Christmas bonus: Special payment and reasonable discretion

A provision in the employment contract can grant the employer a permissible unilateral right to determine payment with regard to the amount of the special payment (“Bundesarbeitsgericht” (BAG) [German Federal Labor Court, 8.23.2017, 10 AZR 376/16).

Facts of the case

The parties dispute the payment of a half gross salary as special payment for the year 2014. The employment contract forming the basis of the employment relationship contains this provision: “In addition to the basic salary, a Christmas bonus shall be paid -[...] as a voluntary payment - the amount of which will be notified annually by the employer, and the amount of which currently does not exceed a full monthly salary.”

Up to and including 2013, the employer paid a special payment amounting to a full gross monthly salary each calendar year. Besides the pay slips, no notifications about the Christmas bonus were made by the defendant.

On the basis of a predicted negative operating result, the employer decided to only pay a half gross monthly salary to the staff as a bonus for 2014.

The plaintiff demanded payment of a full monthly salary, because the provision in the employment contract is not transparent and therefore is to be interpreted in such a way that annually at least one monthly salary would have to be paid as a Christmas bonus. The claim was based on the long-standing unconditional payment practice of the defendant, including from the perspective of a company practice. Company practice is described as the fact that an employee can derive a corresponding claim for the future from the regular repetition of particular behavior of the employer, e.g. the granting of payments.

Reasons for the decision

The BAG came to the conclusion that the plaintiff could not demand the payment of the second half of the Christmas bonus from the defendant, because such a claim does not result from the employment contract.

It is correct that the employer had established a claim for payment by the employee in the employment contract. On the amount of the Christmas bonus, however, the employment contract stated that it will be “determined annually by the employer in each case”. The unilateral right to determine the payment granted within the meaning of Section 315 BGB [German Civil Code] is generally lawful. The amount and type of a special payment need not be determined conclusively in the employment contract. Whether the determination of the payment by the employer is consistent with reasonable discretion would have to be tested in the individual case.

The payments in the past did not oppose the unilateral right to determine payment. The consistent exercise of a right to determine payment would not lead to such a specification that every other determination of payment would not be consistent with reasonable discretion per se.

The determination of payment is also consistent with equity because the defendant had provided detailed representation about which economic circumstances it had weighed for the decision.

Notes for practice

The decision shows that it depends on clear formulation in the contract. If the formulation is clear, a company practice is excluded.