Custom and Practice: Employment Law Fundamentals

In an ever-changing, fast-paced world, it is more important than ever for companies to retain and motivate employees long-term. This is precisely where "betriebliche Übungen" (company practices) can play a key role. As partly formal, partly informal commitments and habits that regulate certain aspects of the employment relationship, they have a significant impact on the working atmosphere and employee satisfaction. But what exactly are company practices and how can they be implemented efficiently? What legal aspects need to be considered? And what risks could arise from their application? In this informative guide, we want to delve deeply into these questions and provide you with valuable knowledge regarding company practices. Whether you want to strengthen your company or retain good employees in your team long-term, the responsible use of company practices can make a valuable contribution.

What is a customary company practice and how does it create a legal claim?

A customary company practice refers to the repeated, uniform, and unreserved conduct of an employer, from which employees can infer a permanent granting of a specific benefit. This creates a binding legal claim that acts like a component of the employment contract, even without an explicit written agreement.

What conditions must be met for a customary company practice to arise?

A customary company practice arises from the regular and uniform repetition of certain employer behaviors, from which employees may infer that a benefit is intended to be granted to them permanently. The decisive factors are duration, regularity, and the absence of an explicit reservation, which together create a basis of trust.

For its establishment, the frequency of the benefit's granting is particularly relevant. In jurisprudence, especially concerning annually recurring special payments such as Christmas or holiday bonuses, a rule of thumb has been established: A three-time, consecutive, and unreserved granting is usually sufficient to establish a legal claim for the future. Since the employer's will for a permanent commitment is derived from the repetition, this temporal aspect is a central criterion for the courts. [Federal Labour Court]

Another essential characteristic is the uniformity of the benefit. The employer must grant the advantage according to a recognizable pattern or a consistent rule. This can affect all employees of the company or a clearly definable group, such as all employees of a specific department or all commercial employees. If, however, benefits are distributed arbitrarily and without a recognizable system to individual persons, no collective customary company practice arises. [FactorialHR Editorial Team]

The most decisive criterion, however, is the absence of a reservation. If the employer does not unequivocally clarify when granting the benefit that it is a voluntary, one-time, and non-binding allowance for the future, employees are entitled to expect its continuation. This basis of trust created by the employer's conduct is the legal foundation for why a voluntary practice becomes an enforceable claim. [Gabler Business Dictionary]

What types of benefits can become the subject of a customary company practice?

In principle, all benefits and advantages not already regulated by law, collective bargaining agreement, works agreement, or individual employment contract can become the subject of a customary company practice. This primarily concerns voluntary special payments, but can also extend to in-kind benefits or established procedures.

Through repeated granting, these benefits become an implicit part of individual employment contracts. The legal basis for this is derived from a combination of contract theory and liability based on trust, with practice applying a hybrid form of both approaches. [Haufe Editorial Team] Typical examples of benefits that can become a fixed entitlement through customary company practice include:

• Special payments such as Christmas and holiday bonuses
• Anniversary allowances and bonuses
• Voluntary subsidies for travel expenses or meals
• The private use of company assets (e.g., company car, mobile phone)
• Certain regulations regarding break arrangements or working time flexibility
• Covering further education and training costs according to a uniform scheme

Even the way a specific benefit is calculated can become a customary practice. For example, if a company uses the same formula to calculate a bonus for years, employees can trust that this method will continue to be applied. A sudden, unilateral change to the calculation basis to the detriment of employees is then no longer permissible without further ado.

How can an employer effectively prevent the establishment of a customary practice?

An employer can most effectively prevent the establishment of a customary practice by clearly and transparently stating that the benefit is voluntary. This must be unequivocally communicated each time the benefit is granted to rule out the impression of a permanent obligation from the outset and to break the basis of trust.

Because customary practice is based on employees' trust in the consistency of employer behavior, this trust must be actively prevented. The reservation must clearly state that the benefit is voluntary and that even repeated payments do not establish a legal claim for the future. A general clause in the employment contract alone is often insufficient if subsequent practice, such as payment without renewed notice on the payslip, contradicts this reservation. Labor courts strictly scrutinize such clauses. [Dr. Julia Schirmeister]

An effective wording could be: "This Christmas bonus is granted as a voluntary benefit, for which no legal claim arises for the future, even with repeated payments." This notice should ideally be provided directly in connection with the granting of the benefit, for example, in an accompanying letter or on the payment slip. This renews the employer's declaration of intent not to be bound each time and prevents the creation of a claim.

Under what conditions can an established customary practice be terminated or changed?

An established customary practice is an integral part of the contract and cannot be unilaterally revoked or cancelled by the employer. Termination is legally secure only through an amicable agreement with the affected employees (amendment agreement) or a formal notice of change, which is subject to high legal hurdles.

Since customary practice supplements individual employment contracts, changing it requires the same legal steps as a contract amendment. The simplest method is the amendment agreement, where employer and employees jointly agree to waive the benefit in the future. However, this requires the consent of each individual employee, which is often difficult to achieve in practice. The second option is the notice of change. In this case, the employer terminates the existing employment relationship and simultaneously offers its continuation under altered conditions, i.e., without the previous benefit. This termination must be socially justified, which represents a significant legal hurdle.

The so-called "counter-customary practice," where an employer ceases to provide a benefit for three years and hopes for employees' silence to be interpreted as consent, is viewed extremely critically by case law and offers no legal certainty. [Charlotte Jaekel] However, an existing customary practice can be superseded by a new works agreement, provided it offers an equivalent or better arrangement (principle of favorability). A deterioration through a works agreement is only permissible under strict conditions. [Anonym, Universität Hamburg]

What is the difference between customary practice, works agreement, and contractual promise?

A customary practice arises implicitly through repeated actions of the employer. In contrast, a works agreement is a formal, written agreement between the employer and the works council, while a contractual promise is an explicit, individual agreement between the employer and an individual employee.

These three instruments for regulating working conditions differ fundamentally in their origin, form, and scope. While customary practice is based on implied conduct and arises informally, the other two instruments require an active and formalized act of will. The following table illustrates the key differences:

This distinction is crucial for correctly assessing the legal nature of a claim. For example, a works agreement can replace a customary practice, but an individual contractual promise generally cannot (principle of favorability). Understanding these differences is essential for the legally sound design of compensation and benefit systems within a company.

Frequently Asked Questions about Customary Practice

Does a customary practice also arise with irregular payments?

No, generally not. Regularity and uniformity are crucial for an established company practice to arise. If benefits are granted in varying amounts, at changing times, or based on arbitrary criteria, the impression of a permanent, rule-based obligation on the employer, necessary for establishing a claim, is absent.

Does an established company practice also apply to new employees?

Yes, an established company practice generally applies to newly joining employees. They automatically become part of the existing company regulations, unless an explicit and effective different arrangement is made for the new employee in their employment contract.

Can an employer's mistake establish a company practice?

No, a mere error or a calculation mistake by the employer does not establish a company practice. According to the Federal Labour Court, a claim only arises if the employer demonstrably intends to provide a benefit beyond their existing legal obligation. An unintended error does not create a basis for legitimate expectation. [Verkehrsrundschau]

What happens to an established company practice during a business transfer?

In the event of a business transfer under § 613a BGB, the new owner assumes the rights and obligations arising from the existing employment relationships. This includes claims based on established company practice. The acquirer is therefore bound by the company practices created by the seller and must continue them.

Can an employer revoke above-tariff allowances that have become an established company practice?

No, an employer cannot unilaterally revoke a commitment for an above-tariff allowance that has been established through company practice. It has become part of the employment contract. A reduction or cancellation is only possible with the employee's consent or through a legally permissible notice of change to terms of employment. [Anonym, Technische Universität München]

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