24.06.2024 Newsletter
Focus on Labor Law 2nd Quarter 2024
The government is hoping to relieve the economy of bureaucracy through a multitude of individual measures. On 19 June 2024, the German government supplemented the draft of the Fourth Bureaucracy Relief Act (Bürokratieentlastungsgesetz IV, BEG IV), which also contains numerous changes of relevance to labour law. The motto is: “digital services as opposed to analogue relics”. In this second issue of our Focus on Labour Law 2024, we summarise for you the most important planned changes and, as usual, report on many practice-relevant labour law decisions and innovations.
1. New case law
1.1 Collective redundancy notification procedure - further referral to the ECJ
1.3 No circumvention of German GTC check possible through a choice of law
1.4 (No) claim to default of acceptance if placement efforts are thwarted
1.5 Structuring options for a transfer of business: creation of a transferable entity
1.6 Issuance of a payslip via a digital employee mailbox
1.7 The court sees red - how black trousers lead to dismissal
1.8 Employee participation programmes - forfeiture of virtual options
1.9 Damages for late target specification
1.10 When does the PSVaG's claim to a lump-sum settlement expire in insolvency?
1.11 Paperless through the recruitment process - informing the works council
1.12 Company co-determination in the event of changes in special payments
1.13 No action by conciliation board before legal validity of court appointment
2. New legislation
2.1 BEG IV: changes to labour law
1. New case law
1.1 Collective redundancy notification procedure - further referral to the ECJ
Can an employer be sure that a collective redundancy notification has been "properly" made if the employment agency does not object to it and therefore considers itself to be sufficiently informed? The German Federal Labour Court [Bundesarbeitsgericht, BAG] (decision of 23 May 2024 - 6 AZR 152/22) referred this question to the ECJ for decision.
In its decision at the end of May, the Federal Labour Court had to decide once again on the question of the validity of a dismissal announced as part of a collective redundancy notification. The decisive question was whether or not the collective redundancy had been properly notified to the Federal Employment Agency. Although the defendant had submitted a collective redundancy notification, it had not included the comments of the employee representatives, contrary to Sec. 17 (3) sentence 1 of the German Unfair Dismissals Act (Kündigungsschutzgesetz, KSchG). The employment agency confirmed receipt of the collective redundancy notification, stating that it was "only" confirming receipt of the documents.
According to the previous case law of the Federal Labour Court, a violation of Sec. 17 (3) KSchG caused by the failure to submit the comments of the employee representatives would already have rendered the collective redundancy notification and thus the dismissal legally invalid. This harsh legal consequence has doubtlessly become outdated since the ECJ's decision (judgement of 13 July 2023 - C-134/22), in which the ECJ expressly rejected the collective redundancy notification having any effect of protecting the rights of individuals.
In the wake of the ECJ's aforesaid decision, the Federal Labour Court had to readjust its case law on collective redundancy notifications and addressed several questions to the ECJ regarding the future interpretation of the Collective Redundancies Directive. In the proceedings at issue, the Federal Labour Court is now asking the ECJ about a further aspect: is there even a procedurally relevant violation that leads to the invalidity of the collective redundancy notification if the employment agency does not object to an - objectively faulty - collective redundancy notification and thus considers itself to be sufficiently informed? If the purpose of the collective redundancy notification is fulfilled from the addressee’s point of view, then no sanction - whatever the form - is required.
The list of questions to be answered by the ECJ has thus become even longer. The ECJ's answers are eagerly awaited, as practitioners are hoping for considerable simplifications in the collective redundancy procedure. In view of the fact that the purpose of Sec. 17 (3) KSchG is confined to labour market policy objectives, a purpose-oriented decision by the ECJ does not seem unreasonable. Nevertheless, at present it is and remains the more legally secure measure - at least until a final decision is reached by the ECJ and the Federal Labour Court - to submit a collective redundancy notification that fulfils the requirements of Sec. 17 KSchG.
Dr. Alexander Willemsen
1.2 No obligation to subsequently conduct an employee participation procedure in the case of an SE founded without employees
The ECJ clearly rejects a general obligation to subsequently conduct an employee participation procedure in case of an SE that was initially founded without employees. At the same time, the reference to the still conceivable abuse of process serves a warning to exercise caution (ECJ, judgement of 16 May 2024 - C-706/22).
In 2013, the British company O. Ltd. and the German company O. GmbH - neither of which had any employees at the time - became O. Holding SE (based in London). O. Holding SE later became the sole shareholder of O. KG, which, together with its subsidiaries, employed over 3,000 people within the EU.
When O. Holding SE relocated its registered office to Hamburg in 2017, the group works council of O. KG attempted to judicially enforce the subsequent conducting of an SE participation procedure. The case went as far as the Federal Labour Court. The Federal Labour Court referred the question to the ECJ for a preliminary ruling as to whether Art. 12 (2) SE Regulation, which regulates the entry of the SE in the commercial register, in conjunction with Art. 3 to 7 SE Directive, which describe the employee participation procedure, should be interpreted to the effect that an SE initially founded without employees and without a participation procedure must subsequently conduct the participation procedure if it later becomes the controlling company of subsidiaries that have employees in several member states.
The ECJ clearly rejected this interpretation.
With regard to the resumption of negotiations on employee participation, the common factor of all three cases set out in the SE Directive is that a negotiation procedure has already been conducted. This is precisely not the case here. The formation of the SE was not preceded by negotiations between the employer and the special negotiating body. No legislative oversight in the Directive can be determined. Rather, the legislator made the deliberate decision to introduce the obligation to negotiate on employee participation only prior to the formation of the SE - in the interests of predictability for the shareholders and employees and the stability of the existing SE.
The decision is to be welcomed. It takes the wind out of the sails of an opinion held by a considerable part of the legal literature, which previously demanded the subsequent conducting of employee participation proceedings in such cases. It also makes the already widespread use of a shelf SE even more attractive.
Naturally, the newly gained certainty with regard to the (non-existent) obligation to subsequently conduct employee participation proceedings will direct attention to the still possible abuse of process within the meaning of Art. 11 SE Directive or Sec. 43 of the German Act on the Participation of Employees in an SE (SE-Beteiligungsgesetz, SEBG) and its requirements. It remains open whether, in addition to criminal prosecution as stipulated in Sec. 45 (1) No. 2 in conjunction with Sec. 43 SEBG, other sanctions are conceivable. Furthermore, political reactions cannot be ruled out; this applies in particular with regard to the objective already set out in the current government’s coalition agreement to take action against the circumvention of co-determination in an SE and the so-called "freeze effect". A prudent approach to the complex process of establishing an SE will continue to be the key to utilising its full potential in the future.
Roman Braun
1.3 No circumvention of German GTC check possible through a choice of law
German law on general terms and conditions cannot be deviated from to the detriment of the employee even through a mutually agreed choice of law in favour of a foreign legal system. The provisions of Secs. 305 et seq. of the German Civil Code (Bürgerliches Gesetzbuch, BGB) are mandatory international law. The Federal Labour Court even goes a step further in its judgement of 23 January 2024 - 9 AZR 115/23.
The contract of the German plaintiff, who was employed as a pilot by an Irish airline, contained an obligation to repay the costs of further training. If the employment relationship was terminated within five years of his joining the company, he was to repay the costs of further training paid for by the employer on a pro rata basis. This also applied if the reason for a resignation on the part of the plaintiff lay within the sphere of the employer. The parties had chosen Irish law as the applicable law in the employment contract. Two years after the start of the employment relationship, the plaintiff resigned for unspecified reasons. The defendant offset the plaintiff's remuneration claims after the latter refused to repay further training costs on a pro rata basis. The plaintiff claimed the difference in court.
The Federal Labour Court awarded the plaintiff the full remuneration. The repayment clause agreed in the employment contract did not stand up to scrutiny pursuant to the German GTC regulations of Sec. 305 et seq. BGB; rather, the repayment clause unreasonably disadvantaged the plaintiff within the meaning of Sec. 307 BGB and was therefore invalid. An individual contractual agreement according to which an employee must contribute to the costs of training financed by the employer if he leaves the employment relationship before the expiry of certain deadlines is generally permissible. However, it is not permissible to simply link the repayment obligation to the employee’s resignation. Rather, a distinction had to be made as to the reason for the plaintiff’s premature departure from the company. Despite the choice of law clause, the German GTC regulations were to be applied, as they are mandatory legal provisions within the meaning of Art. 8 (1) sentence 2 Rome I Regulation, which are not at the discretion of the contracting parties. Art. 8 (1) sentence 2 Rome I Regulation is intended to ensure that mandatory employee protection provisions of the objective legal statute cannot be circumvented through a choice of law. The objectively applicable law was German law, however, as the plaintiff usually worked from Berlin-Schönefeld Airport.
The Federal Labour Court also indicated that even the choice of law clause as such may not stand up to a GTC check. A choice of law clause that could mislead the employee must in itself be considered unreasonably disadvantageous and therefore invalid. Incorrect in all events is the impression that only the agreed law applies to the contract. Additional information must be given to the effect that the mandatory provisions of the objectively applicable law are also protected in accordance with Art. 8 (1) sentence 2 Rome I Regulation.
Even though the BAG did not have to make a final assessment of the specific choice of law clause for procedural reasons, this advice is extremely important when drafting employment contracts in an international context. If an employment relationship has a (sufficient) German connection, a choice of law clause in favour of a foreign law should in future always be supplemented by corresponding wording on the additional protection provided by the mandatory provisions within the meaning of the Rome I Regulation. Otherwise, the employer jeopardises the validity of the entire choice of law clause. Incidentally, this applies regardless of which foreign law is chosen.
Kathrin Vossen
1.4 (No) claim to default of acceptance if placement efforts are thwarted
Can an employee who deliberately sabotages their job application chances during ongoing unfair dismissal proceedings still claim default of acceptance pay from the employer? At the very least, such an approach can have a detrimental effect on the employee's burden of representation and proof - according to the Federal Labour Court in its judgement of 7 February 2024 - 5 AZR 177/23.
The plaintiff demanded compensation from the employer due to default of acceptance. After being dismissed by his employer, the plaintiff registered with the Federal Employment Agency (Agentur für Arbeit, AfA) as seeking employment. He informed the AfA that he did not wish to receive any job offers during the ongoing unfair dismissal proceedings and that he would apply for new jobs himself if he was forced to do so. However, he was going to inform potential employers about the ongoing unfair dismissal proceedings and his wish to continue working for his old employer prior to the job interview. As a result, the AfA did not pass on any job offers to the plaintiff. The plaintiff also did not make any independent efforts to find other employment during the relevant period. The Federal Labour Court rejected the judgement of the Regional Labour Court (Landesarbeitsgericht, LAG), which had granted the action, for purposes of a new hearing and ruling on the action.
The central legal question of the proceedings was whether the plaintiff had maliciously failed to earn other income during the ongoing unfair dismissal proceedings. In this constellation, the crediting of other earnings is based on Sec. 11 No. 2 KSchG and not on Sec. 615 sentence 2 BGB, which is largely identical in content. According to the Federal Labour Court, the assessment of malicious conduct always requires an overall consideration of the interests of both parties, taking into account all circumstances of the specific case. The overall assessment must also include those circumstances to the detriment of the employee that are the cause of the employee not being given job offers by the AfA. In principle, the employer bears the burden of proof that the employee actually had job opportunities. However, if the employee's behaviour prevented the provision of job offers, the employee must prove that an application for such (fictitious) jobs would have been unsuccessful.
In the present case, the plaintiff had only "formally" duly registered as a seeking employment (Sec. 38 of the German Social Code Book III, (Sozialgesetzbuch III, SGB III)). Although it could not be held to the plaintiff's disadvantage that he defended himself against the (invalid) dismissal and provided potential employers with information about his current professional status, an unsolicited reference to ongoing unfair dismissal proceedings even before a job interview does not give the impression of his being an interested candidate. Furthermore, it cannot be inferred from Sec. 11 No. 2 KSchG that the employee may certainly await a reasonable offer from the AfA. To be borne in mind in particular was that the plaintiff's behaviour was the reason why the AfA had not sent him any job offers.
For employers, the decision is in line with the welcome development in case law on maliciously omitted interim earnings (BAG, judgement of 27 May 2020 - 5 AZR 387/19). During ongoing unfair dismissal proceedings, employees can no longer just formally duly register as unemployed and wait, but must actively seek new earning opportunities. As a result, the employee also bears part of the risk of default of acceptance. Employers should therefore proactively forward suitable job offers to employees who have filed an action. These can come from relevant job portals or newspaper adverts. It is important that the receipt of the job offers can be proven. They should therefore be sent in writing and, if possible, as full text versions and not just via a link.
Marko Vraetz
1.5 Structuring options for a transfer of business: creation of a transferable entity
Transfers of business units are a popular means of separating business units and transferring or selling them to another legal entity. A recent decision by the Federal Labour Court dated 21 March 2024 - 2 AZR 97/23 explains with welcome clarity how companies can use upstream relocation decisions to form a business unit only shortly prior to the transfer of the business and thus create the conditions for the transfer of such business unit to another legal entity or acquirer.
In the case decided by the Federal Labour Court, the plaintiff worked in the defendant's development centre alongside approximately 6,000 other employees. At the end of 2018/beginning of 2019, the defendant concluded an agreement with the subsequent acquirer according to which part of the development centre was to be transferred to the acquirer. In March 2019, the defendant agreed with the general works council on a multi-stage procedure to reassign employees to the business unit being transferred. The plaintiff was informed of his reassignment to this business unit in July 2019. The plaintiff was also informed in July that the business unit was being transferred at the end of August 2019. The plaintiff objected to the transfer of his employment relationship and asserted in his legal action the invalidity of the reassignment and the transfer of his employment relationship.
The Federal Labour Court upheld the plaintiff's appeal and referred the matter back to the Regional Labour Court due to a lack of factual findings. However, it confirmed that it was sufficient for a transfer of a business unit if an economic unit capable of being transferred as a business unit only came into existence shortly before the acquisition. It was irrelevant how long this economic unit had existed before the transfer. Even a very short period between the formation of the economic unit and the transfer - as in the case decided of just one month - was therefore permissible. In particular, the employees could not successfully argue that their reassignment to the transferring business unit violated the prohibition of terminating the employment relationship due to a transfer of business set out in Sec. 613 a (4) BGB. A reassignment most certainly did not constitute a termination of employment. An analogy was also ruled out. The purpose of the provision was to ensure the continuity of existing employment relationships and to prevent their termination solely due to the transfer of business. This risk did not exist in the case of a reassignment. Nor was a new employer being imposed on the employees, as they could make use of their statutory right to object.
This means that companies can first create a new economic unit during the course of a planned transfer of business units. However, companies must ensure that the employees are reassigned to the economic unit in compliance with the provisions of individual contracts and shop constitution law. Only then are they assigned to this economic unit.
In practice, it is also important that the newly created entity is also a transferable entity within the meaning of Sec. 613 a BGB. This presupposes that it is sufficiently organised, distinct and independent and capable of pursuing an economic activity with its own objectives. Care must be taken to ensure that an operational management is created for the economic unit that is authorised to issue instructions to the employees newly assigned to it and that the unit is assigned the assets and functions required for the economic activity.
Anja Dombrowsky
1.6 Issuance of a payslip via a digital employee mailbox
A payslip issued in text form is only received by the employee in their digital employee mailbox within the meaning of Sec. 130 BGB if the employee has given their consent to this. Otherwise, employees do not have to reckon with their payslips being sent to them digitally. In the absence of a right of co-determination, the lack of consent cannot be replaced by a (group) shop agreement.
The parties are in dispute about the issuance of payslips via a digital employee mailbox. Since March 2022, the defendant no longer issued payslips in paper form, but only digitally. These were stored in an employee mailbox, which the defendant had set up in a cloud for the plaintiff as for all other employees. The basis for this was a group shop agreement dated April 2021 on the introduction and use of a digital employee mailbox. The plaintiff did not agree to the issue of payslips via the digital employee mailbox and requested that the defendant issue payslips in paper form.
Unlike the lower court, the Regional Labour Court of Lower Saxony granted the complaint. The Regional Labour Court based its decision on the argument that a digital employee mailbox is only a suitable receiving device if the recipient has also designated it for the receipt of declarations of intent in legal and business transactions. The recipient would otherwise have to give their express or at least implied consent to also receive electronic declarations. Consent had also not been replaced by the group shop agreement. Irrespective of the fact that it is not readily apparent why the group work council should have been responsible for concluding the shop agreement pursuant to Sec. 58 (1) of the German Shop Constitution Act (Betriebsverfassungsgesetz, BetrVG), there is no right of co-determination with regard to the manner in which the payslip is issued within the meaning of Sec. 108 (1) sentence 1 of the German Industrial Code (Gewerbeordnung, GewO).
With its ruling, the Regional Labour Court of Lower Saxony follows the prevailing view in case law (see most recently Regional Labour Court of Hamm, judgement of 3 September 2021 - 2 Sa 179/21). However, in times of advancing digitisation and the reduction of bureaucracy, the decision of the Regional Labour Court of Lower Saxony is by no means convincing. On a positive note, the last word has not yet been spoken on this practically relevant legal issue. An appeal against the judgement of the Regional Labour Court of Lower Saxony is already pending before the Federal Labour Court under docket No. 1 AZR 48/24. Until this question has been clarified by the highest court, employers are advised to refrain from making payroll accounting available solely via an online portal, unless the employees concerned have expressly agreed to this procedure. Alternatively, the possibility of issuing payslips electronically can be agreed in individual contracts. For employees with a computer workstation, the electronic payslip can also be sent to the company e-mail inbox if the employees have their own company e-mail address (see LAG Hamm, judgement of 3 September 2021 - 2 Sa 179/21).
Cornelia-Cristina Scupra
1.7 The court sees red - how black trousers lead to dismissal
Work clothing is often a contentious issue. The Regional Labour Court of Düsseldorf has now confirmed the dismissal of an employee who persistently refused to wear red protective work trousers (judgement of 21 May 2024 - 3 SLa 224/24). Although the dress code encroached on the employee's social sphere, the order was based on legitimate interests and was therefore covered by the employer's right to issue instructions.
The plaintiff worked in the production department of an industrial company. For the (assembly) work, he used, among other things, cross-cut saws and cordless drills, and he performed some of the activities while kneeling. The defendant therefore provided all employees with protective work clothing - mandatory under the dress code - including red trousers. The plaintiff had worn the red trousers for nine years without complaint, but then repeatedly appeared in black trousers - doubtlessly for aesthetic reasons. The defendant employer then terminated the employment relationship with due notice after two unsuccessful warnings.
The Regional Labour Court of Düsseldorf justified the validity of the dismissal on the basis of the sphere theory of the Federal Labour Court. The colour specification of the work trousers only affected the employee in the social sphere of his personal rights. The employer was allowed to intervene with this in the case of legitimate interests. On the one hand, the colour red ensures the visibility of the employees required in terms of occupational safety and, on the other hand, the corporate identity in the factory halls is maintained. The employee’s sense of aesthetics is subordinate here.
Many employers draw up dress codes. If there are no legal requirements (e.g. Sec. 13 (3) sentence 2 of the German Hazardous Substances Ordinance (Gefahrstoffverordnung, GefStoffV), these can be stipulated in the employment contract or with the works council’s agreement in a shop agreement. Via its right to issue instructions, the employer can also unilaterally stipulate in which clothing employees must or must not perform their work. The validity of a dress code is measured on the basis of a comprehensive legal assessment in each individual case. The employer's entrepreneurial freedom, which is protected under Article 12 of the German Constitution (Grundgesetz, GG), is countered by the employees’ personal rights. This conflict must be resolved according to the principle of proportionality. This means that the dress code must be suitable, necessary and reasonable in order to achieve the legitimate purpose pursued (e.g. customer contact, hygiene standards, occupational safety, etc.). The justification is subject to stricter requirements the more it affects the employee's private sphere; the employer fundamentally may not encroach upon the employee’s personal space. An example of this would be the obligation to wear skin-coloured underwear. It goes without saying that the dress code must comply with the principle of equality and must not discriminate.
In principle, the following applies: A dress code can be introduced without co-determination if it primarily serves the purpose of concretising the work to be performed. As soon as and insofar as it is intended to promote the image or external appearance of the company, the works council's right of co-determination pursuant to Sec. 87 (1) No. 1 BetrVG comes into play.
Dr. Johannes Kaesbach
1.8 Employee participation programmes - forfeiture of virtual options
Unlike special remuneration, which is linked to the company's profit or turnover, virtual options are the granting of profit opportunities. It is uncertain whether the employee will ever receive any income. For this reason, options that have not yet been exercised may expire upon termination of the employment relationship (LAG Munich of 7 February 2024 - 5 Sa 98/23).
The defendant company had offered the employee the opportunity to participate in a so-called virtual option programme, which was modelled on a participation in the company's equity. The virtual options could not be exercised immediately, but were to be "vested" over a certain period of time, i.e. they were to be exercised gradually in order to provide incentives for the future. In the underlying option conditions, however, it was agreed that the virtual options would expire prior to an exercise event upon termination of the employment relationship. The employment relationship with the plaintiff ended through the plaintiff’s own resignation before the occurrence of an exercise event according to the option conditions. After the plaintiff had unsuccessfully attempted to assert his claim to the virtual options following his resignation, he sought a declaration to the effect that the options allocated to him had not lapsed as a result of the termination of the employment relationship. The Labour Court of Munich dismissed the claim. The Regional Labour Court also agreed.
The options allocated to the plaintiff had expired due to the contractually agreed forfeiture clause as a result of the plaintiff's resignation. The forfeiture clause was also valid, in particular there was no violation of the general terms and conditions (Sec. 307 et seq. BGB). This did not breach the principle that wages that have already been earned may no longer be withdrawn. Only an "opportunity to earn" would be withdrawn. Unlike special remuneration, virtual options - just like stock options - have a "speculative character". They represent less a consideration for services rendered than an incentive for future commitment. Their forfeiture would therefore only remove an additional opportunity to earn money.
Although case law on this topic is still rare, this is not the first time that the (successive) expiry of virtual options has occupied the labour courts. In its judgement of 28 May 2008 - 10 AZR 351/07 - the Federal Labour Court had already ruled that the legal principles developed for certain special payments, in particular bonuses, regarding the admissibility of commitment periods and forfeiture clauses cannot be applied to stock options without restriction. However, this subsequently led to criticism in labour law literature. This was due to the fact that the Federal Labour Court had negated the remuneration character of stock options. Stock options should ultimately also be treated like other forms of success or performance-related remuneration.
In this respect, the decision of the Regional Labour Court of Munich confirms the previous case law of the Federal Labour Court. The fact that the appeal on points of law has been admitted is to be welcomed. The granting of virtual options is becoming increasingly important in the drafting of employment contracts, which means that further decisions by the highest courts are welcome if legal clarity is to be gained. It remains to be seen whether the Federal Labour Court will address the issue again and remain true to its previous case law.
Alexandra Groth
1.9 Damages for late target specification
If a target is only set at such a late point in the relevant financial year that it can no longer fulfil its incentive function in a meaningful way, it must be treated as if it had not been set at all. Such a late point in time definitely has to be assumed if more than three quarters of the financial year has already expired.
For quite some time now, it has already been clear that the late conclusion of a target agreement can lead to a damage claim by employees. In a recent decision, the Regional Labour Court of Cologne also affirmed such a claim in the case of delayed target specifications (LAG Cologne of 6 February 2024 - 4 Sa 390/23).
The decision of the Regional Labour Court of Cologne was based on a damage claim asserted in court. The plaintiff was employed by the defendant as a manager and "Head of Advertising". His remuneration consisted of a fixed annual salary and a variable remuneration component. A shop agreement concluded at the beginning of 2019 stipulated that the target to be achieved for the respective financial year would be communicated on 1 March of each calendar year. In an e-mail dated 26 September 2019, the defendant informed the managers of the final parameters relevant for the variable remuneration with regard to the company targets for the current 2019 financial year. The plaintiff terminated the employment relationship with effect from 30 November 2019 and subsequently received a significantly reduced variable remuneration for 2019. The plaintiff demanded damages.
While the action was unsuccessful at first instance, the Regional Labour Court of Cologne ruled in the plaintiff's favour. The defendant had not communicated the targets for the 2019 financial year in good time. It was obliged under the shop agreement to inform the plaintiff of the corresponding targets by 1 March 2019. In contrast to target agreements, target specifications are determined exclusively by the employer as part of its unilateral right to determine performance in accordance with Sec. 315 (1) BGB. This means that employees must already be aware of the targets when they carry out their work. Otherwise, the purpose of the target to increase motivation and incentivise the employee can no longer be meaningfully achieved. If a target is set at such a late stage that its motivational and incentive function can no longer be meaningfully fulfilled, it must be treated as if it had not been set at all. In all events, such a late point in time can be assumed if - as in the case in dispute - two thirds of the current financial year have already expired. This is also not contradicted by the fact that the omitted target specification concerned company-related targets, over whose fulfilment the plaintiff had less influence than over the fulfilment of personal targets.
The Regional Labour Court has allowed the appeal of points of law; a decision by the Federal Labour Court is awaited. Employers are advised to define clear and realistic targets at an early stage and to communicate these to their employees - if possible with appropriate evidence. Failure to set targets in breach of duty will result in the employer being held liable for damages. This applies to both company-related and personal targets, as both can have an equal incentivising function.
Lisa Striegler
1.10 When does the PSVaG's claim to a lump-sum settlement expire in insolvency?
In the event of insolvency, claims to recurring pension benefits are transferred to the German pension security fund Pensions-Sicherungs-Verein Versicherungsverein auf Gegenseitigkeit ("PSVaG"). However, according to the Regional Labour Court of Baden-Württemberg in its judgement of 28 February 2024 - 4 Sa 36/23 (appeal on points of law lodged with the Federal Labour Court, 3 AZR 45/24), the PSVaG's claim does not expire in three years, but in thirty years.
The insolvent debtor had granted its employees direct pension promises for company pension benefits. After insolvency proceedings were opened, the plaintiff PSVaG notified the employees' expectancies and claims - which had been transferred to it by law - to the insolvency table. PSVaG requested from the defendant insolvency administrator the establishment of these claims in the insolvency table. Pursuant to the German Insolvency Code (Insolvenzordnung, InsO), PSVaG's claim against the insolvency administrator for payment of a one-off lump-sum settlement of the company pension claims to be capitalised (lump-sum settlement claim) took the place of the employees' expectancies and claims. The insolvency administrator raised the defence of the statute of limitations, meaning that the decisive question now at issue is which statute of limitations applies to PSVaG's capital settlement claim - thirty years according to Sec. 18a sentence 1 or only three years according to Sec. 18a sentence 2 of the German Company Pensions Act (Betriebsrentengesetz, BetrAVG).
The Regional Labour Court dismissed the plaintiff's appeal, clarifying that the lump-sum settlement amount to be determined in the event of insolvency upon the involvement of PSVaG pursuant to Secs. 45, 46 InsO was subject to the 30-year limitation period pursuant to Sec. 18a sentence 1 BetrAVG (by analogy). This was because the character of the claim to which PSVaG was fundamentally indisputably entitled (cf. Sec. 9 (2) BetrAVG) was similar to that of a basic pension entitlement and a 30-year limitation period applied to basic pension entitlements. This applies irrespective of the fact that the claims of company pensioners to monthly pension benefits are recurring benefits to which a limitation period of three years applies. Although the statutory transfer of claims from the company pensioners to PSVaG did not negate their status as recurring benefits, the short three-year limitation period was not applicable. The three-year limitation period was only justified by the fact that, in the case of monthly pension benefits, the company pensioners would realise promptly if pension benefits had not been paid and a period of three years would therefore be sufficient to prevent the statute of limitations. However, the transfer of claims to PSVaG meant that all outstanding pension benefits were combined in a one-off capital payment. As company pensioners would not only lose their individual pension instalments in the event of a three-year limitation period, but also their entire pension for the future, the basic pension entitlement would de facto no longer be enforceable or worthless. In this exceptional case, it would be justified to subject the settlement claim, which constituted the entirety of the recurring benefit claims, to the thirty-year limitation period of the basic pension entitlement pursuant to Sec. 18 sentence 1 BetrAVG by analogy.
The Regional Labour Court’s decision is of practical relevance, as it clarifies - in line with the case law prior to the entry into force of the Insolvency Code - that PSVaG's lump-sum settlement claim continues to be subject to the thirty-year limitation period. In addition to the indirect protection of the basic pension entitlement, insolvency administrators in particular must have this on their radar, as the notification to the insolvency table most specifically cannot be countered by the short limitation period, even though the decision is not yet legally binding.
Moritz Coché
1.11 Paperless through the recruitment process - informing the works council
Future vs. past - does the works council have to be provided with a printout of the documents even if the application procedure is conducted digitally? The Federal Labour Court recently had to decide on this in its ruling of 13 December 2023 - 1 ABR 28/22. It opted for a future-proof solution: access to an IT tool is sufficient to fulfil the information obligation under Sec. 99 (1) BetrVG.
In a dispute between the company and the works council, the Federal Labour Court had to address how the works council was to be involved in personnel measures in accordance with Sec. 99 (1) BetrVG. According to Sec. 99 BetrVG, the company must inform the works council before every recruitment and, in particular, provide it with the necessary application documents.
In the specific case, the first question to arise was whether the company can also provide the works council with the applicant’s documents via an IT tool during the recruitment process. The Federal Labour Court affirmed this and thus confirmed the lower court’s opinion (LAG Saxony-Anhalt, decision of 13 October 2022 - 2 TaBV 1/22). The purpose of Sec. 99 (1) BetrVG is to provide the works council with the information required to examine the grounds for refusing consent. This is also possible through an unrestricted right of access to all digitised application documents and data entered via the company laptops. In particular, if the employer itself does not have documents in paper form, the works council cannot justify a claim to the provision of paper documents.
Considering the fact that, in today's world of work, the majority of all applications are received digitally and many companies use application management tools, it seems right to give companies the opportunity to involve the works council by means of a digital application management tool. This applies all the more if one considers that, according to the case law of the Federal Labour Court, the company not only has to provide information about the person of the applicant who is going to be hired, but also about those applicants who were not considered. The above considerations certainly apply if the works council has the opportunity to access the relevant documents. In particular, the works council must be equipped with the necessary technical means to do so.
The decision is also relevant with regard to informing the representative body for severely disabled employees in accordance with Sec. 178 (2) of the German Social Code Book IX (Sozialgesetzbuch IX, SGB IX), despite this not being the subject of the proceedings. The right of the representative body for severely disabled employees to participate in recruitment also extends to information, which means that employers can fulfil their duty to inform in accordance with Sec. 178 (2) SGB IX and in consideration of the present decision by establishing the possibility of access.
Jörn Kuhn
1.12 Company co-determination in the event of changes in special payments
Care when introducing and dealing with special payments is essential for employers, as the recent ruling of the Federal Labour Court once again makes clear (judgement dated 21 February 2024 - 10 AZR 345/22). Unclear wording or a lack of involvement on the part of the works council go to the detriment of the employer.
In the underlying case, three employees successfully sued their employer for payment of holiday pay. From 2008 onwards, the employer had sent out an annual circular with the same wording in which it explained the conditions under which employees received holiday pay. It pointed out that the amount was determined annually and that the holiday bonus was a "one-off, voluntary social benefit that could be revoked at any time". In 2017, the employer slightly changed the bonus conditions in a circular. In 2020, employees did not receive any holiday pay. The employer justified this with a difficult economic situation.
According to the Federal Labour Court's decision, the defendant had wrongly not paid holiday pay. According to the Federal Labour Court, the holiday pay entitlement resulted from the first circular from 2008. The combination of the reservation of its voluntary nature and revocation contained in the letter was not transparent and therefore invalid pursuant to Sec. 307 (1) BGB. The formulated reservation was therefore not suitable to justify the lack of holiday pay for 2020 for "economic reasons".
The defendant was also unable to change the content of the claim with the letters sent from 2017 onwards. This is due to the fact that a works council had existed at the defendant since 2013. While the letter of 2008 was still possible without the consent of the works council due to the lack of an existing works council at the time, from 2013 onwards, a change in the remuneration regulations required the involvement of the works council pursuant to Sec. 87 (1) No. 10 BetrVG. In particular, the tacit acceptance of the employer's behaviour by the works council could not be seen as consent.
Due to the so-called theory of validity requirement, employees could continue to demand remuneration according to the principles last introduced in compliance with co-determination if the remuneration principles had been changed in violation of the co-determination right.
This decision shows that employers should take great care when making special payments. Agreements should be formulated clearly and without contradiction. If the employer wishes to reserve the right to revoke an overall commitment, this must be expressly stated. If this is also referred to as a "voluntary" benefit, this precludes an effective reservation of revocation. Furthermore, the works council's right of co-determination under Sec. 87 (1) No. 10 BetrVG must always be observed in the event of changes to remuneration regulations. If the employer wishes to amend an overall commitment by means of a subsequent shop agreement, further requirements must be taken into account in addition to the above principles. If the employer has not concluded employment contracts that are "open to a shop agreement“ with the employees, the amendment of an overall commitment by means of a subsequent shop agreement must stand up to a collective comparison of favourability. However, if the shop agreement constitutes a deterioration, employees can continue to invoke their entitlement under the original overall commitment.
Fatoumata Kaba
1.13 No action by conciliation board before legal validity of court appointment
For a long time, it was disputed whether the chair of a conciliation board may already summon the parties involved during an ongoing appeal period as long as no appeal has been lodged against the first-instance decision. The Regional Labour Court of Cologne has now taken a position on this.
In urgent cases in particular, having to await the two-week appeal period causes an undesirable delay (possibly accompanied by enormous economic losses) and is therefore suitable as an inappropriate means of exerting pressure on the complainant. However, according to the decision of the Regional Labour Court of Cologne of 16 May 2024 - 9 TaBV 24/24, even in urgent cases the court-appointed conciliation board may not take action until its appointment is formally legally binding.
In the case at issue, the employer and works council were unable to reach agreement on the structuring of duty rosters, which is subject to co-determination pursuant to Sec. 87 (1) Nos. 2 and 3 BetrVG, or on the voluntary appointment of a conciliation board. In accordance with the employer's request, the Labour Court of Cologne appointed the conciliation board on 3 May 2024 with the subject matter of determining the duty rosters rejected by the works council for the duty roster period from 6 May 2024. Due to the particular urgency of the matter, the chair of the conciliation board appointed by decision of the court of first instance issued an invitation to the conciliation board meeting on 4 May 2024. The works council's lawyer subsequently informed him and the employer on 4 May 2024 that no one from the works council would be able to attend the conciliation board meeting. He also informed them of his rejection of the chair, against whose appointment he would be immediately lodging an appeal. The conciliation board nevertheless met as planned and approved the duty rosters by administrative decision without involving the works council pursuant to Sec. 76 (5) BetrVG even before the works council's complaint had been filed with the Regional Labour Court pursuant to Sec. 100 (2) of the German Labour Courts Act (Arbeitsgerichtsgesetz, ArbGG).
The works council's appeal was successful; the Regional Labour Court partially amended the appointment decision and appointed a different chair to the conciliation board. The decision already made by the conciliation board did not preclude this. The court's appointment decision is a decision that changes legal relations that can only take effect once it becomes legally binding. Until the decision becomes legally binding, the conciliation board is therefore not validly established and is not authorised to settle the matter in dispute by administrative decision. According to the Regional Labour Court of Cologne, this also applies in urgent matters. The urgency is already taken into account by the greatly shortened deadlines in the appointment procedure pursuant to Sec. 100 ArbGG. The parties must also make provisions for urgent cases, for example by setting up a permanent conciliation board or establishing a procedure if the works council is unavailable. The works council may not refuse such a precautionary regulation.
According to this decision, a conciliation board appointed by the court of first instance cannot take action until the decision becomes legally binding. If it does so nevertheless, its administrative decision does not have the effect of replacing an agreement. This means that the requirement of a court-appointed conciliation board remains a means of exerting pressure on the party that wants to play for time. In view of the requirement of effective legal protection, this does not appear to be in the interests of the parties, as the prevailing opinion is that there is no scope for issuing an interim injunction to establish the conciliation board within the scope of application of Sec. 100 ArbGG. In addition, according to previous case law, the establishment of a permanent conciliation board cannot be unilaterally enforced by way of an administrative decision (LAG Berlin-Brandenburg of 23 June 2008 - 10 TaBV 303/08). However, in view of this decision by the Cologne Regional Labour Court, the authority to issue administrative decisions needs to be reconsidered and employers who are regularly exposed to similar disputes and judicial appointment procedures should continue to try to work towards establishing a permanent conciliation board with reference to this decision.
Isabel Hexel
2. New legislation
2.1 BEG IV: changes to labour law
On 21 March 2024, the Federal Ministry of Justice announced that it would also be making changes in the sphere of labour law in the planned Fourth Bureaucracy Relief Act (Bürokratieentlastungsgesetz IV, BEG IV). In addition to promoting digitisation, this is intended to provide financial relief for companies. On 19 June 2024, the German government amended the draft bill of the BEG IV.
The law now contains simplifications to formal requirements in various areas of labour law. The current status is summarised as follows:
- In future, employers will also be able to provide information in text form, for example by e-mail, about the main terms and conditions of their employment contracts in accordance with the German Act on the Verification of Conditions Governing the Employment Relationship (Nachweisgesetz, NachwG), as well as agreements on fixed-term contracts up to the standard retirement age. Employers will only have to send signed information on paper if employees expressly request written proof of their working conditions. This change allows companies to digitise their HR administration processes. Only in sectors of the economy that are particularly at risk of undeclared work and illegal employment will it remain mandatory to provide proof in paper form.
- In addition, it will be possible to issue employment references in electronic form in future.
- The German Working Hours Act (Arbeitszeitgesetz, ArbZG) and the German Youth Employment Protection Act (Jugendarbeitsschutzgesetz, JArbSchG) are being amended to ensure that employers also fulfil their posting obligations when they provide the required information electronically.
- The written form requirement in the German Federal Parental Allowance and Parental Leave Act (Bundeselterngeld- und Elternzeitgesetz, BEEG) for applications to reduce working hours and their rejection as well as the assertion of parental leave entitlements is to be replaced by text form.
- In addition, formal requirements are also to be amended in the German Temporary Employment Act (Arbeitnehmerüberlassungsgesetz, AÜG). In future, the text form will be sufficient instead of the written form for the transfer agreement between the hirer and the temporary employment agency.
All in all, the simplifications are to be welcomed, even though they certainly are not the ideal solution that many were expecting. It now remains to be seen when the legislative process will be finalised.
Jörn Kuhn
2.2 Social insurance for employees carrying out mobile work in other EU countries – deadline of 1 July 2024 getting closer
Companies with employees who perform part of their work from their home office in another EU country must take measures before 1 July 2024 to avoid their employees potentially falling under the social security system of the employee's country of residence from 1 July 2023. For companies, this would also mean that foreign payroll accounting would be required.
We had already informed you about the EU Framework Convention last year, according to which mobile employees working in other EU countries also can continue beyond 1 July 2023 to be covered by social security in the member state where the company is based. However, the Framework Convention only applies if the authorities of the member state in which the company is based have issued the employee in question with a corresponding A1 certificate.
This requires action: The employing company and the employee can jointly apply for an exemption authorisation to remain in the social security statute of the company's registered office. Until 30 June 2024, such an application can still be submitted retroactively for the period since 1 July 2023. Thereafter, the application can only be submitted retroactively for the previous three months.
Alexandra Groth