Wage Arrears in Germany: Employee Rights

The employee has various possibilities to react to wage arrears:

Employment contracts or relevant collective agreements often contain exclusion clauses. These include exclusion periods (usually 3 or 6 months), which have the effect that claims under the employment contract are definitively forfeited if not asserted within the specified period. If such a preclusion period applies to the employment relationship, the deadlines must be observed at all costs so that the claims are not irretrievably lost.

A distinction must be made between

• Single-tier exclusion clauses: At the first level, exclusion clauses provide that the claim must be notified or asserted in writing to the contractual partner within a certain period.
• Two-stage exclusion clauses: In the case of a two-stage exclusion clause, it is also required that the entitled party must sue for his claim within a further specified period if the other party to the contract does not fulfil the claim despite out-of-court assertion denies the claim or does not react at all.

If preclusive deadlines exist, the claim for wage payment must be reminded in due time. According to case law, it is sufficient if the reminder is sent by telecommunication, i.e. by e-mail or fax.

Often, an employer no longer meets salary payments because insolvency is imminent. In such a case of insolvency of the employer, the wage claim is secured at least for the last three months before the opening of insolvency proceedings by the fact that insolvency money can be applied for.

If the employee signs a salary waiver or salary reduction – often submitted by employers in such cases – the employee runs the risk of being unable to assert any claim at all or only a reduced claim to the insolvency benefit to which they are entitled.

If the employee intends to terminate the employment relationship because of the continued wage arrears, a signed salary waiver or salary reduction can also lead to a reduction in the unemployment benefit that may have to be claimed.

A deferment agreement has the effect of postponing the due date of a wage or salary claim. Such an agreement is less disadvantageous for employees than salary waivers or reductions since the claim remains valid in principle. However, employees lose their most effective means of exerting pressure on the employer, namely their right of retention concerning work performance, in the absence of delayed payment of wages.

If a deferment agreement is signed, it is essential to put it in writing and agree on a date on which the deferment is cancelled and when the employer will make the total payment. Otherwise, the deferment is basically unlimited, and a later action for payment by the employee will fail due to the employer’s failure to pay.

In most cases, wage arrears arise when the employer is under financial pressure and can no longer meet its obligations under the employment contract. It is, therefore, not remote that the employment relationship will be terminated in the future. Against this background, the employee should request an interim reference at an early stage.

Of course, employees can also bring a wage claim before the labour court. If the case is won, enforcement measures can be initiated against the employer with the help of the judgement. Among other things, hiring a bailiff or seizing an account is possible.

In particular, if the employment contract or a collective agreement applicable to the employment relationship contains a two-stage exclusion period, it is essential to file a wage claim to enforce the claims.

According to case law, if the employer is in arrears with at least two full months’ payments, employees may provisionally refuse to perform work until the arrears have been paid. However, if employees wish to exercise their right of retention, the employer must have been threatened with suspension of work beforehand. For evidence purposes, this should be done in writing by registered letter.

There is no right of retention in good faith (§ 242 BGB) if:

• The employer has not fulfilled his wage payment obligation only to a minor extent, i.e., especially if the wage arrears amount to less than two months,
• the wage claim is secured in another way (e.g. by mortgages), whereby any claims to insolvency default benefits before the opening of insolvency proceedings do not constitute such security,
• not only a “short-term delay in payment” to be expected, or
• the employer could suffer disproportionately significant damage.

If there is an effective right of retention, the employer may not attach any sanctions to it. In particular, the employment relationship may not be terminated because of the refusal to work. Instead, the employment relationship continues. The employee may demand to be paid as if he had worked.

The employee can apply for unemployment benefits at the employment agency to secure financial security during the period of justified refusal to work.

If the wage arrears continue, the employee can terminate the employment relationship without notice under § 626 BGB. However, it is essential to note that extraordinary termination without notice is generally only effective in the event of a prior warning. A warning is necessary because it represents the milder means concerning the termination. Only if the employer does not fulfil his obligation to pay wages or salaries after a warning does this entitle them to terminate the employment without notice.

If the termination without notice is effective, the employee has a claim for damages against the employer, cf. § 628 (2) BGB. This includes, on the one hand, the lost remuneration until the expiry of the ordinary notice periods since the employer caused the premature termination of the employment relationship through their conduct in breach of the contract. On the other hand, the claim for damages includes the payment of compensation similar to severance pay for the loss of the job.

In addition, the employee may claim compensation for the damage suffered due to the employer’s failure to pay wages or salary as the debtor.

Damages for delay include:

• Compensation concerning the harm incurred arising from the non-payment or late payment, §§ 280, 288 para. 4 BGB,
• Default interest in the amount of five percentage points above the base interest rate per year, § 288 par. 1 BGB,
• Lump sum for damages caused by delay in the amount of EUR 40, § 288 para. 5 BGB. Admittedly, the highest courts have not decided whether the lump sum for damages caused by default is also applicable in labour law. Given the wording and purpose of the new regulation, better arguments speak in favour of also awarding the employee this claim. Recent decisions also reflect this tendency (e.g. LAG Baden-Württemberg, judgment of 13.10.2016 – 3 Sa 34/16).