What is a business practice?

If employers repeatedly and unconditionally grant voluntary benefits, this can lead to the establishment of customary law. Employees then have a legal entitlement to such benefits with the expectation that they will continue to receive them. According to case law, by repeatedly and unconditionally granting such benefits, employers establish a conclusive behavior that justifies their obligation for the future. This gives rise to implicit agreements that lead to the amendment of employment contracts. The originally voluntary benefits thus become part of individual contracts through business practice. This makes it considerably more difficult for employers to withdraw benefits unilaterally. The binding nature of such business practices also affect new employees joining the company.

If voluntary benefits are only granted infrequently or are very variable (e.g., different bonus payments are made at different intervals after the completion of certain projects), the risk of a business practice being established is lower. On the other hand, salary increases that are granted unconditionally over a number of years and are linked to the consumer price index, for example, constitute a business practice that could give rise to individual claims.

"Non-binding" versus "revocability"

When granting voluntary benefits, it is often emphasized that they are non-binding and that they can also be revoked at any time. However, this mixed clause leads to legal uncertainty: either a benefit is non-binding and can be withdrawn at any time, or employees are already entitled to such benefits, which can be revoked if certain conditions are met. Even the often-used umbrella term "voluntary" does not remove this legal uncertainty. This is because any benefit granted by the employer without any legal or contractual obligation can be considered voluntary.

Only if a benefit is granted on a non-binding basis does no entitlement arise for employees from the outset, and therefore no revocation is required to withdraw the benefit. For employers to be able to unilaterally withdraw these voluntary benefits at any time, they must be subject to the condition that they are non-binding.

Reservation clauses

Employers should therefore always grant "voluntary" benefits subject to the condition that they are non-binding. This ensures that these benefits can be unilaterally withdrawn at any time and do not give employees any legal entitlement to receive these benefits in the future. 

In addition, the reservation of a non-binding condition of the granted benefit should be repeated regularly. A contractual provision stating that additional benefits will always be non-binding will become invalid over time. Depending on the frequency of voluntary benefits, the non-binding reservation should also be repeated regularly. Ideally, the reservation should be repeated each time a benefit is provided (e.g., each time a bonus is paid).

Cessation of business practices

Non-binding benefits can be withdrawn unilaterally at any time, as long as no business practice has been established. However, once a business practice has been established, the individual consent of employees is required to revoke this legal entitlement. In individual cases, it may also be possible to give notice of termination with an option to change the terms and conditions of employment, as it will often be reasonable for employees to waive such (originally voluntary) benefits. Furthermore, in individual cases, a business practice can also be revoked implicitly if it has not been applied for a longer period of time.

Exclusion of a business practice for non-pay-related benefits

In the case of certain benefits, despite a repeated (or even permanent) provision, no legal entitlement can arise for employees: only what is covered by the employer’s willingness to make a commitment (even if only implied) can be said to be a business practice.

According to case law, it depends on whether the repeatedly granted benefit is pay-related or non-pay-related. Benefits that clearly accrue to individual employees and can therefore be individualized (e.g., Christmas bonuses) are described as pay-related. In this case, the employer’s intention - and thus a business practice - is assumed.

In contrast, services that are only loosely connected to the work performance (e.g., organizing Christmas parties or setting up a company kitchen) are defined as non-pay-related. The more non-pay-related a benefit is, the more likely it is that it is not covered by the employer’s obligation. Correspondingly, the risk that a business practice or entitlement of the employees to such a benefit arises is reduced.

Checklist

Employers can protect their rights by taking the following measures: 

• Checking the intended structure of voluntary services before implementing them
• Stipulating in writing that benefits are non-binding
• Verifiably repeating the reservation of the non-binding nature of benefits for each benefit
• Contractually excluding known business practices in the case of new hires
• Eliminating business practices that have already arisen — depending on the expected risk — by simply ceasing the practice, obtaining employee consent, or giving notice with the option of modified terms

Click here to read the German version.