Pay Rise Only for New Contracts? That Is Not Permissible (Federal Labour Court, 5 AZR 239/24)

An employer wanted to standardise its employment contracts and offered the workforce new contracts with a higher basic wage. Most employees signed, but one employee kept her existing contract. Later, the employer increased the basic wage by a further 5% – but only for those with a new contract.

The employee demanded the same increase and brought an action. In its judgment of 26 November 2025 (5 AZR 239/24), the Federal Labour Court (Bundesarbeitsgericht, BAG) held that she, too, is entitled to the pay rise. Differentiating solely on the basis of whether employees have signed a new employment contract does not constitute an objective reason for unequal treatment. What is decisive is that comparable employees in the same establishment must in principle be treated equally.

The employment-law principle of equal treatment applies in particular where an employer grants a benefit according to a recognisable generalising principle – as here in the case of a general pay rise.

Wage increases are not suitable as an instrument to induce employees to switch contracts. Companies granting a general pay rise must in principle include all comparable employees – including those with old contracts.