Company Practice with Reference to Collective Agreement in Employment Contract

LAG Mecklenburg-Vorpommern, judgment of 08 April 2025 - 5 SLa 112/24

In practice, it is not uncommon for employees to argue with their employer about claims arising from company practice (“Betriebliche Übung”). According to the case law of the Federal Labor Court, a company practice can be assumed when special payments are made to employees at regular intervals after they have been paid three times. This is different only if there are special circumstances to the contrary or if the employer has effectively ruled out a binding intention for the future. A special circumstance exists in particular where the employer granted benefits that he was recognisably obliged to grant, or believed himself obliged to grant, on another legal basis.

The Mecklenburg-Vorpommern Regional Labour Court (“LAG Mecklenburg-Vorpommern”) recently had to decide whether multiple wage and salary increases in line with collective-bargaining developments in a particular sector can give rise to a company practice.

Facts of the Case

The claimant had been employed since 1999 by a bookshop in Mecklenburg-Vorpommern that was bound by the collective agreements for the retail trade. The employment contract contained a clause referring to the collective agreements for the retail trade in the “currently applicable version.”

In 2015 the business was transferred to an undertaking that was not bound by collective agreements. In the information letter issued in connection with the transfer of business, the claimant was told that the absence of collective-bargaining coverage on the part of her new employer meant that the previous retail collective agreements would apply only statically.  Nonetheless, the new employer increased the claimant’s remuneration every year up to and including 2021 in line with the retail wage settlements in Mecklenburg-Vorpommern.  The one-off payments agreed in the collective bargaining rounds were also paid.  It was only in 2022 that the new employer ceased to pass on the collectively agreed pay rises.

Shortly thereafter, in 2023, there was another transfer of business, in consequence of which the employment relationship passed to the defendant, who was likewise not bound by collective agreements. Since the defendant also did not pass on the sectoral wage increases to the defendant, the claimant filed a lawsuit. This was aimed at payment of the monthly pay differences and a determination of the applicability of the applicable collective wage agreement for the retail sector in Mecklenburg-Vorpommern. The claimant argued that a company practice had arisen because she could only have understood the punctual passing-on of the collective-bargaining increases in the past to mean that remuneration would permanently be adjusted in line with collective-bargaining developments.  In addition, the reference clause in her employment contract was dynamic, so that, for that reason too, the current collective pay agreement was applicable.

At first instance, however, the Rostock Labor Court rejected this argument and dismissed the claim. The claimant appealed to the LAG Mecklenburg-Vorpommern.

Decision

The LAG Mecklenburg-Vorpommern dismissed the appeal and likewise denied that a company practice had arisen.  The court rejected the two main arguments advanced by the claimant for the continued applicability of the current sectoral collective agreements on the following grounds:

• The reference clause, which was agreed before the reform of the law of obligations in 2002 and is therefore contained in a so-called “old contract,” must be interpreted restrictively as an equal-treatment clause (“Gleichstellungsabrede”).  Accordingly, the dynamic effect of the reference ends as soon as the employer is no longer bound by collective agreements.  For that reason, the retail collective agreements referred to have applied only statically since the transfer of business in 2015.
• The old equal-treatment interpretation rule no longer applies to old contracts if they were amended after 2002 and the reference clause was again made the subject of the parties’ contractual intent.  However, that was not the case here, notwithstanding the long period of time, because the interim contractual amendments lacked the customary wording providing that the remaining contractual terms would continue unchanged.
• Finally, the claimant had no entitlement to a wage adjustment based on a company practice. Where an employer raises employees’ pay in line with collective-bargaining developments in a particular sector, a company practice can arise only if clear indications in the employer’s conduct show that increases will be adopted in the future on a permanent basis even without a collective-bargaining or contractual obligation.  No such indications were present here. Quite the opposite: the 2015 information letter contained an explicit statement that the new employer was not, and did not intend to become, bound by collective agreements.

The LAG Mecklenburg-Vorpommern therefore attached more weight to the notice in the information letter than to the mere fact that annual wage rises had been granted in line with collective bargaining.  Despite several increases, the claimant had to assume that before each rise the employer examined the economic viability and personnel-policy necessity of an increase and wished to keep future increases dependent on those factors.  The explanatory value of the individual pay rises therefore did not extend into the future.

Practical Tip

After a transfer of business, purchasers that are not bound by collective agreements should carefully examine not only the wording of any reference clauses and any interim contractual amendments—because those documents reveal whether a reference clause remains dynamic—but also the vendor’s actual remuneration practice.  

If the vendor, though not bound by collective agreements, has passed on pay rises in line with collective-bargaining developments, it is essential to consider whether indications of a company practice exist.  These might include statements by the vendor that created a protected expectation with regard to particular pay increases.  Equally important is a properly drafted information letter that highlights the employer’s lack of collective-bargaining coverage and its lack of any intention to become bound. If there have been previous transfers of business, such an information letter can protect against the emergence of a company practice. This may be crucial, especially in major corporate transactions involving large numbers of employees.