09-30-2020  | Update Employment Law October 2020

Contractual reference to a collective agreement




back to overview

BAG, ruling dated May 13, 2020, 4 AZR 528/19 

The employee's remuneration, referred to in an employment contract as "collectively agreed salary" is to be understood as a "dynamic reference clause". If a reference "to the collective agreements applicable for the Company" has been agreed upon in the employment contract, this reference is limited to the binding collective agreements applicable for the employer at the time the contract is concluded. Therefore, an employee can only successfully claim collective salary increases as long as the employer is not bound by other (new) collective agreements. 

FACTS OF THE CASE    

The parties have a dispute regarding the appliance of the ERA Remuneration Agreement for the metal and electrical industry of North Rhine-Westphalia on the existing employment relationship between them. In the agreement concluded between the plaintiff and the legal predecessor of the defendant in 2014 (S KG), the parties agreed in Section 2, among other things, that "the collective agreements applicable for the Company in each case shall apply in their currently valid version". Reference was also made to the currently relevant regional collective agreement and an in-house collective agreement concluded between Industrial Union of Metalworkers (IG Metall) and S KG. In Section 4 of the employment agreement it is further stated: "You will be categorized on the basis of the collective agreements currently applicable for the company according to your activity (...) Collective salary EG10". Furthermore, the plaintiff is a member of IG Metall.

The legal predecessor paid the salary increases to all of the employees in accordance with the regional collective agreements for the metal and electrical industry, including the ERA salary agreement, without being bound by these collective agreements. However, this practice has not been continued since 2016. 

In January 2017, the plaintiff's employment relationship was transferred to the defendant by way of a partial transfer of business, who concluded a "company collective agreement" with IG Metall in July 2017 providing an increase of only 1.3% as of April 2017.

The plaintiff is now requesting an increase of the remuneration from the defendant in accordance with the ERA remuneration agreement, which has been in force since 2016. 

The previous instances disagreed, the labor court approved the claim (ArbG Düsseldorf 08.02.2018, 15 Ca 3392/17), while the state labor court dismissed it (LAG Düsseldorf 22.05.2019, 7 Sa 159/18). 

DECISION 

The plaintiff's appeal was only partially successful. 

According to the BAG Section 4 of the employment agreement concluded between the plaintiff and the legal predecessor, with its reference to the "collectively agreed salary", contains an independent, time-dynamic reference to the remuneration provisions of the regional collective agreements of the metal and electrical industry in North Rhine-Westphalia and the company collective agreement. 

However, this reference in the employment contract was limited in its content to the period in which the employer was not bound by a collective agreement pursuant to Section 3 (1) TVG. The collective salary mentioned in Section 4 of the employment contract refers to the collective agreements "currently" applicable for the Company. Therefore, the systematic relation between Section 4 and Section 2 of the employment contract indicates that the remuneration regulation in Section 4 of the employment contract, which refers to the regulation applicable at the time of the conclusion of the contract and which exists "in addition" to the reference clause in Section 2 of the employment contract, should end as soon as the employer is bound to other collective agreements according to Section 3 Para. 1 TVG.

The reference clause understood in such a way had passed unchanged to the defendant according to Section 613a (1) 1 BGB. 

Consequently, the plaintiff is only entitled to the claimed increases of the ERA remuneration agreement until the company collective agreement comes into force in accordance with the reference made in the employment contract. Once the employer became bound by the collective salary agreement by concluding the company collective agreement, the employment contract referred to the increase payable according to the company collective agreement. 

Finally, a comparison of favorability was not applicable due to the identity of the contractually referred collective agreement and due to the fact that both parties were bound by the collective agreement.  

PRACTICE ADVICE

Collective agreements are often applicable due to a reference made in the employment contract. Three types of reference clauses can be distinguished. On the one hand there are static ones, which only refer to a certain collective agreement in a certain version. Furthermore, a distinction must be made between so-called "simple dynamic references" and "extensive dynamic references". The latter was also used in this case. Thereafter, the relevant collective agreements apply in their respective temporally valid version (BAG 21.11.2012, 4 AZR 85/11), while "simple dynamic references" refer to a specific collective agreement in its respective temporally valid version (BAG 09.05.2010, 5 AZR 122/09). 

In the case of a (partial) transfer of business – like here - an "extensive dynamic referral" in the employment contract can be advantageous, provided that the new employer itself is also bound by (other) collective agreements or plans to conclude a binding collective agreement. Unlike in the case of a "simple dynamic referral" or a "static referral" the employee cannot claim the pay increase of a formerly (with the legal predecessor) binding collective agreement. The reference contained in the employment contract then exclusively refers to the collective agreements which the new employer is bound to apply. 

Employers should therefore first carefully determine which type of referral is advantageous for them in practice and then use the most precise wording possible in the employment contract in order to create clarity as to which collective agreements shall be referred to. 

In particular, the term "collective salary" in the employment contract should be avoided under all circumstances. The BAG has already decided several times that an employee can regularly assume that this wording constitutes a dynamic reference to the applicable collective agreements. (BAG 12.12.2018, 4 AZR 271/18; BAG 12.12.2018, 4 AZR 123/08; BAG 25.01.2017, 4 AZR 521/15; BAG 25.10.2017, 4 AZR 375/16; BAG 06.07.2015, 4 AZR 51/14). 

Contacts

further reports which may be of interest to you

This website uses cookies. Please read our data protection provisions to learn more about how we use cookies and how you can change your privacy settings. OK