Employment Law20.03.2023 Newsletter
Focus on Labour Law 1st Quarter 2023
The decision of the German Federal Labour Court [Bundesarbeitsgericht, BAG] on the recording of working hours has caused quite a stir and raised questions for company practice.Since September 2022, companies have now been eagerly awaiting a reaction from the legislator. The German Federal Ministry of Labour and Social Affairs [Bundesministerium für Arbeit und Soziales, BMAS] had announced the presentation of a draft law on the recording of working hours in Germany for the first quarter of 2023. This has not yet been presented. Naturally, we will keep you informed about developments.
The ruling by Germany's highest labour court on equal pay for men and women recently received a similarly lively reception in the working world as the BAG's decision on the recording of working hours. You will find this and other important rulings in the current issue of our Focus on Labour Law, as well as updates on
- the current status of the German Whistleblower Protection Act [Hinweisgeberschutzgesetz, HinSchG],
- the statutory co-determination of employees in the event of cross-border changes of legal form and cross-border demergers of companies, and
- the ever-popular topic of “workations”.
1. New case law
1.1 Equal pay: negotiating skills do not justify unequal treatment
1.2 Holiday law news, part 1: time-barring of claims to payment in lieu of holiday
1.3 Holiday law news, part 2: payment in lieu of holiday and collectively agreed preclusive periods
1.4 No "remedy" of omitted or deficient works council participation
1.5 Validity of hypotax agreements in temporary foreign postings
1.8 Dismissal not invalid due to failure to refer to Sec. 4 KSchG
1.11 News on co-determination regarding the (private) use of company cars
1.12 Mandatory use of DP systems by the works council
1.13 Consideration of employee’s closeness to retirement age in the social selection process
2. Legal developments
2.1 Co-determination rights know (almost) no boundaries
2.2 Update on the German Whistleblower Protection Act
2.3 The ever-popular topic of “workations”
1. New case law
1.1 Equal pay: negotiating skills do not justify unequal treatment
A woman is entitled to equal pay for equal work or work of equal value if the employer pays male colleagues higher pay on the basis of gender. The argument that the male colleague "negotiated better" is not accepted - according to the BAG in its ruling dated 16 February 2023 (docket No. 8 AZR 450/21).
The aim of the German Pay Transparency Act [Entgelttransparenzgesetz, EntgTranspG] is to enforce the principle of equal pay for women and men for the same work or work of equal value.
Already back in 2021, the BAG had ruled (docket No. 8 AZR 488/19) that gender-specific discrimination is presumed if an employee receives a lower basic salary than her male colleagues for the same work. If the employer wishes to rebut this presumption, it bears the full burden of proof under Sec. 22 [Allgemeines Gleichbehandlungsgesetz, AGG] that the difference in remuneration is justified by objective criteria and is not on grounds of gender.
In the specific case up for decision, the plaintiff received a lower salary than two of her male colleagues, who indisputably performed the same or equivalent work. The plaintiff was of the opinion that the defendant owed her the same basic pay as the male colleague who had been hired at virtually the same time as her. The lower salary discriminated against her on grounds of gender. In her action, the plaintiff sought payment from her (former) employer of arrears of the difference in pay as well as compensation for gender discrimination.
The defendant pleaded freedom of contract and justified the unequal pay with the negotiating skills of the male colleague, who had negotiated a higher salary at his hiring.
The BAG clearly rejected this argument and predominantly upheld the complaint. The plaintiff was entitled to the same basic pay as her male colleague under Art. 157 TFEU, Sec. 3 (1) and Sec. 7 EntgTranspG. In addition to the difference in pay, the court also awarded the plaintiff compensation under the AGG for the gender discrimination she had suffered. In light of the gender pay gap that still exists, this decision of the BAG further strengthens women’s rights to equal pay. As only the press release is available to date, the reasons for the decision are eagerly awaited.
Conclusion: the decision is of enormous practical relevance. Employers will increasingly find themselves facing claims to information pursuant to the EntgTranspG and – in case of a gender pay gap - legal action to claim the remuneration. Although different salaries are still possible, they must be justified by objective and, in particular, gender-neutral criteria. From a compliance perspective, employers are therefore advised as follows:
- The objective reasons for the remuneration decision, such as professional experience, qualification or soft skills, need to be documented precisely so as to be able to present gender-neutral reasons in legal proceedings in the event of a dispute.
- It is also advisable to introduce an objective and transparent remuneration system, for example with salary ranges.
Dr. Johannes Kaesbach
1.2 Holiday law news, part 1: time-barring of claims to payment in lieu of holiday
Following last year's landmark decision of the BAG on the expiry and limitation of holiday claims, the BAG has now issued a ruling on the time-barring of claims to payment in lieu of holiday (BAG dated 31 January 2023 - 9 AZR 456/20). The Karlsruhe judges clarified that claims to payment in lieu of holiday are subject to the general three-year statute of limitations - regardless of whether the employer has fulfilled its cooperation obligations under holiday law during the current employment relationship. However, the commencement of the limitation period may be subject to special circumstances in individual cases.
The plaintiff was employed by the defendant from June 2010 to October 2015 without having been granted his annual holiday entitlement of 30 working days during this period. During the course of the employment relationship, the defendant did not notify the plaintiff of the impending forfeiture of his holiday at the end of the year. In his lawsuit filed in August 2019, the plaintiff demanded payment in lieu of the holiday arising from his period of employment. The defendant raised the defence of the statute of limitation.
While the lower courts dismissed the claim, the plaintiff was predominantly successful in his action before the BAG - the BAG awarded him a total of €37,416 for four of his five years of employment. Fortunately, the BAG shared the view that the statutory claim to payment in lieu of holiday from terminated employment relationships, as a purely monetary claim, is subject to the three-year limitation period. This is because, unlike the actual holiday claim, the claim to payment in lieu thereof does not serve the purpose of the employee’s recuperation, but is merely limited to financial compensation. The special need to protect employees regarding the assertion of their holiday claims ends with the termination of the employment relationship. The three-year limitation period therefore generally begins at the end of the year in which the employee leaves the employment relationship, even if the employer did not previously fulfil its cooperation obligations pursuant to holiday law.
However, as regards the commencement of the limitation period, a peculiarity exists for claims to payment in lieu of holiday that arose before the ECJ's ruling of 06 November 2018. It was with this landmark ruling of the ECJ that it first established new rules for the forfeiture of holiday claims, which means that the plaintiff had only been required to take legal action to enforce his claim to payment in lieu of holiday from that point on. As the claims to payment in lieu of holiday for the years 2010-2014 were already time-barred at this time, but the plaintiff could not reasonably have been expected to sue for them at the end of the employment relationship, the BAG awarded him a claim to such payment. The payment claim from the year 2015, in contrast, was time-barred.
With little comprehensible argumentation, Germany's highest labour court therewith creates an unprecedented special protection of employees’ legitimate expectations, which it had not previously granted to the employers’ side in the course of the ECJ ruling of November 2018. And it did so despite the fact that the resulting change in case law on the employer's cooperation obligations was also an absolute novelty for the employer.
Generally speaking, the clarification of the statute of limitations for claims to payment in lieu of holiday can be especially welcomed. However, following the decision, it is still unclear whether employees whose employment relationships ended before the announcement of the ECJ ruling in November 2018 can now still assert claims to payment in lieu of holiday from the years 2014 and earlier. This is likely to be negated as, following the BAG's line of thinking, employees could reasonably have been expected to assert their claim by 2018 at the latest and any claims to payment in lieu of holiday should thus have long since become time-barred.
Jennifer Bold
1.3 Holiday law news, part 2: payment in lieu of holiday and collectively agreed preclusive periods
By judgement dated 31 January 2023 (docket No. 9 AZR 244/20), the BAG ruled for the first time on the forfeiture of claims to payment in lieu of holiday on grounds of collectively agreed preclusive periods. According to this, the settlement of holiday claims by way of payment in lieu thereof may be forfeited on grounds of a collectively agreed preclusive period. However, if the employment relationship ended before the ECJ’s decision of 06 November 2018 (C 684/16) on the employer's obligations to notify the employee of the holiday claim, the collectively agreed preclusive period only begins to run with the announcement of the ECJ decision.
The plaintiff had been employed by the defendant, a newspaper publisher, since April 2007. According to the industry-wide collective agreement applicable to the employment relationship, unfulfilled claims under the employment contract were to be asserted within a preclusive period of three months from the due date. In the period from April 2007 to June 2010, the plaintiff did not receive any recreational leave. The employment relationship ended in September 2014, and in August 2018 the plaintiff demanded from the defendant payment in lieu of holiday for a total of 65 days of holiday from the years 2007 to 2010. The claim was rejected on the grounds that any claim by the plaintiff from this period had lapsed and was time-barred. The lower courts dismissed the case. The plaintiff’s appeal on points of law was successful.
In its decision, which is currently only available as a press release, the BAG stated that, according to established case law, the claim to payment in lieu of untaken holiday is, as a purely monetary claim, subject to collectively agreed preclusive periods. This is because the claim to payment in lieu of holiday no longer serves the purpose of protecting the employee’s health, but merely of providing financial compensation, with the result that the employee's need for protection ends with the termination of the employment relationship. However, the plaintiff could only have reasonably been expected to also demand payment in lieu of holiday following the announcement of the ECJ’s decision of 06 November 2018. Previously, on the basis of the then applicable case law to the contrary, the plaintiff had had to assume that his holiday claims were already time-barred irrespective of the fulfilment of cooperation obligations, and that compensation was out of the question.
The BAG’s ruling is in line with the aforementioned case concerning the time-barring of claims to payment in lieu of holiday, which was decided on the same day. However, the special protection of employees' legitimate expectations should at best be relevant for pending court cases. It is highly unlikely that a new wave of lawsuits will be filed, as preclusive periods will have expired in the meantime and any claims to payment in lieu of holiday that arose prior to the announcement of the ECJ ruling in November 2018 will already be time-barred.
Cornelia-Cristina Scupra
1.4 No "remedy" of omitted or deficient works council participation
If a company has transferred an employee without involving the works council, it first has to actually reverse this individual personnel measure. It is not sufficient to merely inform the works council that the transfer (in violation of co-determination) will be withdrawn. Rather, the affected employee’s transfer actually has to cease until a proper participation procedure has been initiated.
In May 2018, a company had assigned the position of department head to an employee without first involving the works council. The works council then demanded that the measure be revoked on grounds that it violated Sec. 99 (1) of the German Shop Constitution Act [Betriebsverfassungsgesetz, BetrVG]. In the subsequent court proceedings, the company stated in January 2020 that it would withdraw the transfer and that the court case was settled. On the same day, the employer asked the works council for its consent to the employee's intended new transfer and informed it that it was carrying this out as a temporary measure. The works council refused to give its consent.
In the proceedings in substitution of such consent, the company argued that the transfer in January 2020 had been a different personnel measure to that in May 2018.
The BAG did not share this view, but considered the request for consent in January 2020 to be improper (decision dated 11 October 2022 - 1 ABR 18/21). The works council’s participation had not been "prior to" the personnel measure in such case. This presupposes that no final decision was reached at the time of the participation. Participation only after the assignment of another work area is not considered to be in due time and is therefore improper within the meaning of Sec. 99 (1) BetrVG. This does not constitute a "new" transfer.
The company’s notification that it was withdrawing the (old) individual personnel measure and implementing the new one in January 2020 as a provisional measure pending the works council’s consent definitely does not represent a cancellation of the transfer in May 2018. In order to cancel the previous measure, the assignment of the employee concerned should have been de facto suspended, at least temporarily, until the initiation of a new participation procedure. However, the employer had in fact deployed the employee continuously in the position since May 2018.
The "remedy" of a transfer in violation of co-determination therefore cannot merely take place "on paper" in that the employer subsequently procures the incorrectly omitted participation of the works council pursuant to Sec. 99 BetrVG. Rather, the personnel measure also has to be cancelled in real terms and there must be a de facto interruption in the deployment of the employee concerned. This applies in the same way to the hiring of employees which, for whatever reason, took place without the involvement of the works council.
Hence, in order to avoid both operational disruptions and time delays, the co-determination rights of the works council should preferably be taken into due consideration - especially since the possibility of a temporary personnel measure under Sec. 100 BetrVG provides the employer with a means of deploying urgently needed personnel at short notice.
Kathrin Vossen
1.5 Validity of hypotax agreements in temporary foreign postings
In the case of employee posting agreements, the parties to the employment contract may fundamentally conclude tax equalisation agreements to the employees’ detriment (BAG dated 07 September 2022 - 5 AZR 128/22). However, this does not mean that companies bound by collective bargaining agreements can breathe a sigh of relief because, if the parties to the employment contract are bound by collective bargaining agreements on both sides, corresponding provisions that can be regarded as net wage agreements of a special kind are invalid if they conflict with provisions of collective bargaining law.
An employee who had been working since 2002 for a company in the metal industry that was bound by collective bargaining agreements was remunerated according to the relevant collective bargaining agreements of the metal and electrical industry on the basis of a reference clause in his employment contract. He himself was organised in a trade union as of 2018, with the result that both parties were then bound by the collective bargaining agreement. From 2017 to 2019, the company posted the employee to France. In the employee posting agreement concluded between the parties, the parties agreed, among other things, on the so-called "tax equalisation principle" for the duration of the posting. With this type of tax equalisation, the employer assumes the taxes incurred abroad and deducts from the employee's gross salary a hypothetical, but actually non-payable, German wage tax (so-called hypotax). In his lawsuit, the plaintiff sought the amounts that he believed had been wrongfully withheld by the company.
The BAG partially upheld the plaintiff's claim and ruled that, until the time that both parties had been bound by the collective bargaining agreement, the plaintiff also had to accept a tax equalisation agreement to his detriment. However, with the start of his union membership, the gross wage set by the collective agreement could no longer be undercut on the basis of the provision contained in the employment contract. The employer’s withholding of the hypothetical wage tax to be deducted in Germany definitely did not lead to the fulfilment of the plaintiff's collectively agreed gross remuneration claim. The agreement on the tax equalisation procedure constituted a net wage agreement of a special kind, which was not compatible with Sec. 4 (3) of the German Act on Collective Bargaining Agreements [Tarifvertragsgesetz, TVG]. If both sides are bound by the collective bargaining agreement, then this constitutes an impermissible undercutting of the gross salary, with the result that the amounts wrongfully withheld as of 2018 were to be paid to the plaintiff.
If the performance of work by a posted employee abroad is temporary, i.e. not intended to be permanent, the employment relationship is also subject to German law during the posting. This means that provisions of collective bargaining agreements also continue to apply. If employees are sent to work abroad by their company for longer than 183 calendar days, this regularly leads to the employee’s wage tax liability abroad.
Posting agreements between employees and companies can still provide for tax equalisation regulations for the foreign assignment, which employees must fundamentally accept. However, employers bound by collective bargaining agreements must be particularly careful due to the continued application of German law: If the employee is also organised in a trade union, the provisions of the collective bargaining agreement take precedence over the provisions of the employee posting agreement, which means that it may come to further payments to the employee despite corresponding contractual agreements. First and foremost, therefore, companies bound by collective agreements should review their usual tax equalisation practices, if any, in the case of postings.
Alexandra Groth
1.6 Isolated profit and loss transfer agreement does not lead to a direct calculation in the case of company pension adjustments
An existing isolated profit and loss transfer agreement does not justify a calculation based on the economic situation of the controlling company (“direct calculation”) in the context of an adjustment review and decision pursuant to Sec. 16 (1) of the German Company Pensions Act [Betriebsrentengesetz, BetrAVG]. According to the decision of the BAG dated 15 November 2022 - 3 AZR 505/21, only the economic development of the pension debtor itself is also decisive for the assessment of the economic situation of the pension debtor in these cases.
The parties disputed the adjustment of the plaintiff's company pension as of 01 January 2019. The plaintiff receives a company pension of €6,754.39 per month, which was last adjusted at the beginning of 2016. In 2016, the defendant concluded a profit and loss transfer agreement with its controlling company, B-GmbH, pursuant to which the net income and losses generated for the year are assumed by B-GmbH. After the defendant's equity grew in the fiscal year 2016, it remained the same in the years that followed. For economic reasons, the defendant did not adjust the company pension as of 01 January 2019. The plaintiff contradicted this and filed legal action demanding an increase in the company pension as of 01 January 2019. He argued that the profit and loss transfer agreement led to a direct calculation based on the economic situation of B-GmbH.
However, the BAG rejected a claim to the adjustment of the company pension pursuant to Secs. 16 (1) and (2) BetrAVG. The defendant’s economic situation precluded an adjustment. The economic development of the pension debtor, which is assessed on the basis of the equity capital and its interest over the last three years before the adjustment date, is generally decisive for the prognosis to be prepared as per the adjustment date. The defendant had not achieved an adequate return on equity during this reference period, with the result that an economic situation that would be sufficient to adjust current benefits could be expected in the three years after the adjustment date. This negative prognosis could not be qualified by attributing the economic situation of B-GmbH via the profit and loss transfer agreement. The profit and loss transfer agreement does not lead to any reduction or increase in equity. In the absence of a right of direction, B-GmbH also could not - unlike in the case of a controlling agreement - influence the amount of the defendant’s profit and the return on equity.
The BAG has thus provided clarity on this issue, which it had most recently left open (BAG dated 21 April 2015 - 3 AZR 102/14): In the case of an isolated profit transfer agreement, employers do not have to take the economic situation of the other group company into account in the context of the adjustment review and decision pursuant to Sec. 16 (1) BetrAVG.
Anja Dombrowsky
1.7 Employment contracts subject to modification by shop agreement: amendment by shop agreement to the employee’s detriment is possible
The parties to an employment contract can determine the extent to which contractual provisions are subject to amendments through standard company regulations. In its ruling of 23 November 2022 - 9 Sa 682/22, the Regional Labour Court [Landesarbeitsgericht, LAG] of Hamm decided that a fixed salary stipulated in an employment contract can cease to apply to the employee bringing the action on grounds of a new provision in the underlying shop agreement.
The complaint was filed by an employee of a furnishing company. In his employment contract, the payment of a "monthly fixed salary of DM 1,100.00 [...] as well as commissions and bonuses in accordance with the applicable shop agreement" was agreed. The shop agreement in force at the time of concluding the contract also provided for a corresponding fixed salary in the same amount. In 2005, a new shop agreement governing a bonus and commission system for employees came into force and replaced the aforementioned shop agreement. In contrast to the previous one, the new shop agreement no longer provided for the payment of a fixed salary, whereupon the defendant also discontinued the monthly payments of the fixed salary to the plaintiff. The plaintiff therefore demanded payment of the monthly fixed salary in the amount of EUR 562.42 for the months June 2021 to May 2022. The Labour Court [Arbeitsgericht, ArbG] of Bielefeld upheld the complaint.
The LAG Hamm took a different view and ruled in the employer’s favour. The LAG held that the employment agreement was "subject to modification by shop agreement", which meant that a deviating and less favourable regulation could be effectively made via the new shop agreement. According to the LAG, this was already supported by the existence of general terms and conditions of business that indicated that uniform contractual terms and conditions were to apply at the business. This contradicted a definition of the terms and conditions of employment that was “resistant” to modification by shop agreement. Furthermore, in terms of amount and content, the wording of the contractual provision was recognisably based on the wording of the shop agreement. There was no apparent reason why a monthly fixed sum should be separated from the remuneration model and promised separately by individual contract. This was already apparent from the interpretation of the clause, with the result that the provision on cases of doubt pursuant to Sec. 305c (2) of the German Civil Code [Bürgerliches Gesetzbuch, BGB] does not apply to the detriment of the user of the GTCs.
In practice, this means that the wording of an employment contract should be carefully considered with regard to its openness to modification by shop agreement. The possibility of modification by shop agreement can be agreed both expressly and impliedly by the accompanying circumstances. Nevertheless, a mere reference to the shop agreement may not be sufficient in all cases. Instead, care should be taken to ensure a consistent structure and wording. The (valid) openness of employment contracts to modification by shop agreement creates significantly expanded structuring options for the employer.
Daniel Gorks
1.8 Dismissal not invalid due to failure to refer to Sec. 4 KSchG
In its ruling dated 10 March 2022 - 18 Sa 1449/21, the LAG Hamm decided that the lack of reference to the time limit for bringing legal action pursuant to Sec. 4 of the German Unfair Dismissals Act [Kündigungsschutzgesetz, KSchG] in the employment contract or in the notice of dismissal does not render the dismissal invalid. There is no "pre-effect" of the Working Conditions Directive (2019/1152/EU) or of an interpretation of Secs. 623, 125 p. 1 BGB in conformity with the Directive.
Before the Working Conditions Directive was implemented in the German Act on Proof of Working Conditions in an Employment Relationship [Nachweisgesetz, NachwG], the LAG Hamm had to rule in March 2022 on the validity of an employer's notice of dismissal that failed to contain a reference to the three-week period for bringing a legal action pursuant to Sec. 4 KSchG. The plaintiff was of the opinion that one of the notification obligations incumbent upon the employer under Art. 4 (2) (j) of the Working Conditions Directive was to inform the employees of the time limit for bringing an action pursuant to Sec. 4 KSchG. Since this information also was not included in the employment contracts, this constituted a violation of the Working Conditions Directive. This violation entailed the legal consequence that the dismissal did not comply with the written form requirement under Sec. 623 BGB and was therefore null and void.
Both the court of first instance and the court of appeal rightly dismissed the unfair dismissal action. With easily comprehensible argumentation, the LAG Hamm fundamentally rejected an interpretation or the further development of the written form requirement in Sec. 623 BGB in accordance with the Directive. A modification of Sec. 623 BGB in accordance with the Directive with the consequence of the formal invalidity of the challenged dismissal constitutes an inadmissible further development of the law. The Working Conditions Directive does not provide for such a serious legal consequence for the employer if it fails to point out the time limit for bringing a legal action under Sec. 4 KSchG.
Even after the amendment and entry into force of the NachweisG on 01 August 2022, the ruling of the LAG Hamm is still relevant for the validity of terminations declared by the employer without referring to the time limit for bringing a legal action pursuant to Sec. 4 KSchG. In the new version of the NachweisG, the German legislator has refrained from expanding the concept of formal invalidity. Hence, it is correct that there is no room for any interpretation or further development of Sec. 623 BGB in accordance with the Directive. Nevertheless, in practice, employers should observe the provisions of the NachweisG. The information requirements of Sec. 2 (1) sentence 2 of the NachweisG also include informing employees - be this in the case of a new hiring or in the case of an existing employment relationship at the employee’s request - about the procedure to be followed in the event of the termination of the employment relationship. This means that reference should at least be made to the written form requirement, the notice periods and the time limit for bringing an unfair dismissal action. A violation can be punished with a fine of €2,000.
Cornelia-Cristina Scupra
1.9 (Additional) social plan severance for severely disabled employees - maximum amount regulation violates the principle of equal treatment
If an employer and works council fundamentally agree in a social plan on an additional severance payment for severely disabled employees, but this is not actually paid out to older severely disabled employees due to a simultaneous maximum amount regulation, this violates the principle of equal treatment under shop constitution law in the opinion of the BAG (ruling dated 11 October 2022 - 1 AZR 129/21).
In the underlying situation, the company and the works council concluded a social plan due to the closure of a plant. This provided for a severance pay claim for all affected employees according to the following formula: “length of service x gross monthly income x factor". The factor was based on the age of the employee being made redundant. Employees with severe disabilities received an additional gross lump-sum severance payment of €2,000 euros. The social plan also included a provision limiting the total gross severance payment to €75,000.
The plaintiff, a long-term, severely disable employee of the defendant company, was refused payment of the additional severance amount because, due to the plaintiff's advanced age, the partial amount to be calculated already exceeded the maximum amount of €75,000. In his legal action, the plaintiff claimed, among other things, that he was entitled to the additional severance payment due to his severe disability.
While the lower courts rejected the plaintiff's claim, the BAG has now upheld it. The maximum amount clause, insofar as it extends to the additional severance payment claim, is invalid due to a violation of the principle of equal treatment under shop constitution law pursuant to Sec. 75 BetrVG. Although any unequal treatment that may arise as a result of maximum amount clauses could fundamentally be justified by the principle of a fair distribution and the limited social plan resources, if the maximum amount clause extends to additional severance payments for disabled employees, then the clause unreasonably disadvantages older employees with severe disabilities vis-à-vis the younger employees. However, the risk of older employees not finding subsequent employment after losing their jobs is generally greater than for younger employees. Furthermore, as a rule, the unavoidable expenses facing severely disabled employees in connection with their limitations also increases with age. Hence, the unequal treatment could not be justified.
Subsequent to its ruling in 2021 (BAG dated 07 December 2021 - 1 AZR 562/20), the BAG shows that the validity of maximum amount clauses is a question to be addressed in the individual case. It consistently argues that the additional amount for employees with severe disabilities must in all events be excluded from the severance pay cap and that, in all other respects, the maximum amount regulation can be retained. Many social plans already provide that so-called social supplements, which are typically paid for an existing severe disability or maintenance obligations, do not fall under the severance pay cap. Companies would be well advised to adopt this practice without exception in the future.
Dr. Alexander Willemsen
1.10 Lump-sum reduction in severance pay for employees close to retirement permissible in social plan
In a social plan, the employer and works council may reduce the severance pay resulting from the agreed severance payment formula to a flat rate of one quarter for employees close to retirement age who will have already reached the age of 62 when leaving the company. This was deemed justified by the LAG Nuremberg (judgement of 19 January 2023 - 8 Sa 164/22) in accordance with Sec. 10 p. 2, 3 No. 6 2nd alternative AGG. Here, the employer and the works council do not have to take into consideration the individual amount of retirement pension to which the employees concerned are actually entitled.
In the context of a staff reduction, the social plan negotiated by the employer and works council basically provided that 0.6 gross monthly salaries were to be paid as severance pay for each year of service. However, those employees who were already 62 years old on a cut-off date set by the parties to the social plan had their severance payment claim reduced by a flat rate of three quarters by means of an additional age factor. The plaintiff had more than 25 years of service with the company and could have claimed around €37,000 in severance pay according to the regular severance formula. However, because of the age factor this was reduced to around €9,250. He therefore took legal action to recover the difference on grounds of unlawful age discrimination.
Although the LAG Nuremberg considered the aforementioned cut-off date regulation to be a direct disadvantage for the plaintiff, it considered this to be sufficiently justified. The parties to the social plan had to distribute the available funds appropriately with a view to compensating employees for future disadvantages. In the court’s opinion, the disputed cut-off date provision pursued the legitimate goal of a needs-based distribution of the limited volume of the social plan and was appropriate for making greater financial resources available to other groups of employees who faced greater disadvantages from the operational change. Since employees either entitled to a pension or close to retirement are generally more financially secure, the cut-off date regulation falls within the assessment prerogative of the parties to the social plan. It suffices if the severance pay still individually remaining to the older employees is at least suitable to substantially mitigate the economic disadvantages faced by them. Here, with the plaintiff receiving a severance payment of just under four months' salary, this was the case.
The LAG has allowed an appeal on points of law against the ruling on the grounds of its fundamental importance and the case is already pending before the BAG (1 AZR 15/23). However, the decision is in line with the previous stand of the BAG, which had already confirmed the admissibility of (reduced) social plan severance payments for employees close to retirement age in the past (BAG dated 26 March 2013 - 1 AZR 857/11; BAG dated 07 May 2019 - 1 ABR 54/17). When drafting the relevant grounds for an exclusion and reduction in the social plan, great care must be taken to comply with the requirements of case law. If a social plan provision is invalid, the employee concerned can, in case of doubt, demand an "upward adjustment". This is a risk that is ultimately borne solely by the employer.
Isabel Hexel
1.11 News on co-determination regarding the (private) use of company cars
If the employer grants employees the private use of company cars, details of this are subject to co-determination pursuant to Sec. 87 (1) No. 10 of the German Shop Constitution Act (BetrVG) if the employer does not pass on the costs associated with the use of the car in full. The private use is granted as a voluntary benefit. If the employer arranges this in the same way throughout the group, it is the group works council as opposed to the individual works council that is entitled to co-determination.
In essence, the LAG Nuremberg (decision of 06 June 2022 - 1 TaBV 4/22) had to decide on whether the amendment of a company car policy, according to which the use of a company car has to be derived from the employment contract, was subject to the co-determination of the local works council. The policy applied to all employees of German group companies. The use of a company car for private trips was linked to the right of use. The gross monthly remuneration of employees with whom the private use of a company car had been agreed was reduced - also in consideration of the chosen car fittings.
The LAG already rejected the local works council’s competence to prohibit the use of the group-wide policy on grounds of its lack of jurisdiction. The group works council was the responsible body, because this constituted a voluntary benefit for which the employer itself decided the scope of its applicability, i.e. only within the company or throughout the group. If - as in the present case - it decided to provide the (voluntary) benefit throughout the group, then according to the "principle of subjective impossibility" solely the group works council was the competent body. The court clarified once again - because the petitioning works council had doubted this - that the voluntary nature of a benefit does not depend on whether the employer is obligated to provide the benefit under an individual contract. The only decisive factor is whether there is a collective agreement or statutory obligation to provide the service. Neither was the case here. The employer decided whether to provide company cars and to whom, which meant that the local works council was not the competent body.
The LAG could therefore leave unanswered the question of whether a right of co-determination even exists. The court did indicate, however, that the co-determination requirement of Sec. 87 (1) No. 10 BetrVG is met if the employer does not fully pass on the costs associated with the provision. In the case at hand, the eligible persons were able to select via a configurator special extras over and above the basic equipment, which, however, had to be paid for by them. However, if the private use is compensated for, then in the opinion of the LAG the remuneration structure is not affected. In this case, there is no right of co-determination pursuant to Sec. 87 (1) No. 10 BetrVG.
In a procedure to initiate conciliation proceedings, the LAG Cologne (decision dated 13 January 2020, 9 TaBV 66/19) had already affirmed the possibility of the works council having co-determination rights regarding the rules on the private use of company cars (cf. Sec. 87 (1) No. 1, No. 6 and No. 10 BetrVG). The present decision now differentiates with regard to co-determination pursuant to Sec. 87 (1) No. 10 BetrVG according to whether the employer passes on the costs associated with the provision in full or not. Thus, for companies, the arrangement of the company car policy is crucial if a discussion about co-determination is to be avoided.
Jörn Kuhn
1.12 Mandatory use of DP systems by the works council
The submission of the required application documents within the meaning of Sec. 99 (1) sentence 1 BetrVG does not have to be in paper form. It is also permissible for works council members with their own office laptop to gain access to an applicant management tool.
In a dispute between a company and the works council, the LAG Saxony-Anhalt (decision dated 13 October 2022 - 2 TaBV 1/22) dealt in detail with the question of how the works council is to be involved in personnel measures in accordance with Sec. 99 (1) BetrVG. Pursuant to Sec. 99 BetrVG, the company must inform the works council prior to every hiring and, in particular, submit the required application documents to it. In this specific case, the question arose (among others) as to whether, in the course of a recruitment, the company can also make the applicant’s documents available to the works council by means of an IT tool.
Following a decision of the LAG Cologne (decision dated 15 May 2020 - 9 TaBV 32/19), the LAG Saxony-Anhalt affirmed this question. If it is ensured that the works council has unrestricted access to all digitised application documents and the correspondingly entered data, there is nothing to prevent the works council's right to the submission of documents within the meaning of Sec. 99 (1) BetrVG from also being enabled by means of a corresponding right of the works council to inspect the documents stored in the system. The LAG Saxony-Anhalt stated that in the "age of digitisation" and the progressive organisation of offices as paper-free as possible, it can no longer make any difference whether all documents are presented or provided to the works council in paper form or whether the works council members can inspect them digitally.
Considering the fact that, in today's working world, the majority of all job 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 when one considers that, according to BAG case law, not only does the company have to provide personal information about the applicant who is to be hired, but also about the applicants who have not been considered. This is definitely the case if the works council has the possibility of accessing the relevant documents. For this purpose, the works council especially needs to be equipped with the required technical resources.
A final decision on the matter is still pending. The LAG attached fundamental importance to the question of whether the required application documents within the meaning of Sec. 99 (1) sentence 1 BetrVG can also be submitted digitally, and allowed the appeal to the BAG. The proceedings are now pending there (docket No. 1 ABR 28/22); a date for a decision date has not yet been announced.
Jörn Kuhn
1. 13 Consideration of employee’s closeness to retirement age in the social selection process
In its ruling dated 08 December 2022 - 6 AZR 31/22, the Federal Labour Court [Bundesarbeitsgericht - BAG] ruled that the employee’s closeness to retirement age can be taken into account in the social selection process to the employee’s detriment. The long-awaited decision of the BAG has finally provided clarity for the previously controversial question of whether the criterion of "age" can only to be considered to the employee’s advantage.
The BAG’s decision was based on the fact that the plaintiff, who was born in 1957, was on the list of names of a compromise of interests for a reduction of personnel agreed between the insolvency administrator and the works council. The plaintiff was of the opinion that the notice of termination she had received was invalid due to a lack of proper social selection. The insolvency administrator held that the plaintiff was the least in need of social protection within her comparison group, because she would be able to draw her retirement pension for particularly long-serving employees soon after the termination date. As a precautionary measure, however, the insolvency administrator terminated the plaintiff's employment again.
The two lower courts granted the case. The appeal on points of law before the BAG was partially successful. Although the BAG considered the first dismissal to be invalid, it stated that the plaintiff's closeness to retirement age could fundamentally be taken into account to her detriment in the social selection process. Although the need for social protection increases with age as the chances of placement on the labour market deteriorate, the need for protection no longer exists if employees can dispose over a substitute income in the form of a retirement pension without deductions at the latest within two years of the employment relationship having ended.
The BAG's welcomed decision provides clarity with regard to the previously disputed question of the disadvantageous consideration of employees close to retirement age in the social selection. In principle, Sec. 1 (3) sentence 1 of the German Unfair Dismissals Act (Kündigungsschutzgesetz, KSchG) stipulates that companies must take into account the employee’s length of service, age, maintenance obligations and severe disability when making the social selection. However, the wording of the law does not state that these criteria necessarily have to be assessed in the employee’s favour. Here, the BAG draws the line at a period of two years until the possibility of drawing a pension without deductions. This is doubtlessly because the employees concerned can bridge this period until retirement by claiming unemployment benefit I (ALG I).
The BAG’s ruling supplements the possibilities under collective bargaining law of taking the employee’s closeness to retirement age into account to his detriment. It has already been recognised by case law that lower severance payments can be agreed within a social compensation plan for age groups close to retirement (with further references under item 1.10.). The BAG upholds this principle with regard to the list of names in the compromise of interests. However, it is also evident from this decision that even a list of names, which is hardly ever agreed upon in practice anyway, does not constitute a foregone conclusion when carrying out a social selection: The first dismissal was invalid because only the plaintiff's closeness to retirement age had been taken into account, but not her length of service and maintenance obligations, with the result that the social selection was grossly flawed.
Annabelle Marceau
2. Legal developments
2.1 Co-determination rights know (almost) no boundaries
Since the German Act on the Co-determination of Employees in case of Cross-border Changes of Legal Form and Cross-border Demergers [Gesetz über die Mitbestimmung der Arbeitnehmer bei grenzüberschreitendem Formwechsel und grenzüberschreitender Spaltung, MgFSG] entered into force on 31 January 2023, new rules on employee co-determination apply to these transactions. When planning such a project, companies should always take the MgFSG into account in order to avoid time delays and cost drivers.
The declared aim of the Act is to safeguard existing co-determination rights of employees in corporate bodies in the event of cross-border changes of legal form or demergers (cf. Sec. 1 (1) sentence 2 MgFSG). The co-determination rights are safeguarded at the company changing its legal form or demerging.
The MgFSG applies in particular if the company affected by a cross-border project has its registered office in Germany. Furthermore, under certain conditions, the MgFSG can apply regardless of the company's registered office, which means that its practical scope of application affects a large number of companies. This is due to the fact that the MgFSG implements EU Directive 2019/2121. According to the recitals, the Directive regulates an EU-wide harmonised legal framework for cross-border changes of legal form and demergers.
Companies are not confronted with entirely new provisions for a cross-border change of legal form or a demerger as a result of the MgFSG; rather, the existing provisions of the German Transformation Act [Umwandlungsgesetz, UmwG] apply, to which Sec. 2 (2) MgFSG refers. The most "painful" legal consequence of a cross-border change of legal form or demerger for companies is the employee participation procedure that now has to be carried out. The company's negotiating partner is the Special Negotiating Body ("SNB") formed at the request of the company's managing body. The SNB is made up of employees of the companies involved in the cross-border project and any subsidiaries and establishments affected.
The employee participation procedure is similar to the procedure during the formation of an SE. Accordingly, the company and the SNB negotiate the conclusion of a participation agreement on corporate co-determination. The MgFSG places strict limits on the subject matter of negotiations. It is not possible to agree on a level of co-determination that is lower than the level of co-determination prior to the implementation of the cross-border project. In exceptional cases, the participation agreement may regulate a situation that is free of co-determination. However, this is only the case if the company already was not co-determined prior to the cross-border transaction. If no participation agreement can be reached, the co-determination applies by force of law as a catch-all regulation, Secs. 25 et seq. MgFSG.
The importance and complexity of an employee participation procedure should not be underestimated. Such process can require significant time and financial resources. However, there is no way around it: it has to be completed before the cross-border project can be implemented.
Moritz Coché
2.2 Update on the German Whistleblower Protection Act
On 10 February 2023, the Bundesrat stopped the German Whistleblower Protection Act, which was intended to implement the European Whistleblower Directive (Directive (EU) 2019/1937) in Germany. The law, which was passed by the Bundestag as recently as December, has not been approved by the Bundesrat, especially by the CDU/CSU-led federal states.
The main point of criticism was that the present draft law goes far beyond the EU requirements, as the scope of application is considerably extended and the establishment of an internal reporting office, which is also obliged to accept anonymous reports, is mandatory. This would create a considerable additional bureaucratic burden, especially for small and medium-sized enterprises.
With this, the second government bill to implement the European Whistleblower Directive in Germany has also failed, and the formal EU proceedings that have already been initiated against Germany for breach of contract are entering into the next round. The European Commission had decided, namely, to take legal action against Germany and seven other member states (Czech Republic, Estonia, Spain, Italy, Luxembourg, Hungary and Poland) before the ECJ because these countries have failed to fully implement the Directive and have not communicated their implementation measures.
The coalition factions have now taken a new approach to implementing the EU Whistleblowing Directive and have split the proposed legislation into two drafts, only one of which they believe requires Bundesrat approval. These initiatives were adopted by the Bundestag on 17 March 2023 and are now being referred to the Legal Affairs Committee, which will discuss them on 27 March 2023. The new draft is almost identical in content to the bill already passed by the Bundestag in December 2022, but does not contain any provisions on state civil servants and therefore does not require approval. A supplementary law contains separate regulations for state civil servants. On 31 March 2023, the law could then be finally passed by the Bundesrat and in this case, according to the draft, could even enter into force one month after promulgation.
The latest draft of the HinSchG-E obliges companies with regularly at least 50 employees to set up and operate an internal reporting office. If no such reporting office is established, fines of up to 20,000 euros may be imposed.
A particularly controversial point is whether the outsourcing of the internal reporting office to a company belonging to the group and thus the establishment of a group-wide whistleblowing hotline is permissible. While the EU Commission is of the opinion that every legal entity with regularly at least 50 employees must establish its own internal reporting channel, the current draft law provides for the possibility of outsourcing to group companies as "third parties". However, it is precisely this point that is of central importance in the structuring of reporting systems within a corporate group. But since the obligation to establish an internal reporting office will come sooner or later, all companies falling under the scope of the HinSchG-E should already address the topic of establishing internal whistleblower structures.
Isabel Hexel
2.3 The ever-popular topic of “workations”
In times of a shortage of skilled workers and after years of the corona pandemic, flexible working models are playing a more important role than ever in retaining and attracting employees. Here, the possibility of a workation plays a big role in job selection.
According to a recent PwC study, 81% of the persons questioned considered a workation to contribute to a better work-life balance. Additionally, 79% indicated that a workation offer increased their job satisfaction. For 76%, it was also clear: a workation increases their own productivity. A workation is particularly attractive in the winter months: around 82% would prefer a stay in the sunny south to the cold winter months in Germany. However, according to the study, there are still considerable practical deficits - both for employers and employees.
If companies are considering offering employees a "workation", they should prepare this well. A summary of the general considerations can be found in this article.
Isabel Hexel
