** NEW ** German Federal Labor Court decision: Limitation periods in employment contracts that do not explicitly exclude the minimum wage are ineffective!

The questions whether limitation periods in employment contracts must expressly exclude claims to the statutory minimum wage and whether limitation/forfeiture clauses in employment contracts without such an exception are ineffective in their entirety or only partially with regard to minimum wage claims are especially important in practice, but they have so far been highly debated, and in the past, each State Labor Court ruled differently.

The State Court in Nuremberg (Ruling of May 9, 2017 – 7 Sa 560/16, see our article of 22 November 2017) and the State Court Baden-Wurttemberg (Ruling of April 6, 2018 – 11 Sa 40/17) for example decided that limitation periods in employment contracts that do not explicitly exclude statutory minimum wage claims from expiring do not impact the effectiveness of the limitation clause in its entirety. The State Court in Hamburg (ruling of February 20, 2018 – 4 Sa 69/17), on the other hand, recently decided that limitation period clauses in employment contracts are invalid in their entirety if they do not exclude claims to the minimum wage, and if those contracts were concluded or amended after the German Minimum Wage Act entered into force.

On September 18, 2018, the Federal Labor Court finally settled the dispute with the following ruling (9 AZR 162/18):

A pre-formulated limitation clause, which implicitly includes all claims from the employment relationship without any restriction, and thus also the minimum wage guaranteed by Sec. 1 of the German Minimum Wage Act of January 01, 2015, violates the transparency requirement of Sec. 307 Para. 1 sent. 2 of the German Civil Code, and is therefore ineffective in its entirety at least when the employment agreement was concluded after December 31, 2014.The Federal Labor Court justified its decision by stating that the limitation clause violated Section 307 (1) sent. 2 of the German Civil Code (BGB). According to the statement, the clause was not clear and understandable because, contrary to sec. 3 sent. 1 of the Minimum Wage Act, it did not explicitly exclude claims to the payment of the statutory minimum wage starting January 1, 2015. Therefore, the clause could not be deemed effective for the claim to paid leave compensation (note: which was asserted in the concrete case) (Sec. 306 of the German Civil Code). Neither in its wording, nor according to its sense and purpose does Sec. 3 sent. 1 of the German Minimum Wage Act restrict the application of sections 306, 307 para. 1 sent. 2 of the German Civil Code.

Ogletree Deakins Comment:

Although in the most recent State Labor Court litigations, good reasons were provided for the argument that limitation period clauses in employment contracts are not completely ineffective, the Federal Labor Court has now ruled that in practice, limitation periods in employment contracts which do not explicitly exclude statutory minimum wage entitlements are ineffective in their entirety for this reason alone. At any case, this applies to employment contracts concluded after December 31, 2014.Judging by the decision, which so far has only been published as a press release, the Federal Labor Court apparently differentiates between employment contracts concluded before January 1, 2015 (“old employment contracts”) and those concluded after January 1, 2015 (“new employment contracts”). Therefore, the judges do not use the month in which the Minimum Wage Act entered into force (August 2014) but rather the month in which the minimum wage claims first arose (January 1, 2015) as a critical date.

However, it is not possible to determine from the press release whether the limitation periods in old employment contracts are also entirely or—which is the prevailing opinion at present—only invalid with regard to the minimum wage entitlements. It can, however, be assumed that the Federal Labor Court has not made a final decision regarding this disputed question. The specific dispute in which the court made the ruling concerned a new employment contract. Particularly with regard to this question and the transparency requirements imposed by the Federal Labor Court, it is necessary to wait until the full text of the ruling has been made available.Against this background, it is advisable to include a new effective exclusion clause in future amendment contracts as well as a concrete definition of the subject matter of the amendment. Otherwise, there is a risk that courts will consider amendment contracts in which the continued effectiveness of all unaltered provisions of an old employment contract are regulated to be new employment contracts with the consequence that the limitation clause becomes ineffective in its entirety.

After this recent development, it is strongly recommended that companies re-examine their employment contract limitation periods and in the future include differentiated limitation clauses which in particular explicitly exclude statutory minimum wage claims in new employment contracts as well as in amendment and supplementary contracts to old and new employment contracts. To ensure transparency and as a precautionary measure, it is also advisable to explicitly exclude other legal claims that cannot be forfeit, such as claims for injury to life, body or health in such clauses.