Monthly Dose Employment Law 01/2026

In its ruling of 11 November 2025 (C-19/23), the ECJ recognised that the EU had partially exceeded its powers with certain provisions of Directive 2022/2041 on adequate minimum wages in the European Union. Although the ECJ confirmed the fundamental admissibility of EU-wide minimum requirements to improve working conditions, it drew clear boundaries: binding material criteria for setting and updating minimum wages constitute a direct intervention in the setting of wages, which is the responsibility of the Member States. The same applies to the part of the regulation that prohibits wage reductions in the event of automatic indexation. Otherwise, the Minimum Wage Directive remains in force.

Facts of the case

• EU Directive 2022/2041 (Mindestlohnrichtlinie, MiLo-RL), which had to be transposed into national law by 15 November 2024, aims to ensure adequate minimum wages in the Member States in order to guarantee decent working conditions. It does not provide for a binding minimum wage; rather, the directive creates a framework under EU law to promote adequate wages.· In particular, Article 5 MiLo-RL obliges Member States to establish procedures for setting and regularly updating minimum wages. The provision contains procedural requirements as well as substantive requirements for determining the minimum wage.
• In 2023, the Kingdom of Denmark brought an action for annulment before the ECJ pursuant to Article 263 of the Treaty on the European Union (TEU), requesting that the contested directive be declared null and void in its entirety.
• It argued that Directive 2022/2041 violated the division of competences enshrined in Article 153(5) TEU by directly interfering with the setting of wages, in that it laid down binding criteria for the setting and updating of statutory minimum wages and prohibited the reduction of minimum wages in the event of automatic indexation. These provisions exceeded the competence of the Union, as the determination of wage levels and their components was reserved exclusively for the Member States and the autonomy of the national social partners.
• In his Opinion, the Advocate General agreed with Denmark's argument and additionally based his opinion on a violation of the principle of conferral of powers enshrined in Article 5(2) TEU, according to which the Union may only act within the competences conferred on it by the Treaties. In his view, this competence is lacking due to the explicit exclusion of the fixing of wages in Article 153 TFEU.

Reasons for the decision

•  No direct harmonisation of remuneration: The ECJ clarifies that the exclusion of competence for ‘remuneration’ enshrined in Article 153(5) TEU is based on the fact that the setting of wages and salaries is subject to the contractual autonomy of the social partners and national competence. Harmonisation of wage levels or the introduction of a Union-wide minimum wage is therefore excluded. However, this exclusion only covers measures that directly interfere with the setting of remuneration. Not every regulation indirectly related to remuneration leads to a loss of competence for the Union, as this would largely undermine the areas of competence referred to in Article 153(1) TEU.
• Partial exceeding of competence: The Court concludes that Article 5(2) MiLo-RL obliges Member States to take certain economic parameters – such as purchasing power, general wage levels, wage growth and labour productivity – into account when setting and updating statutory minimum wages. These requirements constitute a direct intervention in the mechanism of wage setting and thus directly interfere with the setting of wages. The same applies to Article 5(3MiLo-RL insofar as it is linked to Article 5(2) MiLo-RL, which prohibits a reduction in the statutory minimum wage when applying an indexation mechanism. These provisions exceed the competence of EU law and must therefore be declared void.
• No violation of the right of association: In addition, the Court of Justice denied that there was an inadmissible interference with the right of association. The Minimum Wage Directive cannot be interpreted as obliging Member States to promote certain trade union structures or to compel certain workers' organisations to participate in collective bargaining.
• Continued validity despite partial invalidity: The remaining provisions are directly related to the area of ‘working conditions’ within the meaning of Article 153(1)(b) TEU. The provisions declared invalid are separable in terms of content and function, so that the regulatory content of the remaining provisions remains unaffected. In view of these central provisions, which thus fall within the scope of Article 153(1)(b) TEU, the Directive remains effective in all other respects.

Consequences for practice

The EU cannot impose binding substantive requirements on the level or calculation of statutory minimum wages. Decisions on assessment, adjustment mechanisms and indexation remain a matter for the Member States or national legislators and social partners. Employers must therefore continue to comply exclusively with national minimum wage regulations; there is no direct European law ‘intervention’ in wage levels or their calculation parameters.

At the same time, the procedural and structural parts of the MiLo Directive remain effective. Employers – especially in countries with low collective bargaining coverage – must expect national legislators to maintain or expand measures to strengthen collective bargaining autonomy, transparency, enforcement and reporting obligations. In practice, this means that there will be no EU-mandated minimum wage, but continued increased attention to collective bargaining processes, compliance obligations and documentation requirements under national law.

In its decision of 29 September 2025 (2 BvR 934/19), the German Federal Constitutional Court (Bundesverfassungsgericht, BVerfG) had to clarify the conditions under which a church employer may require membership of a church as a prerequisite for employment and to what extent this is subject to judicial review.

Facts

• The subject of the constitutional complaint is the question of under what conditions a church employer may require membership of the church for a specific position to be filled and to what extent the state courts can review this with regard to the right to religious self-determination under Article 4(1) and (2) in conjunction with Article 140 of the German Constitutional Act (Grundgesetz, GG) and Article 137(3) sentence 1 of the Weimar Constitution (Weimarer Reichsverfassung, WRV).
• The complainant is the Evangelical Agency for Diakonia and Development (EW-DE), a Protestant agency founded in the legal form of a registered association, the majority of whose members are Protestant and non-religious charitable associations and missionary societies.
• The EW-DE advertised a position for which it required membership of a Protestant church. The non-denominational plaintiff in the original proceedings applied for this position without disclosing her religious affiliation. She was not considered in the selection process and sued for compensation on the grounds of religious discrimination (Section 15 (2) of the German Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz, AGG).
• The Labour Court (ArbG) Berlin awarded the plaintiff compensation because she had been treated less favourably than comparable applicants on religious grounds. On appeal by the complainant, the Regional Labour Court Berlin(LAG)-Brandenburg Regional dismissed the claim for compensation because the difference in treatment on grounds of religion was justified under Section 9(1) Alt. 1 AGG.
• In the context of the appeal proceedings sought by the plaintiff, the German Federal Labour Court (Bundesarbeitsgericht, BAG) decided to initiate a preliminary ruling procedure before the European Court of Justice (ECJ) on the interpretation of Article 4(2) of Directive 2000/78/EC. It specifically asked for an answer to the question of whether an employer or the church can determine for itself whether a particular religion of an applicant constitutes a genuine, legitimate and justified occupational requirement in view of its ethos, depending on the nature of the activity or the circumstances in which it is carried out.
• The ECJ ruled that the question of whether religion constitutes a genuine, legitimate and justified occupational requirement must be subject to effective judicial review.
• Following the preliminary ruling by the ECJ, the BAG ruled on the case and affirmed that the plaintiff had been unlawfully disadvantaged on the grounds of religion-related discrimination. It awarded her compensation.
• EW-DE lodged a constitutional complaint against this ruling. In particular, it complained of a violation of the church's right to self-determination under Article 4(1) and (2) GG in conjunction with Article 140 of the Basic Law and Article 137(3) of the Weimar Constitution.
• The BVerfG upheld the constitutional complaint, overturned the judgement of the BAG and referred the case back for a new decision.

Reasons for the decision

• Right to religious self-determination: The right to self-determination encompasses all measures that serve to ensure the religious dimension of activity in the sense of religious self-understanding. This also includes legal provisions for the performance of church services through the conclusion of appropriate employment contracts.
• The regulatory authority contained in the right to self-determination entitles religious communities to organise their activities, including the selection of employees and the establishment of religious principles that form the basis of their activities. Even when state labour law is applied, this right must be given considerable weight under constitutional law.
• Two-stage control model with limited judicial review:

Stage 1 – Plausibility and preliminary review

- Based on the church's self-image, the courts must effectively check whether there is an objective direct connection between the requirement (in this case: church membership) and the specific activity/circumstances of its exercise.

- The religious community must explain this connection in a task-related and comprehensible manner. A blanket reference to membership of the ‘service community’ is not sufficient.

- However, the courts may not substitute their own assessment of the religious significance of the activity for the church's self-image.

Stage 2 – Open overall assessment

- In a second step, an open overall assessment must be carried out to determine whether the requirement is essential, lawful, justified and compatible with the principle of proportionality.

- The greater the significance of the specific position for religious identity (proximity to preaching/pastoral care, leadership or representative function), the greater the weight of the self-image; the lower the relevance, the more likely it is that the protection of applicants against discrimination will prevail.

• Consequences for the application of Section 9 AGG: Section 9(1) Alt. 1 AGG, which allows justification solely on the basis of the church's self-image, is inapplicable due to incompatibility with EU law. Only Section 9 (1) Alt. 2 AGG is viable, which must be interpreted in accordance with EU law: Unequal treatment is only permissible if religious affiliation constitutes an essential, legitimate, justified and proportionate occupational requirement due to the nature of the activity or the circumstances in which it is carried out.
• Constitutional objection of the BAG and legal consequence: The BVerfG objects that the BAG did not give the constitutionally required weight to the church's right to self-determination and did not sufficiently take into account the church's prerogative of assessment in the context of weighing up the interests involved. The BVerfG did not make a final decision on the admissibility of church membership as a prerequisite for employment in this specific case.

Consequences for practice

Employment requirements such as membership of a church may only required where there is an objective, task-related and plausible connection; blanket or cross-functional requirements are inadmissible. The requirement must be essential, lawful, justified and proportionate. The more a function shapes the religious identity of the institution internally (especially proximity to proclamation, pastoral care or Protestant education) or externally (profile representation, leadership or spokesperson function), the more likely it is that compulsory membership is legally viable; in the case of activities that are not related to the profile, protection against discrimination usually prevails. State courts review these criteria without substituting their own assessments for the church's self-image. The burden of proof lies with the church employer, which is why it is advisable to carry out a documented, job-related ethos impact analysis before each job advertisement, that clearly records the job profile, the external and internal impact of the activity and the specific connection with the church's mission.

In its ruling of 15 July 2025 (9 AZR 198/24), the BAG ruled that the statutory minimum holiday entitlement – which could no longer be granted due to the plaintiff's long-term illness and the subsequent termination of her employment – had to be compensated. Since the expiry of the statutory holiday entitlement pursuant to Section 7 (3) BUrlG was contractually excluded in the event of long-term illness, the holiday entitlements (144 working days) did not expire.

Facts

• The plaintiff was employed by the defendant (a church employer) as a nurse from 1 January 2010 to 30 June 2023 at a gross monthly salary of EUR 3,053.
• The employment relationship was governed by the employment contract guidelines of the Diakonisches Werk der Evangelischen Kirche in Deutschland (AVR-DD) in their currently valid version, as referenced in the employment contract; in addition, the employment contract contained separate holiday provisions.
• Section 7 (3) of the employment contract stipulated that holiday entitlement could only be carried over to the following year if certain conditions were met by 30 April. After that date, any remaining holiday entitlement would lapse, unless it could not be taken due to illness. In this case, the entitlement would continue beyond the carry-over date in the amount of the remaining statutory holiday entitlement. Section 7 (4) of the employment contract stipulates that holiday compensation shall only be paid up to the amount of the remaining statutory holiday entitlement.
• Section 28 of the AVR-DD stipulates that holidays must generally be taken by the end of the holiday year, but no later than 30 April of the following holiday year. If this is not possible for operational or work-related reasons or due to incapacity for work, the leave may be taken until the end of June of the following year. If the postponement of the leave to a period after 31 December of the leave year is initiated by the employer and the leave cannot be taken by the end of June due to incapacity for work, it must be taken by the end of September, otherwise the entitlement expires.
• The plaintiff was continuously unable to work due to illness from 31 July 2015 until the end of her employment on 30 June 2023 and, in a letter dated 14 July 2023, unsuccessfully requested the defendant to pay her holiday compensation for 144 working days of statutory minimum holiday entitlement from the years 2016 to 2021 in the amount of €16,908.92.
• The Regional Labour Court upheld the claim; the defendant employer appealed against this decision.

Reasons for the decision

• The BAG ruled that the statutory minimum holiday entitlement pursuant to Section 7 (4) BUrlG in conjunction with Section 7 (4) of the employment contract must be compensated for the entire period.
• In principle, if an employee is continuously ill in the 15 months following the end of the holiday year, the holiday entitlement expires in accordance with Section 7 (3) BUrlG, which is interpreted in conformity with EU law. Section 28 (7) AVD-RR was also unable to effectively exclude this, as this provision, insofar as it also provides for the expiry of statutory holiday entitlements, is partially void pursuant to Section 134 BGB in conjunction with Section 13 (1) sentence 1 and sentence 3 BUrlG; and is generally replaced by Section 7 (3) BUrlG as interpreted in accordance with EU law.
• In the present case, however, the parties excluded the provision of Section 7 (3) BUrlG in favour of the plaintiff in the event of long-term illness in Section 7 (3) sentence 3 of the employment contract. The BAG ruled that Section 7 (3) sentence 3 of the employment contract regulates the expiry of leave independently and conclusively and supersedes the provision in Section 7 (3) BUrlG as well as the expiry provision in the AVR-DD.
• Church labour law does not render the exclusion of expiry in the event of long-term illness invalid. Insofar as the defendant's contractual practice violated the AVR-DD, this would have no effect on the plaintiff's holiday entitlements at issue in the dispute, as the relevant statutes only obliged members to comply with ecclesiastical law and did not directly affect the content of employment contracts.
• Furthermore, the contractual clause in Section 7 (3) sentence 3 is also compatible with Article 7 of the Working Time Directive (Directive 2003/88/EC). EU law permits the interpretation of the Federal Labour Court that holiday entitlements expire 15 months after the end of the respective holiday year, but does not prohibit regulations (under collective or individual law) that are more favourable to employees.

Consequences for practice

When drafting contracts, employers should carefully check their employment contracts to ensure that independent expiry provisions for leave effectively exclude the statutory expiry periods. More favourable individual contractual deviations from the statutory or collective law expiry of leave are permissible and binding on the employer. Significant compensation claims may arise, particularly in the case of long-term illness.

In its judgement of 2 September 2025 (4 SLa 200/24), the LAG Rhineland-Palatinate ruled that the number of employees for calculating the threshold value under the KSchG should generally only be based on employees in Germany. If an individual employment relationship has been transferred to a foreign partner company for which there are clearly no longer any operational reasons to apply German protection against dismissal, the protection under the KSchG no longer applies. This applies in any case in situations in which there are no compelling protective considerations to justify deviations from the domestic reference of Section 23 (1) KSchG by way of a constitutional interpretation.

Facts

• The plaintiff had been employed since 1994 in the technical consulting department of the defendant, which sold finished products for the production of tiles and floor tiles.
• In 2001, after several acquisitions, his division was relocated to a Spanish company, and in 2012, the plaintiff, as the last employee of his company in Germany, switched to working from home.
• The employment contract underlying the judgement was concluded in 2020 between the defendant's legal predecessor, the plaintiff and the defendant in the form of a ‘tripartite contract’ subject to the express agreement that German labour law would apply.
• Based on the 2020 contract, the place of work was the home office in Germany. The plaintiff was only deployed to the Spanish laboratory two to three times a year on a weekly basis and made customer visits together with his Spanish colleagues.
• The defendant terminated the employment relationship with due notice on 31 October 2024.
• The plaintiff brought an action for unfair dismissal, citing a violation of Section 23 (1) KSchG and unconstitutional unequal treatment – contrary to the general principle of equality (Article 3 (1) GG) and his freedom of occupation (Article 12 (1) GG in conjunction with Article 2 (1) GG) between him and his Spanish colleagues, who were entitled to severance pay of up to 24 months.
• The labour court dismissed the action, whereupon the plaintiff lodged an appeal.

Reasons for the decision

• On the (non-)existence of the minimum threshold under Section 23 (1) KSchG: The court clarified that (according to the territorial principle) only domestic employees are to be taken into account for the threshold under Section 23 (1) KSchG.
• The inclusion of foreign employees can only be considered in very limited exceptional cases by way of a constitutional interpretation, in particular if there are special protection considerations or sufficient domestic connections, which were not present in this case.
• In the present case, the plaintiff was the defendant's only domestic employee, so that the threshold for general protection against dismissal was not met.
• No unconstitutional unequal treatment: The different treatment of domestic and foreign employees did not violate Article 3 (1) GG or Article 12 GG in conjunction with Article 2 (1) GG. The plaintiff was the defendant's only employee working in Germany, while his foreign colleagues were exclusively subject to Spanish employment contract law. In particular, the extensive home office arrangement, which meant that the defendant's right to give instructions took a back seat to the plaintiff's autonomous work organisation, highlighted the plaintiff's unique position as the smallest conceivable, individually characterised employment unit.
• No further need for protection for the employee: The court also denied that the dismissal was contrary to good faith (Section 242 of the German Civil Code (Bürgerliches Gesetzbuch, BGB)). The termination was neither arbitrary nor irrelevant, as there were comprehensible organisational reasons for the restructuring. In particular, the previous state-level customer support had been discontinued, there was no longer an unchanged need for employment, and the job description would no longer be comparable to the previous one in the future.
• Attribution of the contractually assumed risk: In the opinion of the LAG, the plaintiff should have taken further steps to protect himself against dismissal when concluding the tripartite agreement in 2020, instead of merely securing the statutory protection of the notice period. He was to be held responsible for the risk materialising, as he could have had the agreement reviewed and had a not inconsiderable negotiating position. There was no compulsion to conclude the contract.

Consequences for practice

The decision of the Rhineland-Palatinate Regional Labour Court confirms and clarifies the strict domestic reference of the term ‘business’ in the threshold calculation pursuant to Section 23 (1) KSchG.

Employers with cross-border organisational structures can generally rely on the fact that employees working abroad are not included in the calculation, even if individual employees work from home in the UK or remain closely involved with foreign entities in a professional capacity. A single domestic employee does not in itself constitute an establishment relevant to dismissal protection law as long as there is no longer a domestic organisational structure.

At the same time, the judgement makes it clear that contractual arrangements are deliberately risky: if an individual employment relationship – for example, within the framework of a tripartite contract – is transferred to a foreign company with German contract status without there being a domestic workforce there, there is no ‘automatic recourse’ to general protection against dismissal for employees.

In its judgement of 11 September 2025 (13 SLa 316/25), the Hamm Higher Labour Court ruled that additional holiday entitlement under the collective agreement for 2021 and 2022 did not expire due to maternity leave and parental leave, despite the expiry provisions in the collective agreement.

Facts

• The plaintiff had been employed by the defendant as a part-time sales assistant since 2014; the employment relationship was governed by the framework collective agreement (Manteltarifvertrag, MTV) concluded between the North Rhine-Westphalia Trade Association and ver.di, which provided for an annual leave entitlement of 36 working days.
• In 2021, the plaintiff was unable to take part of her approved leave due to a ban on employment from October onwards. This was followed seamlessly by maternity leave (until 7 August 2022) and parental leave (until 6 December 2024).
• For 2021, six days of the additional leave provided for in the MTV remained, and for 2022, seven days of additional leave remained.
• The defendant took the view that this leave, which exceeded the statutory minimum leave entitlement, had expired by 30 April of the following year at the latest due to the relevant collective agreement (expiry) provisions.
• The plaintiff argued that the leave had not expired due to maternity protection and parental leave and referred to the provisions of the Maternity Protection Act (Mutterschutzgesetz, MuSchG) and the Act on Parental Allowance and Parental Leave (Bundeselterngeld- und Elternzeitgesetz, (BEEG).

Reasons for the decision

• Even though, according to Section 7 (3) sentence 1 of the German Federal Leave Act (Bundesurlaubsgesetz, BUrlG) (and the comparable provision in the MTV), leave must in principle be granted and taken in the current calendar year or the carry-over period, Section 24 sentence 2 of the German Birth Protection Act and Section 17 (2) BEEG apply in this case as special provisions.
• The LAG clarified that Section 7 (3) sentence 3 BUrlG and Section 15 (8) MTV, as well as the provisions of Sections 24 sentence 2 MuSchG and 17 (2) BEEG, concern different regulatory subjects: While Section 7 (3) sentence 3 BUrlG and Section 15 (8) MTV regulate the transfer and expiry of holiday entitlements, the provisions in Sections 24 sentence 2 MuSchG and Section 17 (2) BEEG do not, according to their wording, provide for an extension of the three-month transfer period of Section 7 (3) sentence 3 BUrlG, but rather an exception to the principle that recreational leave must be granted and taken in the current calendar year (Section 7 (3) sentence 1 BUrlG).
• Section 24 sentence 2 MuSchG and Section 17 (2) BEEG therefore contain an independent provision on the holiday year with regard to the fulfilment and expiry of leave, which deviates from Section 7 (3) BUrlG and the corresponding collective agreement provisions.·
  • After the plaintiff's return in December 2024, 2025 would therefore be the relevant holiday year for the remaining holiday entitlement from 2021 and 2022. The additional holiday entitlement under the collective agreement could therefore expire on 31 December 2025 at the earliest.

Implications for practice

In the case of employment bans, maternity leave and parental leave, employers should check to what extent special legal provisions postpone the holiday year. Collective agreement or employment contract expiry clauses relating to holiday entitlements do not normally apply in these cases. Remaining holiday entitlement must be granted after the employee's return and can only expire significantly later.