90-Day Trap: How German Employment Contracts Can Erase Claims – and Why New Reforms Will Raise the Stakes

When a German employer failed to set bonus targets at the start of the performance period, the country’s Federal Labor Court (BAG) ordered it to pay the full bonus anyway. In a ruling handed down on April 22, 2026 (case number 10 AZR 28/25), the court sided with a claimant who had been denied any target communication. Unable to provide counter-evidence, the employer had to treat the goal as fully achieved.

The judgment highlights a broader reality in German labor law: many employee entitlements vanish if not asserted quickly — often within three months. While the standard statute of limitations runs three years, most employment contracts contain Ausschlussfristen (exclusion clauses) that cut that window dramatically. These clauses wipe out claims completely, unlike regular limitation periods that merely block enforcement.

The Three-Month Cliff

Standard exclusion periods give employees just 90 days to assert most monetary claims after they become due. Salary, overtime, bonuses, and expense reimbursements all fall under this rule unless the contract explicitly excludes the statutory minimum wage. The BAG made that exception clear in 2018 (case 9 AZR 162/18): any clause that could also cancel the minimum wage is void.

Since October 1, 2016, a simple text-form notice — email or fax — suffices to preserve a claim, unless the contract demands stricter formalities. In collective bargaining agreements, the period is often six months. But the key difference with ordinary limitation: once the exclusion period expires, the entitlement is extinguished, not just barred. Only the statutory minimum wage survives.

Slow Pay, Fast Risks

Under section 614 of the German Civil Code (BGB), wages are due on the first working day of the following month. If the employer delays, interest accrues automatically, and the worker can claim consequential damages such as collection fees. Legal advisors warn, however, against working more than three months without pay. After that point, insolvency risk rises sharply: state insolvency benefits only cover the three months immediately before bankruptcy proceedings open.

Vacation: Not a Self-Extinguishing Right

Leave entitlements follow different rules, especially during long illness. The BAG ruled (case 9 AZR 353/10) that for permanently incapacitated employees, paid vacation expires only 15 months after the end of the calendar year.

A critical December 2022 decision (case 9 AZR 245/19) added another layer: employers must proactively warn staff about impending vacation forfeiture. If they fail to do so, the leave does not lapse. This principle also applies during temporary disability pensions. Both statutory leave and additional leave for severely disabled workers remain intact, even without active work during the year.

Reform Package Nears Completion

The coalition government is preparing a broad overhaul of employment law. Key elements include:

• Extending fixed-term contracts without cause to a maximum of 48 months, with up to six renewals
• Reinstating mandatory in-person sick notes from the first day of illness, ending remote certification
• Raising the statutory minimum wage to €14.60 per hour as of January 1, 2027

In temporary agency work, wages have already increased: since July 2026, the floor is €14.96 per hour. The combination of longer fixed-term periods and higher minimum thresholds will make prompt and correct assertion of claims even more critical for workers.

The April bonus ruling is a vivid reminder that employers cannot simply ignore deadlines either. When they fail to communicate targets at the start of the period, courts may award the full amount. For both sides, the clock starts ticking immediately.

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