Differentiations in Inflation Compensation Premium Permissible

The inflation compensation premium, which can be paid out by companies to their employees up to an amount of EUR 3,000.00 tax- and social security-free – i.e. net – is currently the talk of the town. The inflation compensation premium is a voluntary benefit intended to partially compensate for the increased cost of living. Whether a company is free in its decision not to grant this bonus to all employees was recently decided by the Paderborn Labor Court (ruling of July 6, 2023 – 1 Ca 54/23).

In the case in dispute, the company had granted all employees an inflation compensation bonus of EUR 1,000.00, provided that they had not previously received any special payments or had asserted these by way of legal action. Due to the economic situation during the Corona pandemic, the company had asked its employees to waive payment of vacation and Christmas bonuses (= special payments). A large number of employees agreed to this waiver and did not file a claim, while other employees, including the plaintiff, took legal action to claim the special payment.

The plaintiff employee had received special payments totaling EUR 3,700.00 gross for the calendar years 2020 and 2021. For the calendar year 2022, the employee had filed a claim against the company for a special payment in the amount of EUR 1,036.81 gross. After the company had made the payment, the legal dispute was declared settled by mutual agreement.

In September 2022, the employees were then informed by the company that all those employees who had not received any special payments would receive an inflation compensation bonus of EUR 1,000.00 net (or pro rata in the case of part-time employees) in December 2022 due to the increase in inflation. Since the employee had previously received special payments, she did not receive an inflation compensation bonus, which is why she sued the company for it.

In the proceedings before the Paderborn Labor Court, the employee invoked on the one hand the general principle of equal treatment and on the other hand the prohibition on the application of the standard because she did not waive special payments.

The Paderborn Labor Court denied the employee’s claim to payment of the inflation compensation bonus. The court found that there was neither a violation of the general principle of equal treatment nor of the prohibition of the application of the standard scale.

Compensation for the inflation-related rate of increase did not have to be granted equally to all employees if there was an objective reason for the differentiation. By restricting the granting of the bonus to a certain group of employees, the company intended to ensure that those employees who had waived vacation and Christmas bonuses in the past would be brought into line with the working conditions of those employees who received special payments. In the view of the court, this was an objective reason that justified a differentiation.

The Paderborn Labor Court also did not consider a violation of the prohibition on the application of the standard rules put forward by the employee to have occurred. The lack of waiver of special payments was not causal for the exclusion of the employee from the payment of the inflation compensation premium. The inflation compensation premium had been granted due to the increase in inflation and not as a reaction to the waiver of special payments.

The decision of the Paderborn Labor Court shows that companies are free within certain limits to decide to whom and in what amount they pay employees the voluntary inflation compensation bonus. However, the unequal treatment of employees must not be based on unobjective and irrelevant reasons. In labor court proceedings, the company must disclose the reasons and the objective criteria and be able to prove them with facts. Companies should take this into account when making their decision.

Photo: Shutterstock / Racamani