End operational exercise

The most important facts in brief:

• The best way to counteract company practice is to prevent it from arising. The employer can achieve this by making the benefit subject to a reservation of voluntariness or by including a legally compliant double written form clause in the contract.
• If the company practice has arisen, it can be terminated either by agreement or notice of termination.
• It is not possible to terminate the company practice through a "contrary" company practice.

What is a company exercise?

In the case of a company practice, the employee has a claim against the employer because the employer regularly and repeatedly provides a service (e.g. a monetary payment).

ExampleIf an employer pays a Christmas bonus amounting to one month's salary to all employees for three consecutive years, then the employees are also entitled to receive the Christmas bonus in the fourth year.

The following requirements must be met for a company practice to arise:

1. Repeated, uniform performanceThe employer must have provided a benefit several times and in the same form to a number of employees. The company practice has a collective reference, which means that benefits to only individual employees are not sufficient to establish a company practice. The benefit does not have to be provided to all employees. However, the larger the group of people involved, the more likely it is that a company practice is established. In the case of cash payments (e.g. Christmas bonus), three payments are sufficient to establish a company practice.
2. Acceptance by the employeeRepeated, uniform performance by the employer constitutes an offer by the employer. Employees usually tacitly accept this offer by continuing to work.
3. No exclusionThe establishment of a company practice can be prevented by employers expressly declaring that the benefit is provided voluntarily and that the benefit is not binding for the future.

A company practice means that an entitlement to the benefit also exists in the future. In the example above, for example, there is also an entitlement to the payment of the Christmas bonus in the future.

How do you prevent a company exercise?

The emergence of a company practice can primarily be prevented by two instruments: the respective benefit can be made subject to a reservation of voluntariness, and a double written form clause can also be agreed.

• Reservation of voluntariness: A benefit can be made subject to a reservation of voluntariness. Care must be taken to ensure that the reservation is sufficiently specified. Global reservations that stipulate that any benefit paid during the course of the employment relationship is voluntary are invalid. Instead, the benefit (e.g. the Christmas bonus) must be specifically named as such. The clause must also be conclusive. For example, anyone who declares that they are making a voluntary payment and reserves the right to revoke the payment at any time is contradicting themselves: a payment is either made voluntarily or is revocable. A mixture of the two violates the transparency requirement in GTC law.
• double written form clause: The parties may agree that all contractual amendments must be made in writing. This prevents the company practice from arising, as it is not agreed in writing. However, it must be taken into account that, according to Section 305b BGB, individual agreements continue to take precedence, even if they have been made verbally. If the clause does not refer to this, it is non-transparent and therefore invalid. A legally compliant clause could read as follows: Amendments and additions to this employment contract must be made in text form to facilitate proof (Section 126b BGB). Individual agreements - including verbal agreements - take precedence (Section 305b BGB). The parties may agree to deviate from the text form requirement in individual cases by individual agreement. Statutory formal requirements (e.g. Section 623 BGB) remain unaffected.

How do you end a company exercise?

A company practice can be terminated in two ways: an agreement can be reached or a notice of termination can be given. The creation of a company practice does not mean that the obligation to perform is unalterable. You can therefore terminate a company practice in the following ways:

• AgreementA company practice can be terminated with an agreement. One way of doing this is to conclude an individual amendment agreement with each employee. However, such a procedure is not very practicable for larger companies. There is also the risk that an agreement cannot be reached with every employee, resulting in unequal treatment within the company. Alternatively, a works agreement can also be concluded. In such a case, the company agreement must not be worse than the previous company practice. Deteriorations for individual employees are permissible if they are offset by improvements for other employees. (collective advantage)
• Notice of terminationA company practice can also be terminated with a notice of termination. However, this requires that a Reason for termination (§§ 1, 2 KSchG) exists. Accordingly, the requirements for a notice of termination are very high.
• Not: Company exerciseIn the past, a company practice could be terminated with a contrary company practice. Such a possibility no longer exists today. The background to this is that the Federal Labor Court is of the opinion that a contractual agreement cannot be permanently waived through silence.

What are the special features of collective employment law?

If there is a works council in a company, there are some co-determination rights of the works council that must be observed:

• DistributionThe works council already has a right of co-determination when the company exercise is concluded. The employer can decide independently how much money or other benefits are to be distributed. However, the decision on how the money is to be distributed requires the consent of the works council.
• RemovalIf a company practice is terminated by revocation (revocation only if there is an effective reservation of revocation), the revocation does not require consent even if the revocation affects the entire company. However, consent is required if the company practice is replaced by a works agreement.