Background of the decision

The claimant was employed by a company involved in cryptocurrency services. Her employment contract included a provision entitling her to commissions based on monthly business performance, to be calculated in Euro and paid in ETH at the end of the following month. Despite repeated requests and provision of a wallet address, the employer failed to transfer the ETH before the employment ended in December 2021. A lump-sum Euro payment was made later, but the employee pursued additional ETH commissions for February and March 2020.

Court's findings

• ETH is not “money” within the meaning of Section 107(1) of the German Trade Regulation Act GewO), which stipulates remuneration to be paid in Euro.
• However, Section 107(2) sentence 1 GewO allows non-cash benefits as parts of the remuneration if they are in the employee’s interest.
• The court found that the ETH commission agreement constituted a valid non-cash benefit, as it was contractually agreed and objectively beneficial to the employee.
• Crucially, under Section 107(2) sentence 5 GewO, the value of non-cash benefits must not exceed the seizable portion of wages. The unseizable portion of wages must be paid in Euro to ensure the employee can meet basic living needs without converting cryptocurrency or relying on social benefits.
• The lower court had miscalculated unseizable portion of wages, so the case was remanded to this court for further fact-finding.
• The Federal Labor Court did not have to decide whether and, if so, under which conditions an agreement in general terms and conditions (Sections 305 et seq. of the Civil Code (BGB)) according to which a claim to remuneration is to be fulfilled by transferring units of cryptocurrency is valid. A decision was not required since the employer as the proposer of the clause could not invoke its invalidity.

Practical implications for employers

• Cryptocurrency as remuneration: Employers may offer cryptocurrency as part of compensation packages, but only as a non-cash benefit.
• Contractual clarity: Agreements on payments in cryptocurrency should clearly define the conversion mechanism and due date for payments. If this is not done, the conversion and exchange rate fluctuation risk generally lies with the employer. It may then be advisable to actually make an exchange on the due dates in order to minimize these risks.
• Compliance with wage protection laws: Employers must ensure that the unseizable portion of the remuneration is generally paid in Euro. Payments in another foreign currency (not cryptocurrency, as this is a non-cash benefit) can only be considered in individual cases, for example for periods when an employee is expected to work for more than one month in a country where the Euro is not the national currency. In addition, pursuant to Section 108 GewO, the payroll statement must also generally display the remuneration in Euro.
• Risk of invalidity: In case of violations of Section 107 GewO, the agreement and payment of remuneration in cryptocurrency may be (partially) invalid, requiring potential back payments in Euro. Even damage payments are not excluded in this case.

Also to consider: Wage tax and social security

Employers have also to consider wage tax and social security reporting and withholding obligations arising from the payment of cryptocurrency. In its first circular related to the tax treatment of virtual currencies and other tokens dated from May 10, 2022, the Federal Ministry of Finance clarified the following:

• Timing of taxation: Cryptocurrency and tokens that are to be classified as non-cash benefits have to be generally taxed at the time they are credited to the wallet of the employee.
• No taxation on promise alone: The tokens are received at the earliest at the time at which the tokens can be traded, as the employee is only able to dispose of the tokens economically at this point in time. A taxable event therefore does not yet exist if the employer has merely contractually promised to provide tokens (comparable to stock options).
• Assignment of rights: If, however, the employee assigns the contractual claim to the entry of the tokens in their wallet to a third party for a fee before the tokens are received, the taxation has to occur at this point in time in the amount of the difference between the sales proceeds and the acquisition costs for the tokens.

Worth noting, the updated circular of the Federal Ministry of Finance related to the tax treatment of virtual currencies and other tokens dated from 3 March 2025 exility excludes the income and wage tax treatment of virtual currencies as income from employment from the scope of the circular. However, it can be expected that the principles as outlined in the first circular published by the Federal Ministry of Finance will still be applied as these are based on the general principles of wage taxation.

Recommendations

Employers using or considering to use cryptocurrency-based compensation for employees should:

• Review employment contracts for compliance with Section 107 GewO and observe best practice when agreeing exchange rates and due dates for payment.
• Ensure the correct calculation of the unseizable portion of remuneration which in nearly all cases has to be paid in Euro.
• Ensure the wage tax and social security reporting and withholding from crypto-based compensation is done correctly.
• Monitor legal and tax developments as courts and tax authorities continue to address cryptocurrency in employment contexts.

German version