Newsletter Labour Law, III/2011

During the third quarter of 2011 very few trends were set by the legislator and case law. A stir was, however, caused by the judgment of the European Court of Justice for Human Rights (ECHR) on so-called “whistleblowing”, that is to say the notification of company-internal grievances by employees. Additionally, labour law “evergreens” such as extraordinary terminations on grounds of an announced illness as well as the lapse of holiday claims have also profited from new impulses from case law. The changes of particular importance in this connection as well as other topics of interest are explained in greater detail below.

Current Case Law

1. News regarding the lapse of holiday claims

In 2009 the European Court of Justice and, in line with its decision, the Federal Labour Court (Bundesarbeitsgericht, “BAG”) re-regulated German holiday legislation with respect to the loss of holiday claims of employees unable to work on grounds of a long-term illness. As opposed to providing the expected legal clarity, this decision triggered a number of follow-up questions with which enterprises found themselves directly confronted. On 9 August 2011 the Federal Labour Court reached decisions that are of practical relevance to at least two partial aspects, as well as dispelling uncertainties existing in this connections.

In one case (docket no. 9 AZR 253/10) the Federal Labour Court ruled that, with the date of the employee’s departure from the company, the claim to compensation in lieu of holiday of an employee unable to work on grounds of a long-term illness is subject to the individually and collectively agreed preclusive periods in the form of a purely monetary claim. This also includes payment in lieu of the statutory minimum holiday. Employees unable to work due to a long-term illness who leave the company are therefore obliged to assert compensation claims within the preclusive period applicable to them.

In a second case constellation (docket no. 9 AZR 425/10) the Federal Labour Court ruled that an employee unable to work on grounds of a long-term illness cannot assert a holiday claim for past years if he is able to take his carried-over holiday after returning to work following his illness during the ongoing holiday year. Holiday not taken by 31 December, respectively within the carry-over period by 31 March of the following year, expires automatically. Both decisions can certainly be welcomed, since they provide clarity in two problem areas of relevance.

Before the year is out, the ECJ will also decide whether a limitation of the carry-over period to 18 months is permissible for employees absent from work on grounds of a long-term illness. At least, this was what was highlighted by the Advocate General of the ECJ in her final speech on 7 July 2011 in the “Schulte” case (C-214/10). Should the core statements of her speech ultimately be reflected in the ECJ’s decision, then it could be possible to word expiry clauses concerning the holiday claims of employees absent from work on grounds of a long-term illness in a legally valid form in future. This would distinctly reduce the currently existing financial burden upon enterprises.

Equally of relevance in connection with holiday claims is a further judgement of the Federal Labour Court of 20 September 2011 (docket no. 9 AZR 416/10). According to this judgement, with the death of an employee his holiday claim expires as opposed to being converted into a compensation claim pursuant to sec. 7 para. 4 German Federal Holiday Benefits Act (Bundesurlaubsgesetz, “BUrlG”) which could transfer to the heirs. In the case underlying the decision, the heirs of a deceased employee who had been unable to work due to illness for a full year prior to his death demanded the settlement of his holiday claim from the employer. Whereas the Labour Court (Arbeitsgericht, “AG”) had dismissed the case, the Regional Labour Court (Landesarbeitsgericht, “LAG”) granted the heirs a settlement of 35 days’ holiday. The Federal Labour Court, however, shared the opinion of the Labour Court and established that an employee’s holiday claim expires with his death and hence the heirs have no claim to compensation therefor.

Isabel Hexel and Jörn Kuhn

2. ECHR strengthens rights of whistleblowers

The European Court for Human Rights (ECHR) ruled by judgement dated 21 July 2011 (docket no. 28274/08) that employees who publicly disclose deficiencies within the enterprise of their employer cannot be terminated without notice. This has strengthened the position of so-called “whistleblowers”, as the arbitrary disclosure of company-internal grievances by employees has frequently been taken as a good cause (“wichtiger Grund”) to date for justifying an extraordinary termination.

The plaintiff was an elderly care nurse and persistently notified the management of serious deficiencies in the care of the elderly patients; deficiencies which were also established by the Medizinischer Dienst der Krankenkassen (MDK), the medical review board of the statutory health insurance funds. Having repeatedly notified these grievances without achieving any improvements of the situation whatsoever, the employee then filed a complaint of fraud to the detriment of elderly care patients. The enterprise initially terminated the employee’s employment relationship by ordinary termination on grounds of her multiple absences due to illness and subsequently, after the complaint became publicly known, by extraordinary termination.

The German courts – with the exception of the Labour Court of Berlin – deemed the public disclosure to be a gross violation of the employee’s loyalty obligations and upheld the immediate termination. However, the ECHR deemed it an infringement of the employee’s freedom of opinion on the basis that, despite the fact that the allegations raised were suited to damage the reputation and business interests of the enterprise, this aspect would have to stand down in view of the public’s right to be informed. For this reason, the ECHR considered the immediate termination to be unreasonable and subsequently awarded the plaintiff compensation.

It remains to be seen how the German courts will react to the judgement. A parallel focus hereto will be the legislative development in Germany, as the regulation of special protective measures for whistleblowers by the end of the year 2012 was promised within the scope of the G20 action plan against corruption. The SPD has already announced for the coming autumn a draft bill which should strengthen the rights of whistleblowers.

Also noteworthy in this connection is the recent entry into force of a new whistleblowing programme of the American Securities and Exchange Commission (SEC), pursuant to which persons who notify violations of US stock exchange regulations are given greater protection. In addition thereto, the premium payments envisaged herefor have been increased, thus encouraging the prompt and detailed notification of violations.

Dr. Alexander Willemsen

3. Announcement of an inability to work and extraordinary termination

If an employee announces a future inability to work in the event that the employer fails to comply with an unjustified holiday demand or in the event of other conduct of the employer, this can represent a good cause (“wichtiger Grund”) for an extraordinary termination of the employment relationship. The employment contractual obligation to pay due consideration prohibits the impermissible exertion of pressure. This corresponds to the previous case law of the Federal Labour Court.

According to a most recently published decision of the Hessian Regional Labour Court (judgement dated 15 April 2011, docket no. 3 Sa 1126/10), however, this does not automatically apply. The Hessian Regional Labour Court had to decide in a case where an employee initially refused to take on courier journeys due to the fact that this activity would cause him pain and would result in his absence from work on the following day due to illness. The plaintiff had indeed only recently returned to work – and was fit for work according to his doctor’s certificate – after several weeks’ convalescence due to a slipped disk. All the same, the employee undertook the courier journeys as instructed but then called in sick again as of the following day. The employer took this as grounds to terminate his employment relationship without notice. The complaint was successful both in the first and second instances.

In the opinion of the Hessian Regional Labour Court, an extraordinary termination cannot be justified if the employee was able to assume at the time of his announcement that if he was assigned certain tasks his objectively existing primary illness would deteriorate and he would have to be written off sick again. Especially if the employer is aware of the primary illness, he may only understand such an announcement by the employee as an expression of the employee’s fear that a worsening of his primary illness can be expected. At the same time, the Hessian Regional Labour Court stressed that the individual circumstances must always be considered in each case.

This decision shows yet again that the unconditional reason for termination simply does not exist. Since the Emmely decision of the Federal Labour Court dated 10 June 2010 (docket no. 2 AZR 541/09) at the latest, which we already reported on in another issue, the need to conduct an extensive examination in the individual case has certainly been highlighted. For employers, the prospects of success of an extraordinary termination therefore remain difficult to assess.

Kathrin Vossen

4. Qualified differentiation clauses in collective bargaining agreements are invalid

The Federal Labour Court ruled by judgement dated 23 March 2011 (docket no. 4 AZR 366/09) that qualified differentiation clauses in collective agreements in the form of so-called “adjustment clauses” (Spannklausel) are invalid. Since August, the reasons for the judgement to this long-awaited decision of the Federal Labour Court have become available:

In the said case the parties to the litigation had concluded a collective agreement on the granting of a recuperation allowance of 260 euro per year, which was to be granted exclusively to union members (so-called simple differentiation clause). According to the collective agreement, should the employer grant amounts or benefits to non-union members corresponding to or exceeding this claim, the employer’s payment to the union members should additionally increase accordingly (so-called qualified differentiation clause in the form of an adjustment clause).

In the decision the Federal Labour Court confirmed its previous case law to the effect that the agreement of a simple differentiation clause which envisages special benefits only for union members is permissible. In contrast, however, it deemed a qualified differentiation clause in the form of a so-called adjustment clause to be invalid. Namely, such an agreement exceeds the collective bargaining power of the parties to the collective agreement. They are not authorised to restrict the employer’s individual contractual structuring possibilities with mandatory effect, especially concerning employees who do not belong to an organisation or who are members of in another organisation. The adjustment clause, however, – as intended – makes it legally impossible for the employer to pay non-organised employees the same pay as that of union members, even if it intends to put them on an equal footing. Such a qualified differentiation clause is therefore invalid.

Isabel Hexel

Business year 2012 – cost block company retirement pension

For many enterprises the new business year 2012 already begins on 1 October, whilst those enterprises for which the business year commences as of 1 January are often still frequently occupied with budget planning. For many enterprises, a cost block that should not be neglected within the scope of the personnel costs in the new business year as well is that of the company retirement pension. On grounds of the introduction of unisex tariffs stipulated by the European Court of Justice (ECJ) as per 21 December 2012 at the latest, this can cause extra costs which should not be disregarded.

On 1 March 2011 the ECJ already decided (case C-236/09) that the indefinite exemption from the unisex regulations for different premiums and benefits for insurance contracts constitutes a contravention of European law. The regulation contained in Art. 5 para. 2 of the “Unisex Directive” and the corresponding transformations into the national law of the Member States – Germany: Sec. 20 para. 2 German General Non-Discrimination Act (Allgemeines Gleichbehandlungsgesetz, “AGG”) – may, according to the Luxembourg judge, no longer be applied with effect as of 21 December 2012. (Council Directive 2004/113/EC implementing the principle of equal treatment between men and women in the access to and supply of goods and services). With this, the insurance industry will have to offer gender-neutral premiums and tariffs in future.

Although no ECJ decision is available on the Directive governing equal treatment within an employment relationship (Council Directive 2006/54/EC on the implementation of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation), the decision of 1 March 2011 has direct effects on company retirement pensions. Unisex tariffs will have to be applied to the indirect implementation methods of direct insurance and pension funds as well as in cases of reinsured benevolent funds and direct pension promises which are congruently reinsured and where the content of the pension promise is oriented on the reinsurance.

Bearing in mind the qualifying date falling during the business year 2012, with the aforesaid methods of implementation benefit plans and tariffs of company retirement pensions will have to be carefully examined and the additional costs required calculated. In addition thereto, further factors to be considered are the expenditure for adjusting the benefit plans and the discussion of the corresponding changes with works council. Without a correction of previously existing, gender-specific premiums and benefits, then a risk of facing legal action will exist at the latest as of 21 December 2012. Finally, may we mention that unisex tariffs have already been applied since 2006 for the majority of pensions of the state-run pension scheme “Riesterrente”, with the result that no action need be taken in this case.

Jörn Kuhn