German Statutory Minimum Wage May Include Vacation and Christmas Bonuses
On May 25, 2016, the German Federal Labor Court confirmed a decision of the State Labor Court Berlin-Brandenburg (reference number: 5 AZR 135/16) regarding the statutory minimum wage in Germany. The German Federal Labor court confirmed that, under certain conditions, vacation and Christmas bonuses may also be considered when determining if an employer pays his employees the statutory minimum wage in Germany. This was the first time that the German Federal Labor Court had considered this issue.
Facts of the case
The plaintiff works for a clinic service company in a cafeteria. Based on her employment contract, in addition to her monthly salary she received a vacation bonus in May and a Christmas bonus in November, each amounting to 50 percent of her regular monthly salary. After negotiations with employees, the employer and its works council signed a works agreement that provided for a modified due date of the vacation and Christmas bonus, despite employees’ rejection of the modified due date for the vacation and Christmas bonuses during negotiations with the employer. After the works agreement went into effect, the employer then paid to the plaintiff each month, in addition to her salary, one twelfth of the Christmas and vacation bonus.
The plaintiff sued the company for not paying the statutory minimum wage. Excluding the pro-rated bonus payments, the plaintiff received a monthly salary slightly below the statutory minimum wage per working hour. The plaintiff argued that the pro-rated payment of the bonuses did not count toward the statutory minimum wage threshold. The Labor Court in Brandenburg Havel (judgment of 19 August 2015, reference number: 3 Ca 260/15) and the State Labor Court Berlin-Brandenburg (judgment of 12 January 2016, reference number: 19 Sa 1851/15) both rejected the plaintiff’s arguments. The plaintiff appealed to the Federal Labor Court.
Characterization of the vacation and Christmas bonuses
The question presented to the Federal Labor Court was whether the monthly pro-rata Christmas and vacation bonuses should be considered as wages when calculating the average wage per working hour required under the German statutory minimum wage laws. As a general rule, payments that are provided by the employer without regard to the actual working performance are not to be counted for statutory minimum wage requirements. Special payments such as vacation and Christmas bonuses can be an addition to the salary if the employer wants to honor job performance. However, such payments could also be an additional payment to the employee regardless of the actual job performance or due to other reasons.
The vacation bonus may, for example, be regarded as a kind of “seasonal special payment” (then regarded as salary) or as a payment that depends on the leave arrangements and aims at the restoration and preservation of working capacity of the employee. When looking at Christmas bonuses, the same distinction must be made: Is the Christmas bonus an additional payment for the performed work, or should it fulfill other purposes such as, for example, honor loyalty to the company?
German Federal Labor Court: Special payments, such as vacation and Christmas bonuses can be considered
The Federal Labor Court determined that monthly pro-rata payments of vacation and Christmas bonus were counted toward determining if the statutory minimum wage was being paid. The fact that the entitlement to both bonuses was based solely on the existence of the employment relationship without any additional conditions for payment makes both bonuses part of the plaintiff’s salary and, therefore, considered as wages for minimum wage purposes. The decision is no surprise with regard to its content, since it is in line with the general view on this issue in the legal literature and follows the goals expressed in legislative history.