Wage transfer agreement
The term “wage transfer agreement” (also called wage diversion agreement) refers to a civil law contract arrangement in which one of the contracting parties aims to circumvent wage garnishment or wage assignment or impair creditors’ interests. Such agreements often arise in connection with so-called wage diversion, in which a debtor’s income or assets are ‘shifted’ to another person in order to make it more difficult or impossible for creditors to seize them. The legal assessment of such agreements is complex and is substantially determined by the principles of creditor protection and the prohibition of abuse of rights.
Definition of terms and typical structuring
Definition
A wage transfer agreement is an obligation under the law of obligations which aims to formally assign or conceal claims to remuneration—particularly salary or wage claims—of a debtor to another person. This regularly takes place through fictitious employments, contract takeovers, or diversion structures, where the actual work performed and its remuneration diverge.
Typical scenarios
The most common forms include:
- Entering into an employment contract with a third party, with the purpose of ‘diverting’ the real wages of the debtor and shielding them from creditor access
- Fictitious employment of family members to circumvent wage garnishments
- Assignment of wage claims to closely related persons without a legally justifiable reason
Legal classification
Civil law foundations
§§ 134, 138 BGB – Illegality and immoral contracts
Wage transfer agreements may be void under § 134 of the German Civil Code (BGB) if they violate a statutory prohibition. More often, invalidity is based on § 138 para. 1 BGB (immorality), as the circumvention of creditor protection provisions may constitute an ‘immoral injury.’ In particular, it is assessed whether the contract structure is solely designed to frustrate or impair creditors’ interests.
§ 117 BGB – Sham transaction
If it is a mere sham transaction, in which the parties conclude a contract but do not intend it to have real effect, the contract can be treated as a sham transaction in accordance with § 117 BGB and thus also considered void.
Insolvency law aspects
Disadvantaging creditors, insolvency avoidance
In the event that insolvency proceedings are opened, a wage transfer arrangement may be contestable as a transaction detrimental to creditors under §§ 129 et seq. Insolvency Act (InsO). In particular, § 133 InsO (intentional disadvantage) and § 134 InsO (gratuitous transaction) are applicable if the purpose is to diminish the insolvency estate to the detriment of creditors.
Criminal law aspects
§ 288 StGB – Favoring of creditors
If a wage transfer agreement is used to intentionally grant preferential treatment to a creditor, giving rise to damage, this can result in criminal liability under § 288 of the Criminal Code (StGB). In addition, other offenses—such as fraud (§ 263 StGB)—may be fulfilled if the involvement of third parties and fraudulent intent can be proven.
Case law and practical relevance
Key decisions
The case law of German courts, particularly the Federal Court of Justice (BGH), focuses on the purpose, structure, and impact of wage transfer agreements when assessing them legally. The decisive factor is always whether the agreements objectively aim to disadvantage creditors or hinder access to assets.
Distinction of permissible contract structuring
Not every atypical wage constellation is necessarily immoral or void; what matters is always the motivation behind the contract structure and its effect on creditors. Contractual arrangements among close relatives are generally subject to particularly careful proportionality review by the courts.
Consequences of invalidity and challengeability
Reversal
If a wage transfer agreement is void under §§ 134, 138, 117 BGB, any services already received must be returned according to the principles of unjust enrichment (§§ 812 et seq. BGB).
Challenging the agreement in insolvency proceedings
If a challenge in insolvency proceedings is successful, payments made on the basis of the wage transfer agreement may be reclaimed for the insolvency estate (§ 143 InsO).
Criminal law sanctions
There may also be criminal consequences if the intention to harm creditors is proven.
Practical relevance and prevention
Wage transfer agreements are of particular interest to creditors, insolvency administrators, and courts, as they can make it more difficult to access enforceable assets. Employers, employees, and contracting parties should always examine their arrangements to ensure that they have a legitimate legal basis and comply with the principles of transparency and creditor protection.
Preventive measures
- Review the actual implementation and purposefulness of employment relationships
- Documenting work performance and payment flows
- Avoidance of typical circumvention arrangements, especially within a family context
Summary
The wage transfer agreement is a particular contractual form that, alone or in conjunction with other legal transactions, can serve to circumvent creditor protection requirements. Its legal assessment takes place in the field of tension between freedom of contract, the purpose of creditor protection, and insolvency and criminal law provisions. The invalidity or contestability of such agreements is generally given in accordance with applicable case law and legislation as soon as the objective aim or effect is to disadvantage creditors.
Literature and further sources
- German Civil Code (BGB): §§ 117, 134, 138, 812 et seq.
- Insolvency Act (InsO): §§ 129 et seq.
- Criminal Code (StGB): §§ 263, 288
- Federal Court of Justice, Judgment of July 12, 1984 – IX ZR 11/83
- Literature: Schilken, Impairment of creditors through wage transfer, NJW 1986, 185 tx
Frequently asked questions
Who is legally entitled to sign a wage transfer agreement?
A wage transfer agreement may, as a rule, only be signed by those persons or bodies who, according to the company’s legal form and the articles of association, have power of representation for the company. This means that, in the case of natural persons (e.g., sole proprietorships), the owner must sign personally, while for legal entities such as a GmbH or AG, the managing directors or board members are generally authorized to sign unless their power of representation is restricted internally or externally. If a representative is involved, they are obligated to disclose their authority to represent, and if such authority is lacking, the contract may be provisionally invalid until approval is granted by the represented party. The employee whose wages are being transferred must also have full legal capacity, since wage shifting constitutes a disposition of valuable claims.
What legal provisions must be observed in a wage transfer agreement?
A wage transfer agreement must particularly be examined in the context of § 398 BGB (“Assignment”), since this concerns the transfer of a claim—in this case, the wage claim. The so-called prohibition of assignment under § 400 BGB is also relevant if the claim cannot be assigned (e.g., where the claim is unseizable or an assignment prohibition is agreed upon by collective or employment agreement). Furthermore, the provisions of § 287 InsO must be observed in the context of insolvency, since wage assignments may be invalid in insolvency proceedings. Data protection law, especially the GDPR and § 26 BDSG, must be observed if sensitive employee data is to be transferred. Finally, co-determination laws may apply if the works council has a say in wage payments or changes thereto.
What are the formal requirements for a wage transfer agreement?
The assignment of a wage claim generally does not require any special form and may even be made informally, including orally (§ 398 BGB). However, it is standard practice and highly advisable for evidentiary reasons to record the wage transfer agreement in writing. If collective bargaining agreements or employment contracts require written form, it must be ensured that all formal requirements are met. For public sector employers or in civil service, further or special formal requirements or approval processes may apply which must also be reviewed.
Do employees have to explicitly consent to the wage transfer agreement?
Yes, the employee whose wages are to be diverted or assigned must expressly consent to the agreement, as they are the holder of the wage claim and thus the transferring party within the meaning of § 398 BGB. A unilateral wage diversion by the employer without the employee’s consent is not permissible and would violate the right to remuneration under § 611a BGB. If consent is obtained by deception or under duress or contrary to good faith, the agreement may be voidable or even null and void (§§ 123, 138 BGB).
What employment law risks are associated with entering into a wage transfer agreement?
Particularly from an employment law perspective, there is a risk that the employee may be disadvantaged by the wage transfer, for example if wage components are inadequately forwarded or deductions are made without legal basis. Circumventing employment law protections, such as prohibitions on wage assignment in employment or collective agreements, can also render the assignment or transfer agreement invalid. If the employee is incorrectly or incompletely informed about the consequences of the wage diversion, a claim for damages against the employer may arise. Likewise, errors in tax or social security law may result in liability risks.
What impact does the insolvency of a contracting party have on the wage transfer agreement?
In the event of the insolvency of either the employer or employee, the relevant provisions of the Insolvency Act (InsO) apply. Assigned wage claims can generally only be taken into account in insolvency proceedings if the assignment took place before the opening of insolvency and is legally valid. If the assignment is made after the opening of proceedings, or if the assignment is invalid (e.g., due to wages being unseizable), then the wage transfer agreement is ineffective in this respect. Additionally, pursuant to § 131 InsO, an avoidance action may be brought if the wage claim was transferred to disadvantage creditors with intent. Wage transfers in favor of third parties, such as creditors, are subject to strict insolvency law scrutiny.
What are the parties’ obligations after entering into a wage transfer agreement?
After conclusion of a wage transfer agreement, both contracting parties have comprehensive duties of cooperation and information. The employer is obliged to forward the wages as contractually agreed to the designated third party and must immediately inform of any changes to the employment relationship. The employee must disclose all relevant circumstances concerning their claim (e.g., existing garnishments or prior assignments). If the wage transfer is revoked by court order or the employee’s legal status changes (termination, parental leave, etc.), both parties are obliged to notify the other immediately. If a party fails to fulfill their duties of cooperation, this may—particularly in case of resulting damages—give rise to substantial claims for damages.
