VW Ordered to Pay Full Anniversary Bonuses as Cost-Cutting Plans Hit Legal Speed Bump

German labor court orders VW to restore full anniversary bonuses, potentially impacting dozens of disputes as automaker faces profit slump and EU pay transparency rules.

A German labor court has forced Volkswagen to restore full anniversary bonuses for two long-serving employees, dealing a setback to the automaker's efforts to slash expenses amid a deepening profit crisis. The ruling, handed down by the Regional Labor Court of Lower Saxony on June 5, could set a precedent for dozens of similar disputes as the company slashes executive pay and managerial premiums across the board.

The case centers on a shift in VW's bonus policy effective January 1, 2025. After that date, the company replaced percentage-based anniversary payments with lower flat-rate amounts. But the court found that the new collective agreement was not signed until late January 2025, meaning employees whose anniversaries fell on New Year's Day remained covered by the previous rules. The two affected workers are now entitled to up to 1.45 times their monthly salary after 25 years of service. The judgment is not yet final, but labor law experts say it will likely influence similar lawsuits.

The timing could hardly be worse for Volkswagen's leadership. An EY analysis of the first quarter of 2026 shows combined operating profit at Volkswagen, Mercedes-Benz and BMW tumbled 23 percent year-on-year, while revenue slid about 4 percent. By contrast, U.S. automakers posted an 83 percent profit surge, and Japanese manufacturers saw revenues rise 4 percent. The average margin among the world's 19 largest carmakers fell to 3.5 percent—the lowest since 2020.

China, once a cash cow for Germany's auto industry, has become a drag. Sales there dropped 16 percent. "China is evolving from a growth driver into a problem market," said Constantin Gall, an automotive expert at EY.

Bonuses have become a blunt cost-cutting lever. Volkswagen's management board is set to receive no bonuses for 2025 because net cash flow hovered near zero—the group needed 3.5 billion euros for full payout. Thousands of managers below board level are also bracing for sharply reduced premiums. Beyond weak sales, heavy investments in software, the sluggish ramp-up of electric vehicles, and U.S. tariffs are eating into liquidity.

Meanwhile, a separate deadline is adding to the administrative burden on German companies. On June 7, the transposition period for the EU Pay Transparency Directive expired. Germany has not yet enacted the rules into national law. The Federal Ministry for Family Affairs plans to do so by early 2027.

The directive will require firms with 100 or more employees to publish regular reports on average salaries broken down by gender. The goal is to close the gender pay gap, which in Germany stands at over 15 percent—significantly above the EU average of around 11 percent. Industry associations are calling for a low-bureaucracy implementation to avoid further straining already overstretched HR departments.