Legal assessment of the Federal Labor Court decision in case 4 AZR 290/24
In its decision of May 22, 2024 (case number 4 AZR 290/24), the Federal Labor Court (BAG) addressed the distinction between company practices and individual contractual references to collective agreements. The following article provides an in-depth presentation of the background, legal framework, and possible implications of this decision for companies and employees—far beyond the published summary judgment.
Background of the proceedings and subject of the dispute
At the core of the legal dispute was the question of whether, from a long-standing workplace practice—which regularly granted certain compensation components—a claim to these benefits could be individually derived for the future, or whether a reference to collective agreements is decisive. The key issue for the decision was particularly how a permanent granting of benefits is to be assessed under employment contracts and collective labor law.
The employment relationship between the parties had for some time included references to collective agreements as well as a company practice, whose interactions frequently lead in practice to uncertainties regarding the basis and scope of the respective entitlements.
Legal foundations
Reference clauses in employment contracts and company practice
Decisive in the context of this case is the distinction between contractual reference clauses to collective regulations (in particular collective agreements) and the emergence of claims from so-called ‘company practice.’
A company practice exists when an employer repeatedly grants certain behaviors or benefits (such as special payments, bonuses, etc.) over a longer period, so that the workforce can expect this to continue in the future. This may give rise to a collective claim.
In contrast, contractual references to collective agreements mean that future changes to the collective agreement are regularly implemented in the employment relationship as well.
Compliance with collective agreements and content control
The legal assessment of the respective claims is also influenced by provisions on compliance with collective agreements and by the mechanisms of controlling general terms and conditions (§§ 305 ff. BGB), since contractual clauses may not deviate from core collective agreement rules where these are mandatory.
Key points of the BAG decision and their significance
The Federal Labor Court has made it clear that relying exclusively on a company practice can be excluded where the subject of the claim is already fully regulated by a collective agreement reference clause. In the case at hand, the regulation was conclusively determined by the collective agreement; therefore, recourse to company practice was not available.
Thus, the judgment strengthens the structure of German labor law, according to which collectively agreed regulations generally take precedence over individual contractual and de facto established claims.
These principles are highly relevant for business practice for companies that regularly grant benefits on a collective or recurring basis, but also for employees who wish to rely on company practice.
Implications for business practice and drafting of employment contracts
Legal certainty and transparency
The BAG decision contributes to legal certainty, as it consistently points out that, in the presence of a comprehensive reference to collective agreements, supposed claims arising from company practice recede into the background. Companies are thus required to formulate contractual reference clauses clearly to avoid undesirable multiple bindings or double entitlements.
Significance for the enforcement of individual claims
Employees will in the future not be able to additionally rely on company practices where there are existing references to collective agreements. In labor disputes concerning special payments and additional benefits, this is likely to exclude such additional claims more often, provided there is a conclusive regulation in the collective agreement and its inclusion in the employment contract.
Conflict-of-law rules and need for amendments
Conflicts between different entitlements can only be avoided after this judgment if employers and employees design their references transparently and unequivocally. It is advisable to regularly review existing contracts to determine how collective agreements and any company practices might influence each other.
Note on the ongoing proceedings and outstanding legal questions
The described proceedings before the 4th Senate of the Federal Labor Court concerns an individual case and is documented under the specified case number. Where comparable situations exist in other companies, it should be noted that the specific circumstances of each employment relationship must always be taken into account. Open legal questions regarding the effectiveness of collective agreement reference clauses and the existence of company practices continue to be clarified by the courts; the presumption of innocence and ongoing development of case law must always be considered.
(Source: Federal Labor Court, judgment of 22.05.2024 – 4 AZR 290/24, https://www.bundesarbeitsgericht.de/entscheidung/4-azr-290-24/)
For companies, investors and high-net-worth individuals who have legal questions regarding employment regulations, collective agreements or company practices, a careful and individual review can be advisable. The lawyers at MTR Legal Rechtsanwälte are reliable contacts for such matters.
