Good Leaver / Bad Leaver Clauses in Germany

Outside of Germany, good leaver/bad leaver clauses are standard when it comes to bonus payments. The goal is clear:
Employees who are "good leavers" should keep the bonus.

Good leavers are, for example:

• Employees who are dismissed by the company due to operational reasons or illness.
• Employees who themselves have an important reason for the dismissal.
• Employees who leave the company for age-related reasons.

On the other hand, employees who are "bad leavers" should not be entitled to the bonus.
Bad leavers are, for example:

• Employees who terminate their employment relationship without good cause.
• Employees to whom the company gives notice for reasons of conduct.

In most (non)European countries such good leaver/bad leaver clauses are not a problem.

The situation is different in Germany.
 
In Germany it does not matter whether someone is a "good leaver" or a "bad leaver".
Whether the employee is entitled to a bonus even though the employee leaves the company until the end of the bonus period or until a few months later, depends rather on the following questions:
 
Is the bonus a performance and/or success-related bonus?
Or is the bonus not performance-related or success-related?

• In the case of performance and/or success-related bonuses, it is in general not possible under German law to make the payment of the bonus dependent on the employee being in a non-terminated employment relationship until a certain key date. Under German law, it is only possible to pay the bonus "pro rata" if the employee leaves the company in the course of the bonus period despite meeting the targets or similar.
  Thus, under German law, bad leavers are in general also entitled to a performance or success-related bonus.
   
• Only if the bonus (or similar) is not related to performance or success at all, the payment can be made dependent on the employee being in a non-terminated employment relationship until a certain key date.
  Bad leaver clauses would therefore be possible, for example, in the case of a pure company loyalty bonus without any connection to performance or success.
  Moreover, according to German law, good leavers could also be exempted from a bonus by such a key date regulation.
  
  Attention: A payment condition saying that the bonus payment is reduced for periods in which the employee does not perform any work without a claim to remuneration, is already a performance-related bonus payment according to case law!
  Also, if the bonus (or the like) accounts for at least 25% or more of the total remuneration, according to German case law this speaks in favor of a connection to performance.

The jurisdiction judges only tariff bonuses differently.
However, this is of little use to many companies since such bonuses are mostly non-tariff payments.
 
Many companies argue that the success of the enterprise to be evaluated or the achievements of the employee to be evaluated presuppose that the employment relationship is maintained for at least the entire bonus period. This argument usually does not work before German courts.
The Regional Labour Court in Cologne, for example, ruled in one of our proceedings:
 
"Special circumstances that could exceptionally justify the deadline of 31 December are not apparent in the present case. In particular, it is not apparent in the present case that the work performance would have a special value for the defendant precisely in a certain period prior to the cut-off date. Insofar as the special payment is also linked to the entrepreneurial result in the calendar year, this is sufficiently taken into account to the extent that corresponding company figures at the due date can be used to calculate the bonus. No pro rata calculation of a business result is required. The defendant's interest in a group-wide uniform treatment alone does not justify making the continued existence of the employment relationship a prerequisite for the bonus payment at the end of the reference period".
 
The situation in Germany is therefore unsatisfactory, especially for internationally operating corporations which have no problems with good leaver/bad leaver clauses in their own countries.
 
Companies for whom a good leaver/bad leaver clause and a success reference are important should therefore consider whether they would prefer a virtual employee participation instead of a bonus.
In the case of virtual employee participation, the employee is placed by agreement as if he were a shareholder. It is therefore a shareholding without the employee assuming the position of a shareholder.
According to the current status of discussions (although no final decision has yet been made), it should be permissible for the employee to receive a payment of his fictitious capital shares a) only after the expiry of a certain period and b) only if he is a good leaver.


Please do not hesitate to contact us for further questions.

 
Bettina Steinberg          Dr. Mona Geringhoff          Lydia Voß