Reference Clause

Reference clause

Die Reference clause is a central instrument in German contract law, especially in labor law but also in general civil law. It enables the incorporation of external regulations such as collective bargaining agreements, works agreements, or other general terms and conditions into an individual contract. The exact legal structure, effect, and scope of reference clauses have been the subject of intensive statutory and judicial development for years.

Definition and basics

The reference clause is a contractual provision that refers to external documents, regulations, or requirements so that their content, in whole or in part, becomes part of the contract. Typical areas of application are employment contracts, rental agreements, or service contracts, where reference is often made to regulations such as collective bargaining agreements or works agreements.

Types of reference clauses

A distinction is made between:

• Static reference clause: Refers only to a specific version of an external regulation (e.g., a collective agreement as it existed at the time of contract conclusion).
• Dynamic reference clause: Refers to the currently valid or future regulation, so that later changes automatically become part of the contract.

Reference clauses in labor law

In employment law, reference clauses are of particular importance. They serve to flexibly and efficiently structure the conditions of employment contracts, especially when referring to collective bargaining agreements or works agreements.

Effect and incorporation

Incorporation is governed by the provisions of §§ 305 et seq. BGB (German Civil Code) on general terms and conditions. Reference clauses are especially assessed in labor contract law based on the principle of freedom of contract and in compliance with mandatory protection provisions.

Case law of the Federal Labor Court

The Federal Labor Court (BAG) has decisively shaped the interpretation and application of reference clauses. It distinguishes, among other things, whether the reference was individually agreed upon or indicated due to a transfer of business (§ 613a BGB). In particular, after the jurisprudential change as of January 1, 2002, dynamic reference clauses are generally only considered dynamic if this has been explicitly and sufficiently clearly agreed.

Collectively binding and non-collectively binding references

Reference clauses may refer either to collective agreements to which both parties are bound by law (§ 3, § 4 TVG) (collectively binding reference), or to those where no collective binding exists (non-collectively binding reference). In the latter case, it is referred to as a so-called ‘small dynamic reference clause’ or ‘improper reference clause.’

Reference clauses in general contract law

Even outside employment law, reference clauses are used, for example in tenancy, lease, or service contracts. Here, they serve to simplify and standardize by incorporating general terms and conditions or technical standards.

Requirements for validity

The prerequisites for incorporation are set by §§ 305 et seq. BGB, especially the transparency requirement (§ 307 para. 1 s. 2 BGB), according to which the contracting party must not be unreasonably disadvantaged by the reference and the provision must be formulated clearly and understandably.

Content review and limitations

Transparency requirement and review of general terms and conditions

Reference clauses—if used in general terms and conditions—are subject to strict content review. Unclear or surprising clauses are invalid pursuant to § 305c BGB. In addition, it must be clear to the other party which regulations are applied by the clause.

Prohibition of discrimination and principle of favorability

Especially in labor law, it must be ensured that reference clauses do not have a discriminatory effect. In addition, they may not result in a deterioration compared to more favorable statutory provisions or individual contractual agreements.

Conflict of regulations

If a conflict arises through the reference between the external regulation and the individual contract, the applicable conflict of laws rules determine which regulation prevails. The principle of favorability is often applied, whereby the regulation most favorable to the contracting party takes precedence.

Reference clause in case of business transfer

A special case arises in the context of a business transfer pursuant to § 613a BGB. Here, the question is to what extent collectively agreed regulations, which were previously referred to dynamically, continue to apply after the business is transferred. According to current case law of the European Court of Justice, dynamic reference clauses in the event of a business transfer must be taken into account in favor of the employee, unless expressly agreed otherwise.

Drafting and wording of clauses

The effectiveness of a reference clause depends critically on the clarity and precision of its wording. Unclear or ambiguous clauses run the risk of being invalid and may lead to legal uncertainty. It is therefore advisable to distinguish clearly between static and dynamic references and to specify the regulation to be incorporated as precisely as possible.

Summary and significance

Reference clauses are an essential tool for structured and flexible contract drafting, particularly in employment and civil law. Their effectiveness crucially depends on clear, transparent wording as well as compliance with the statutory provisions on general terms and conditions and anti-discrimination protection. The dynamic or static structure, the control of collisions between competing regulations, and the special situation in the event of business transfer are key legal issues in dealing with reference clauses.

Further literature and case law:

• German Civil Code (BGB), §§ 305 et seq.
• Collective Agreements Act (TVG), §§ 3, 4
• Federal Labor Court, various judgments on reference clauses
• European Court of Justice (ECJ), judgments on business transfer and reference clauses

See also:

• Employment contract
• Collective agreement
• General Terms and Conditions (GTC)
• Works agreement

Category: Contract law
Category: Labor law

Frequently asked questions

When is a reference clause in an employment contract legally effective?

The validity of a reference clause in an employment contract depends crucially on its clarity and transparency. From an employment law perspective, the clause must be comprehensible and unambiguous for the employee so that it is clear which external regulations (e.g., collective bargaining agreements, works agreements) shall specifically apply. It is also important that a dynamic reference clause clearly indicates that not only the current, but also future versions of the named collective agreement or works agreement may apply (“in the version applicable at the time”). Problems may arise with general terms and conditions (GTC) if they contain surprising or ambiguous provisions. Furthermore, reference clauses must not violate mandatory labor law provisions or the transparency requirement of § 307 BGB. With regard to the so-called equal treatment obligation, a reference must not result in disadvantage to certain employees or groups. Finally, the aspects of validity also include special legal provisions such as the Act on Proof of Substantial Conditions (NachwG) and, if applicable, sector-specific particularities.

What are the legal consequences of a dynamic reference clause?

A dynamic reference clause results in the employment contract referring not only to the version of an external regulation valid at the time of conclusion, but also to all future amendments of the same. Legally, this means that all subsequent versions of the specified collective agreement or works agreement become part of the employment relationship without requiring individual contractual amendments. The binding effect of a dynamic clause becomes especially relevant when the content of the referenced regulations is changed or supplemented. The employer aims to ensure a high degree of flexibility and adaptability with this, but it can also lead to legal uncertainty for employees, as they cannot always foresee which regulations will apply in the future. Case law, especially the Federal Labor Court, requires for the validity of dynamism that it is clearly and unequivocally agreed. In situations involving changes of collective agreement or business transfer, special rules and transitional provisions may also apply.

How does a reference clause behave in the event of a business transfer (§ 613a BGB)?

In the event of a business transfer under § 613a BGB, the question arises how reference clauses to company-specific regulations are to be handled. According to consistent supreme court case law of the Federal Labor Court (BAG) and pursuant to EU Directive 2001/23/EC: Dynamic reference clauses generally become static in the event of a business transfer if the acquirer is not bound by a collective agreement. That is, the version of the referenced collective agreement that existed at the time of the business transfer applies (BAG, judgment of April 18, 2012, Case No.: 4 AZR 119/10, so-called “Alemo-Herron case law”). If the acquirer is itself bound by a collective agreement, the dynamic effect remains. The treatment of reference clauses in the context of a business transfer is therefore legally complex and always requires an individual assessment considering the respective binding status and applicability of collective agreements.

Can reference clauses be amended or revoked by a subsequent works agreement?

In principle, a contractual reference clause cannot be amended or revoked simply by a later works agreement, provided it was individually agreed. According to the so-called ‘collective bargaining precedence rule’ (§ 77 (3) BetrVG), collective agreements have a blocking effect against deviating works agreements. An employee with an employment contract referring to a collective agreement generally retains rights under the collective agreement even if a works agreement attempts to bypass them. This is only different if the reference clause itself provides an opening clause for deviating works agreements. In practice, such situations are often subject to labor court disputes, where the individual contractual situation is interpreted.

What obligations arise for employers from a reference clause?

The employer is obliged to apply and observe the provisions validly incorporated into the employment relationship via the reference clause. This means that all claims and obligations from the named collective agreement or works agreement become effective for the employee. If the employer does not comply with these obligations, employees can seek legal enforcement of corresponding rights (e.g., for wage adjustments, special payments, or vacation entitlements). Furthermore, the employer must inform employees of changes to the referenced regulation and ensure implementation in company practice. In cases of ambiguity on interpretation or applicability, the so-called ‘transparency requirement’ applies, whereby the employer must ensure clear information and management.

Can employees derive claims from an unclear reference clause?

An unclear or ambiguous reference clause is interpreted in favor of the employee according to § 305c (2) BGB (“rule of ambiguity”). If the scope, content, or method of application of the clause is not clearly identifiable for an average contracting party, there is a risk that the court will either declare the clause completely invalid or interpret it in the way most favorable to the employee. Employees can, therefore, derive rights both to the application of the referenced regulation and to the continued existence of certain normative protective rights from the ambiguity of a reference clause. Accordingly, employers should pay particular attention to clarity and comprehensibility in drafting to avoid legal disputes.

What happens to a reference clause when the referenced collective bargaining agreement ends or ceases to exist?

If the referenced collective agreement loses its validity—such as by formal termination, rescission, or loss of collective coverage—a question arises as to the continuation of the reference clause. Legally, this depends on the type of clause used: for static reference clauses, what was valid at the time of concluding the contract remains binding. For dynamic reference clauses, generally the fate of the collective agreement is decisive. If the scope of validity of a collective agreement ends, the dynamic effect generally ceases—unless the reference clause itself provides for something different or post-effect provisions (§ 4 (5) TVG) apply. The Federal Labor Court affirms the possibility that after the end of the collective agreement, a reversion to the individually agreed employment conditions in the contract may occur; however, the details depend very much on the specific contract wording and the labor law interpretation.