Germany – First Court decisions on New Minimum Wage Act

July 2, 2015

Authored by: Martin Luederitz and Stefan Skulesch

The calculation of the minimum wage causes much uncertainty for companies. Now, the first court decisions have been published that provide for a certain legal security on this matter. In its judgment of 13 May 2015 – 10 AZR 191/14, the Federal Labor Court decided that the minimum wage is to be observed for holidays and in the calculation of the continued payment of wages during sickness. According to a decision of the Labor Court of Düsseldorf (judgment of 20 April 2015 – 5 Ca 1675/15, not yet legally-binding), a performance bonus may also form a component of the statutory minimum wage.

For the first time ever, Germany now has introduced a statutory minimum wage at a gross amount of currently € 8.50 per hour, pursuant to the new Minimum Wage Act (Mindestlohngesetz, MiLoG), effective as of 1 January 2015. Lower wages are still possible until 31 December 2017, inter alia, on the basis of collective bargaining agreements, while generally binding collective agreements may stipulate higher hourly wages. The minimum wage must be granted every month and not on an annual average. The aforementioned decisions answer the question of how a company must calculate minimum wages. Whether or not supplements, variable compensation and special payments are to be included in the wage and, thus, cause the monthly base salary to be exceptionally lower, seems to depend on whether the wages – other than, for example, contributions to capital formation – have a “direct relation to the work performance.” Even if an employee does not actually perform work, such as on holidays or during illnesses or while on vacation, the minimum wage must be observed.

Thus, if the minimum wage is only reached when other compensation components are added to the monthly base salary, employers must still ensure that the specifications of the Minimum Wage Act are observed. If the (continued payment of) compensation must be granted due to provisions other than the Minimum Wage Act, the minimum amount is determined in accordance with such other payments. If subcontractors are commissioned, companies should consider to protect themselves as contracting bodies by using warranties and indemnity declarations in order to ensure that the Minimum Wage Act is observed by such contractors. This effectively limits liability risks for the observance of the Minimum Wage Act by service and work contractors.

The calculation of the minimum wage remains difficult and further case law should be awaited. Companies that modify their compensation systems from case to case, should observe documentation duties and obtain warranties and indemnity declarations from their contractors in order to reduce their risks.