Germany: It's Time To Review Forfeiture Clauses In Standard Employment Contracts

Last Updated: 29 March 2017
Article by Minh Riemann

It is market standard in Germany to insist on forfeiture clauses in employment contracts, i.e., language providing that any claims arising under the contract are forfeited if not exercised within three months after their due date. Unnoticed by many companies, however, was legislation and case law in 2016 that made fundamental changes to this standard affecting the validity of such clauses. First, under the amended wording of German Civil Code (BGB) Sec. 309 No. 13, which took effect on October 1, 2016, employers may no longer require a stricter form than text form for declarations of employees towards their employers. Second, by judgment rendered on August 24, 2016 (5 AZR 703/15), the Federal Labor Court held that a forfeiture clause was invalid because it also applied to minimum wage entitlements under the Act on the Posting of Workers. Accordingly, employers should be mindful of both the legislative amendment and the Federal Labor Court judgment when drafting forfeiture clauses.

I. Forfeiture clauses in standard employment contracts

Two-tiered forfeiture clauses in standard employment contracts typically state that claims arising under the employment relationship shall be forfeited unless they are raised within certain deadlines. Oftentimes these clauses state that a claim will be forfeited unless it is asserted against the other party in writing within three months after the claim's maturity. Some clauses will state that if the other party rejects or ignores a claim, the right to claim lapses unless it is re-asserted, this time before the courts, within three months upon receiving the rejection. If the employment contract contains no forfeiture clause, the parties are subject to a statutory forfeiture period of three years (which commences at the end of the year in which the claim became due). As more employment relationships have been entered into for longer and, in many cases, indefinite, terms, the lack of a preclusion period in the contract can lead to uncertainty for both employer and employee.

II. Legislation governing General Terms and Conditions

In Germany, employment contracts and their forfeiture clauses are subject to legislation governing general terms and conditions. As such, they may not unreasonably put the employee at a disadvantage and must comply with Sec. 305 et seq. BGB.

An unreasonable disadvantage is assumed to exist if a provision is not compatible with essential principles of the statutory provision from which it deviates or if the provision limits essential rights or duties inherent in the nature of the contract. An unreasonable disadvantage may also arise from the provision not being clear and comprehensible. Sec. 309 BGB provides standard examples of invalid clauses. If a contractual clause does not comply with these statutory provisions, it is deemed to be invalid. Since any doubts as to the interpretation of the contractual clause is normally to the detriment of the employer, the employer must ensure that the contractual terms are clear and comprehensible.

III. Amendment to Sec. 309 No. 13 BGB

According to the old version of Sec. 309 No. 13 BGB, clauses in pre-formulated contracts were invalid if they required, for notices or declarations (of the employee) to be made towards the user of General Terms and Conditions (i.e., the employer), a form that was more stringent than "written form". Pursuant to the amended version of Sec. 309 No. 13 BGB, notices or declarations that are to be made toward a user of general terms and conditions may not be tied to a stricter form than "text form". The requirement for text form is already met if, for example, a decleration is transmitted via fax, e-mail, or text message. On the contrary, according to sec.126 BGB, written form requires that the document is signed by the issuer in his/her pwn handwriting. The reason for the amendment was that consumers/employees are usually not aware of the formal requirements of declarations and may therefore stand to lose entitlements if a stricter form is required. Against the background of this legislative amendment, forfeiture clauses in employment contracts concluded on and after October 1, 2016, may not provide for form requirements that are stricter than text form. As a consequence, companies urgently need to revise their standard employment templates to ensure that they do not require a form stricter than text form.

Furthermore, it may well be that the Federal Labor Court will conclude that the new legislation will apply as well to forfeiture clauses in employment contracts concluded before October 1, 2016. In addition, employment contracts if entered into before October 1, 2016, if amended, may be regarded as "new contracts," subject to the legislative amendment. Therefore, employers should be aware that even minor changes in the contractual terms of an existing contract may necessitate an update of the forfeiture clause.

IV. Forfeiture clauses and minimum wage

In a judgment rendered on August 24, 2016 (5 AZR 703/15), the Federal Labor Court concluded that a forfeiture clause was invalid because it covered the entitlement to minimum remuneration pursuant to Sec. 2 of a Regulation Concerning Mandatory Employment Conditions for the Nursing Industry. The Federal Labor Court also concluded that the forfeiture clause was invalid because it violated Sec. 9 Act on the Posting of Workers and that the clause could not be preserved in part because it also violated the transparency requirement of Sec. 307 BGB.

Consequently, entitlements to minimum remuneration under the Act on the Posting of Workers must be excluded from the scope of application of contractual forfeiture clauses. Additionally, it is very likely that the judgment of the Federal Labor Court also applies to mandatory entitlements under the Act on the Regulation of a General Minimum Wage (MiLoG). Pursuant to Sec. 3 MiLoG, the forfeiture of mandatory minimum remuneration claims is excluded. Thus, to ensure compliance with the legislation governing General Terms and Conditions, forfeiture clauses should also explicitly exclude entitlements under the MiLoG.

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