the defendant’s legal predecessor since 2016 and 2018 respectively. A works council had been in place since 2013. The employees had received from the previous legal entity an annual holiday allowance since the mid-1990s. In the years 2008 to 2013, the legal predecessor sent out an annual letter in June/July labelled “Information from the HR department”, setting out that the holiday pay/bonus was a one-off entitlement and was a voluntary social benefit that could be revoked at any time. Slightly different letters were sent from 2014 onwards. In 2020, payment of the holiday bonus was suspended. The works council was not formally involved in establishing the holiday pay. The plaintiffs are seeking payment of holiday pay as set out by the previous legal entity. The Labour Court upheld the claim, while the Regional Labour Court dismissed the claim.

Decision

The plaintiffs’ appeal was successful. The entitlement to holiday pay follows from the overall commitment from 2008, which also grants employees who subsequently join the company an entitlement to the promised benefit, provided they fulfil the conditions for entitlement. The letter should be interpreted as not being limited to the current year, but as generally establishing the conditions for the entitlement to holiday pay, which is determined annually at the company’s reasonable discretion. The claim was also not effectively excluded. The statement that it was a voluntary benefit and could be cancelled at any time was not transparent and constituted an unreasonable disadvantage in accordance with Section 307 (1) German Civil Code (BGB), which led to the clause being invalid. Equally ineffective, because unreasonably detrimental to the employees within the meaning of Section 307 (1) sentence 1 BGB, is a clause reserving the right t remove the entitlement set out in the employment contract, which could be interpreted in such a way that it also covers subsequent individual agreements relating to entitlement to benefits from the employer.

The subsequent changes to the original holiday pay commitment from 2014 to 2019 were invalid because the works council, which had been in place since 2013, had not been effectively involved in accordance with Section 87 (1) no. 10 BetrVG. In the case of an employer that is not bound by a collective agreement, the allocation of total remuneration is subject to co-determination, not only when the remuneration principles are introduced, but also when they are changed. If the employer violates the right of co-determination by unilaterally changing the remuneration principles, employees can demand remuneration on the basis of the last remuneration principles introduced in accordance with co-determination.

(BAG, 21.02.2024 – 10 AZR 345/22)

Practical tips for employers

The decision follows the existing case law of the German Federal Labour Court (Bundesarbeitsgericht). In companies with a works council, employers who are not bound by collective agreements must obtain the consent of the works council for every change to the remuneration structure. Mere acceptance by the employees or the works council does not replace a requirement for express consent.