Newsletter Labour Law, II/2011

Labour law developments over the second quarter of 2011 have left a conflicting impression: In terms of legislation – besides the concept of “securing skilled employees” described in greater detail below – may we name the only partial entry into force of the new German Temporary Employment Act (Arbeitnehmerüberlassungsgesetz, “AÜG”) (please refer to our last Newsletter in this respect). The final version of the German Employee Data Protection Act (Beschäftigtendatenschutzgesetz), on the other hand, is still a long time coming.

In contrast, case law has set interesting benchmarks during this calendar quarter. Particularly noteworthy in this respect is unquestionably the judgment of the Federal Labour Court (Bundesarbeitsgericht, “BAG”) on the prohibition of previous employment in case of materially unfounded fixed-term employment relationships. Now that it has been clarified that employment lying more than three years in the past may not be taken into consideration, the employer’s room for manoeuvre has noticeably increased. We have summarised this judgment and further interesting decisions for you in this Newsletter.

1. Current case law

1.1  Exclusion of social plan settlements in cases where a pension is drawn on grounds of reduced earning capacity (BAG dated 7 June 2011 - 1 AZR 34/10)

By judgment dated 7 June 2011 (docket no.: 1 AZR 34/10) the BAG decided that it is possible to validly agree in a social plan that employees shall not receive a settlement if they are not employed because they draw on a temporary full pension on grounds of reduced earning capacity and where one can expect their inability to work to continue in the unforeseeable future.

In the case up for decision by the BAG the defendant had agreed in a social plan with its work council on the exclusion of benefits to employees who are not employed because they draw on a temporary full pension on grounds of reduced earning capacity and where it could be expected that the inability to work accompanying the reduced earning capacity would continue on a permanent basis or would at least not be remedied in the foreseeable future. According to the social plan, this can be assumed in case of an inability to work accompanying the drawing of the pension which has lasted more than three years or where a pension on grounds of reduced earning capacity has been granted for more than three years. The claimant had uninterruptedly been unable to work since December 2001 because of a commuting accident. Since April 2003 he had drawn a reduced earning capacity pension which had initially been limited until the end of June 2007. This was extended without interruption until 30 June 2009. Since then the claimant has been drawing an indefinite pension. The claimant’s employment was terminated for operational reasons as per 31 July 2008. His claim for payment of a social plan settlement of about €220,000.00 was unsuccessful before the First Senate of the BAG.

In the opinion of the BAG, employees with reduced earning capacity are not directly detrimentally affected on grounds of their disability through the exclusion of their claim in the social plan. The regulation in the social plan actually treats them no less favourably than other persons in a comparable situation. The purpose of social plan benefits is to compensate economic disadvantages incurred by those employees who, as a result of the business change, lose their job and thus their claim to their employment remuneration. Employees who have already had a reduced earning capacity for some time and who will not regain their ability to work in the foreseeable future do not suffer any comparable disadvantages through the loss of their employment relationship, however.

With this judgement, the BAG is consistently continuing its previous case law on the meaning of the discrimination prohibition in the configuration of social plans. Accordingly, the BAG already decided by judgement dated 26 May 2009 that social plans may provide for a settlement regulation that is staggered according to years of ago or service with the company, and may even exclude from social plan benefits those employees who are entitled to a pension. In the opinion of the BAG, the ensuing different treatment on grounds of age is covered by Sec. 10 sentence 3 no. 6 German General Non-Discrimination Act (Allgemeines Gleichbehandlungsgesetz, “AGG”).

The development in the BAG’s case law can be welcomed. At the same time, however, this creates a conflict with ECJ case law. The ECJ deems it irreconcilable with Council Directive 2000/78/EG to exclude from a settlement employees who could claim an old-age pension when they withdraw from the employment relationship insofar as no consideration is given to whether or not the respective employee “actually” draws an old-age pension at the time or whether he is still available to the labour market. Although this ECJ judgment related to a statutory settlement claim pursuant to Danish law with a different underlying purpose, which means that the decision cannot simply be transferred to German social plan practice, we will therefore have to wait and see whether it will also be possible in future to uphold the BAG case law on the admissibility of an exclusion of employees entitled to a pension from social plan payments.

Isabel Kreienbrock

1.2  Piercing the corporate veil for assessment purposes when drawing up a social plan within a corporate group (BAG dated 15 March 2011 – 1 ABR 97/09)

When establishing the budget for a social plan, in corporate groups the question is regularly raised whether one may or may not fall back upon the wealthy “parent” or the group as a whole when calculating such budget. The BAG has now provided clarity in cases where no substantial assets have been removed during a divestment of the operating company.

The company K-AG ran six rehabilitation clinics, five of which were owned by it and one of which was only leased. The lease agreement was transferred during the course of a divestment of all of the clinics to a transferee. The transferee employer wanted to discontinue the extremely loss-making clinical operations at the end of 2006. The arbitration board set up drew up a social plan in an overall volume of 1.3 million euro. The employer’s balance sheet at such time showed a deficit not covered by equity capital in an amount of about 3 million euro. The arbitration board established the overall volume by including the assets of K-AG in the assessment of the financial situation.

The motion filed by the employer for the declaration of the invalidity of the decision of the arbitration award was successful before the 1st Senate of the BAG.

If an enterprise undertakes a change of business, then under certain circumstances negotiations must be conducted on a compromise of interests and social plan. The purpose hereof is to compensate for the disadvantages associated with the measure, typically by granting settlements.

The arbitration board decides in the management’s and employees’ stead if they are unable to agree on the establishment of a social plan. Pursuant to Sec. 112 V German Shop Constitution Act (Betriebsverfassungsgesetz, “BetrVG”), its decision must duly account for the social welfare interests of the employees and the economic reasonableness of the social plan for the enterprise. The financial capacity of the enterprise is determinative of the economic reasonableness.

Especially in case of group companies, one must consider whether the financial capacity of the enterprise or that of the group behind the enterprise is relevant. According to established case law of the BAG, in principle only the economic situation of the respective enterprise is decisive and one may not fall back on affiliated enterprises.

The Regional Labour Court of Hesse (Landesarbeitsgericht, “LAG”) nevertheless upheld the decision of the arbitration board in analogue application of Sec. 134 German Mergers and Reorganisations Act (Umwandlungsgesetz, “UmwG”). The Senate of the BAG based the success of the appeal against the decision of the arbitration board on the fact that no assets of substance for the continuation of the clinical operations had been removed from the employer. The arbitration board had denied resorting to the wealthy K-AG via Sec. 134 UmwG, as this constituted a violation of the principle of economic reasonableness pursuant to Sec. 112 V BetrVG.

By creating clear requirements for the arbitration board, the BAG has ensured a greater degree of legal certainty. However, according to the decision of the BAG, it would seem that a piercing of the corporate veil is not ruled out in cases of a withdrawal of substantial assets prior to the divestment. It will be easier to appraise this with greater certainty once the reasons for the judgment have become available.

Dr. Alexander Willemsen

1.3  Union has no own claim to compensation of wage disadvantages pursuant to a shop agreement that contradicts the collective agreement (BAG dated 17 May 2011 – 1 AZR 473/09)

Since the decisions of the BAG on so-called intercompany alliances for jobs (betriebliche Bündnisse für Arbeit), it is acknowledged that unions can assert their own claim to the desistance or non-applicability of shop agreements that contradict collective agreements (“unions’ claim for removal”). In its judgement dated 17 May 2011 (docket no.: 1 AZR 473/09), the BAG addressed this problem again. It hereby limited the unions’ claim for removal.

In the matter underlying the decision, the legal predecessor of the defendant and the works council established there had concluded a shop agreement on the increase of the weekly working hours from 35 to 40 hours with the simultaneous granting of a performance and profit-related bonus. The industrial union of metal workers IG Metall considered this contrary to the collective agreement and demanded that the defendant, which was bound by the collective agreement, individually offered the employees remuneration for the working hours rendered by them over and above the collectively agreed 35 weekly working hours.

The previous instances had dismissed the complaint, which was also unsuccessful in the appeal on points of law before the BAG. In its reasoning the BAG stated that, although the union had a claim to the desistance of actions which encroached upon its fundamental right of union activity protected by the German Constitution (Grundgesetz, “GG”) pursuant to Art. 9 para. 3 GG, it considered the encroachment in this case to solely be the conclusion of the shop agreement that contradicted with the collective agreement. Through the cancellation of such shop agreement, according to the BAG, the encroachment was also discontinued and the collective coalition freedom no longer impaired. Compensation of the wage deficits incurred by the employees, however, could not be demanded by the IG Metall.

With this decision the BAG tightens the scope of the unions’ claim for removal. It is to be welcomed that the BAG makes a clear distinction between the impairment of the collective coalition freedom and the property claims of the employees in question: in their own right unions can only assert impairment under the law governing collectively agreed provisions – that is to say the shop agreement that contradicts the collective agreement. The compensation of wage deficits, in contrast, must be sued for by the employees in question themselves.

Dr. Alexander Willemsen

1.4  Fixed-term employment relationships are possible despite previous employment (BAG dated 6 April 2011 - 7 AZR 716/09)

Despite an employee’s previous employment with the same employer, an employment relationship with such employer can also be limited for a term of up to two years without material grounds if this prior employment lies more than three years in the past.

Pursuant to Sec. 14 para. 2 sentence 2 German Part-Time and Fixed-Term Employment Act (Teilzeit- und Befristigungsgesetz, “TzBfG”) the limitation of an employment contract without material reason is excluded if a fixed-term or indefinite employment relationship already previously existed with the same employer. According to the BAG, however, in a constitutionally conform interpretation oriented on the meaning and purpose, this provision does not apply if this employment relationship lies more than three years in the past (judgement dated 6 April 2011, docket no. 7 AZR 716/09).

In the opinion of the Seventh Senate, in cases of prior employment quite some time in the past, never-ending “limitation chains“ that serving to hinder the statutory provisions are typically no longer possible. If there are more than three years between the end of the former employment relationship and the new employment contract that has a fixed term for no material reason, then such risk is excluded. This period corresponds to the legislative appraisal that is expressed in the regular limitation period of civil law.

The claimant was employed with the defendant, the Free State of Saxony, as a teacher on the basis of a fixed-term employment contract from August 2006 to July 2008. During her studies, she had worked for the Free State as a student assistant for a total of 50 hours from November 1999 to January 2000. As in the previous instances, her complaint against the time limitation of her employment relationship was also unsuccessful before the BAG.

The decision is to be welcomed in every respect, since a transfer to a previous employer is no longer untypical when one considers the employment biographies of many employees.

Jörn Kuhn

1.5  An update on the settlement of holiday claims during garden leave (BAG dated 17 May 2011 - 9 AZR 189/10)

If, in cases where an employee is put on garden leave, his holiday entitlement is simultaneously to counted towards such leave, one must ensure that one specifically states which holiday claims the employer wishes to count towards the leave. Any and all doubts in the interpretation of its declaration will go to the detriment of the employer. This was clarified by the BAG in a judgement dated 17 May 2011 (docket no.: 9 AZR 189/10).

According to the case underlying the decision, the claimant had an annual holiday claim of 30 working days. The defendant terminated the claimant’s employment relationship by letter of 13 November 2006 with effect as per 31 March 2007. At the same time, it irrevocably released the claimant from his employment duties, counting his holiday entitlement towards this leave and continuing to pay his salary. The labour court decided in the subsequent unfair dismissal procedure by legally binding judgement that the termination was invalid and that the employment relationship had therefore not ended. The claimant then claimed residual holiday for 2007. He was of the opinion that for 2007 the defendant had at best granted him partial holiday for the period from 1 January 2007 to 31 March 2007, but had not intended to count his entire holiday claim for 2007 towards the garden leave. Both the Labour Court and the Regional Labour Court dismissed the case. The Ninth Senate repealed the decision of the Regional Labour Court and granted the complaint.

If an employer puts the employee on garden leave and simultaneously counts his holiday claims towards such leave, then according to general principles this declaration must be interpreted from the perspective of an objective recipient. Accordingly, the declaration must show with sufficient clarity the scope in which the employer wishes to fulfil the holiday claims. It lies in the hands of the employer to clearly stipulate the scope of the garden leave and the inclusion of the holiday entitlement. Any and all doubt and ambiguities in the declaration therefore also go to the employer’s detriment. In the case up for decision, in the opinion of the BAG it was not sufficiently clear to the BAG whether the employer wanted only to fulfil the proportionate holiday claim up to and including 31 March 2007 or the entire holiday claim of 30 days for the entire year 2007. Due to this lack of clarity, the BAG granted the employee further holiday claims for 2007.

We would therefore advise wording the inclusion of holiday in the declaration of garden leave more clearly in future. However, holiday can only be counted towards garden leave if the leave is declared irrevocably. In case of a revocable garden leave, the demand to return to work, which can be expressed at any time, opposes counting the holiday claim toward the leave. In this case, the holiday entitlement during the garden leave must therefore be granted explicitly for a certain period. If the inclusion of the holiday entitlement is not declared or not clearly declared, then despite a possible lengthy garden leave, the employee still has a claim to the settlement of his outstanding holiday claim.

Possible wording could be, for example: "The employee is released from the obligation to render his employment services with immediate effect, counting his entire holiday claim for the year xxxx [in case this continues into the next year also: as well as for the year xxxx] towards his garden leave."

Kathrin Vossen 

1.6 Receipt of a termination where the termination letter is handed over to the spouse outside of the domestic home (BAG dated 9 June 2011 - 6 AZR 687/09)

The spouse of an employee whose employment is to be terminated can be treated as the so-called authorised recipient if he/she shares a domestic home with the employee and there is nothing to oppose the assumption that the spouse is suited to pass on the notice of termination to the employee. In this case, the termination notice can also be handed over outside the domestic home. Receipt by the employee is deemed to have taken place when one can expect the declaration to have be passed on to the employee under normal circumstances and not already with the provision of the termination notice to the spouse.

On 9 June 2011 the BAG had to decide in a case where the employer did not hand the letter of termination over to the employee herself at her place of work, rather, due to her absence, to the spouse of the employee on 31 January 2008 – and that is at his place of work in a DIY store (docket no.: 6 AZR 687/09). The spouse did not pass on the letter to his wife on 31 January 2008, rather only on 1 February 2008. The claimant subsequently asserted that the employment relationship did not terminate until 31 March 2008 as opposed to already on 29 February 2008, observing the ordinary termination notice period of one month to the end of a month, for she had not received the termination until 1 February 2008.

The BAG rejected this opinion. It established that, according to prevailing public opinion, the spouse of the claimant acted as authorised recipient when he accepted receipt of the termination on 31 January 2008. Under normal circumstances one can expect the spouse to return to the shared domestic home on the same day and therefore pass on the notice of termination to the claimant on the same day. It was of no consequence that the spouse accepted receipt of the termination at his place of work as opposed to in the domestic home.

Naturally, the best choice is always to hand over the (original) notice of termination to the employee whose employment is to be terminated in order to ensure the timely receipt of the termination. Should this not be possible, however, then in order to meet the deadline the handing over of the letter to the spouse can under certain circumstances be an alternative if this person and, in particular, his/her location/place of work, is known. It is a known fact that putting the notice of termination into the employee’s letterbox does not necessarily secure its receipt on the same day. Handing over the letter to underage children living in the domestic home of the employee also does not automatically lead to the receipt of the declaration on the same date; here it depends on the circumstances in the individual case, in particular on the age and maturity of the child. The risk of a belated receipt is too high, with the result this method is not advisable.

Kathrin Vossen

2.  Federal Government concept for securing skilled workers

On 22 June the Federal Cabinet presented the “Concept for Securing Skilled Workers”. The “Concept for Securing Skilled Workers” is a package of measures aiming to primarily secure the increasing lack of qualified skilled workers. According to an estimate of the Federal Government, by 2005 6.5 million skilled workers were lacking in Germany, above all in the health, social welfare and MINT professions (mathematics, information technology, natural science and technology).

The Federal Government’s concept envisages a total of five methods for securing the basis of skilled workers in Germany:

• activation and job safety,
• better reconcilability of work and family,
• educational opportunities for all from the outset,
• qualification: training and further education,
• integration and qualified immigration.

Each of the individual five methods entails measures with short, medium and long-term effects which will in some cases have considerable consequences for enterprises. With this concept the Federal Government has announced a whole range of legislative proposals. For example, in order to “maintain the ability to work” the employment protection provisions will be examined and modified to ensure work that is adapted to age and ageing. This is a consequence of the demographic development. Some laws that have already entered into are now being brought under the cloak of this “concept”. One example hereof is the German Act on the Promotion and Care of Children in Daycare Facilities (Kinderförderungsgesetz, “KiFöG”) dated 16 December 2008. With the claim to childcare anchored therein, this now aims to reconcile work and family.

Besides the “Act for Improving the Establishment and Recognition of Professional Qualifications Acquired Abroad” (Gesetz zur Verbesserung der Feststellung und Anerkennung im Ausland erworbener Berufsqualifikationen) (so-called Recognition Act (“Anerkennungsgesetz”)) which was brought into the legislative process, the topic of immigration is above all also of interest to enterprises through the extension of the blue-card regulation on the employment of highly-qualified workers. The aim of the Recognition Act is to remove the barriers existing to date in many professions which linked the exercise and recognition of these professions to German nationality or citizenship of an EU Member State. However, as the Bundesrat submitted more than 100 amendment proposals herefor in May, we do not expect the law to be finalised before the Bundestag breaks for the summer.

In contrast, the so-called priority check (Vorrangprüfung) conducted for mechanical and vehicle construction engineers, electrical engineers and for doctors is being cancelled with immediate effect and thus access by foreigners from non-EU states facilitated. The so-called priority check meant that, before a vacancy could be filled, the Employment Agency (Agentur für Arbeit) always had to check whether an unemployed German or EU citizen could fill this vacancy. The cancellation of the priority check will facilitate the granting of the residence permits which includes the work permit as an annex for the aforesaid professions.

Along with the cancellation of the priority check, presently under discussion is whether or not the previously existing income threshold of 66,000 euro gross annual income for the employment of highly skilled workers should be reduced further. The so-called “blue-card“ Directive of the EU (Council Directive 2009/50/EG), which has not yet been implemented in Germany, only demands that national law contains an income threshold without actually stipulating its amount, however.

The expansion of the blue-card regulation will lead to further internationalisation for many enterprises. For example, in future, enterprises will be able to extend their personnel recruiting to further professionals – other than is the case to date – globally, including foreigners not from EU states. International groups will additionally have better possibilities, particularly within the scope of personnel development programmes, of deploying employees from non-EU states in Germany, to the extent such employees exercise one of the said professions.

Jörn Kuhn