Newsletter Labour Law, IV/2011

The year 2011 has passed without the entry into force of the Employee Data Protection Act expected by so many. In retrospect, therefore, the development of labour law has been without substantial innovations this year. Apart from the amendment of the German Temporary Employment Act [Arbeitnehmerüberlassungsgesetz, AÜG] and the German Family Care Leave Act [Familienpflegezeitgesetz, FPfzG] which will enter into force on 1 February 2012 (see under 2.2 below), the legislator has set no noteworthy initiatives into motion.

Case law, in contrast, has provided welcomed clarifications and dispelled areas of doubt. Worthy of particular mention in this connection is the decision of the Federal Labour Court [Bundesarbeitsgericht, BAG] on the prohibition of prior employment in case of employment relationships which have been limited to a specific term for no material reasons (more on this topic in Newsletter II/2011). The ECJ also recently corrected and clarified its very critically viewed case law on the holiday claims of employees unable to work on grounds of a long-term illness (see 1.2 below). We have explained below which specific recommended actions arise out of this judgement, as well as additional decisions of interest.

1. Current Case Law

1.1 No right of consent of the works council pursuant to Sec. 99 German Works Constitution Act [Betriebsverfassungsgesetz, BetrVG] in case of relocations during industrial action

In the event that employees from a business that is not strikebound are relocated to a strikebound business of the same employer, the works council of the supplying business does not have the right to refuse its consent pursuant to Sec. 99 BetrVG.

On 13 December 2011 the Federal Labour Court had to decide whether the consent of the works council of the supplying – not strikebound – business was required in a case where employees were relocated to a strikebound business at the employer’s instigation in order to combat such strike. The Federal Labour Court ruled in favour of the employer, which had not obtained the consents (docket no.: 1 ABR 2/10).

To the extent evident from the currently available press release, a decisive consideration for the Federal Labour Court was dispute parity. The requirement that the works council must be heard and its consent obtained pursuant to Sec. 99 BetrVG is linked to difficulties which impair the employer’s strike defence measures and thus its dispute parity. This is irreconcilable with Art. 9 para. 3 German Constitution [Grundgesetz, GG]. Not considered a decisive factor by the Federal Labour Court was whether the strike was aimed at the conclusion of an industry-wide collective agreement [“Verbandstarifvertrag”] or a company collective agreement specific to the business [“betriebsbezogener Haustarifvertrag”]. However, also during industrial action the employer must notify the works council in good time and comprehensively pursuant to Sec. 80 para. 2 p. 1 BetrVG on the employees it calls in as a strike defence measure.

The Federal Labour Court has therewith once again confirmed that the employer must retain a certain degree of freedom in how it deploys its staff during industrial action to ensure it does not face union strike measures – perhaps also at other businesses of its enterprise – without any own means of remedy. If sufficient employees who are willing to work are available, then this makes it possible to flexibly mitigate the impairments to operations resulting from the strike measures.

Kathrin Vossen

1.2 ECJ on the holiday claims of employees unable to work on grounds of a long-term illness

The decision in the case Schultz-Hoff (judgement dated 20 January 2009 – docket no. C-350/06), with which the ECJ declared that it is not permissible to limit the term of the claim to holiday or payment in lieu of holiday of an employee unable to work on grounds of a long-term illness, created considerable financial risks for enterprises and, not only for this reason, was the subject of serious criticism. As already announced (cf. Newsletter III/2011), the ECJ has now used a further preliminary ruling to correct its case law and give the employer some points of orientation as to when a claim to payment in lieu of holiday validly expires.

According to the factual situation underlying the decision, the claimant had a holiday claim of 30 working days per year pursuant to the standard industry-wide collective agreement [Einheitlicher Manteltarifvertrag, EMTV] applicable to his employment relationship. In January 2002 the claimant had a heart attack, as a result of which he was declared severely disabled and unable to work. From October 2003 onwards he drew a pension on grounds of a full reduction in his earning capacity and ultimately retired from his employment relationship as per 31 August 2008. In March 2009 the claimant claimed compensation of the paid minimum annual holiday for severely disabled of a total of 25 working days for the years 2006, 2007 and 2008. The employer pleaded the collectively agreed maximum period for carrying over holiday claims of 15 months.

Whereas the case was successful in the first instance, the Regional Labour Court [Landesarbeitsgericht, LAG] of Hamm, which handled the appeal, suspended the proceedings and essentially presented the ECJ with the question of whether or not a carry-over period of 18 months is reconcilable with European law (in this case, Directive 2003/88).

The ECJ initially declared such a regulation to be invalid in application of its case law in the matter Schultz-Hoff (judgement dated 20 January 2009 – docket no. C-350/06) and that it does not lead to an expiry of the holiday claim. Nevertheless, it saw cause to “nuance” this case law: the employee’s interest in having a period for relaxation and free time must be weighed against the risk of the accumulation of excessively long periods of absenteeism for the employer’s work organisation. The employee’s protected interest requires that the carry-over period clearly exceeds the duration of the reference period for which the holiday claim is granted. At the same time, however, the carry-over period must also prevent an excessive “hoarding” of holiday claims. In the opinion of the ECJ, a carry-over period of 15 months meets these requirements.

The judgement of the ECJ has provided the long sought after legal clarity. The feared incalculable cost burdens arising from an unlimited retroactive consideration of payment in lieu of holiday for employees with a long-term illness should be excluded in future, insofar as the collective partners ensure as soon as possible that carry-over periods of a term of at least 15 months (in particular in the event that it is impossible for an employee to take holiday on grounds of his illness) are incorporated into the collective agreements.

Dr. Alexander Willemsen

1.3 Absolute exclusion of termination in the event of a declaration of waiver of termination

A current decision of the Regional Labour Court of Düsseldorf dated 23 November 2011 (docket no. 12 Sa 926/11) makes it quite clear that the declaration of a waiver of termination made by an employer is absolute and, during the period of applicability of such waiver of termination, can justify neither an ordinary nor extraordinary termination for operational reasons if such employer already offered the waiver of termination as counter-performance in a difficult economic situation. What is new in this connection is that, according to the findings of the Regional Labour Court of Düsseldorf, expressly extraordinary terminations for operational reasons are excluded herefrom.

The basis for the decision is that the sued employer had excluded ordinary terminations for operations reasons until 31 December 2011 on grounds of a service agreement. This was counter-performance for the employees having waived their Christmas bonus and thus making it possible for personnel costs to be reduced. All the same, in January 2011 the employer declared terminations following the conclusion of social selection guidelines and a social plan, because – according to the sued employer – unexpectedly high collective wage increases had raised the personnel costs even further. In the opinion of the Regional Labour Court of Düsseldorf the declared extraordinary terminations for operational reasons were not justified. Firstly, the waiver of termination was not cancelled by the conclusion of the social selection guidelines and the social plan. Secondly, the employer could not extraordinarily terminate the employment relationship for operational reasons because in that particular case the waiver of termination had already been agreed in knowledge of a difficult economic situation. The employer’s insolvency risk was not a tenable argument in justification of the terminations.

The decision of the Regional Court of Düsseldorf must also be seen in the context of the reform of insolvency law. According to the legislator’s intention, the aim of an insolvency is to restructure the enterprise as opposed to winding it down. This legislative intent will be reinforced even further with the new statutory provisions coming into force next year on the facilitated restructuring of enterprises [Gesetz zur weiteren Erleichterung der Sanierung von Unternehmen, ESUG]. With this, restructuring concepts and the pertaining coordinated labour law measures such as collective restructuring agreements will take a prevailing position. However, a waiver of the declaration of terminations for operational reasons – and this notwithstanding the ESUG – is and remains an exception.

Jörn Kuhn

1.4 Immediate termination of the employment relationship also possible during garden leave

The Hessian Regional Labour Court (judgement dated 29 August 2011 – 7 Sa 248/11) decided that an employee can also be declared the immediate termination of his employment relationship if he has been released from his employment duties until the end of the termination notice period or the agreed end of the employment relationship.

According to the underlying factual situation, the claimant had worked since October 2008 as a company account manager at a Düsseldorf bank, and since April 2009 had general power of representation [“Prokura”]. By cancellation agreement of 16 June 2010, the parties agreed to end the employment relationship as per 31 December 2010 and to release the claimant from his employment duties as of 1 July 2010 until the agreed termination date. On 29 and 30 June 2010 the claimant sent a total of 94 e-mails with ca. 622 megabytes in 1660 file attachments from his work e-mail mailbox to his private e-mail mailbox at gmx.de. The file attachments contained data relating to the customers handled by the claimant, documents in which the credit lines granted to an enterprise as well as loans taken out were listed, as well as risk analyses for various enterprises, credit agreements and other data subject to bank secrecy. On 7 July 2010 the defendant was informed of the data transfer by its data protection committee. On 20 July 2010 it terminated the employment relationship of the claimant without notice.

The Labour Court [Arbeitsgericht, AG] of Frankfurt am Main initially deemed the termination to be invalid, whereas the Hessian Regional Labour Court dismissed the case in the second instance. The decision is remarkable because, prior to declaring an immediate termination, one generally must make a prognosis as to how the employee will conduct himself in the future. In this case, the claimant argued that, due to the fact that he had been released from his employment duties until the agreed end of the employment relationship, the risk of repetition was virtually excluded since he would no longer be rendering any employment services for the defendant in any event, nor would he have access to protected data. The Hessian Regional Labour Court, however, felt that the trust placed in the claimant by the defendant had been so seriously breached by fact that he had taken secret bank data that one could not reasonably expect the defendant to adhere to the employment relationship and continue to pay his salary until the agreed end of the employment relationship.

The decision makes it clear that serious breaches of trust during garden leave certainly do justify the immediate termination of the employment relationship, even if a repetition is not to be expected because the employee concerned has been released from his employment duties. Although the garden leave can often be seen as the factual end of an employment relationship, the employee is nevertheless obliged to fulfil his contractual obligations which continue to apply until the date of the end of said relationship, with the result that serious breaches of trust most certainly also do permit the declaration of an immediate termination during this end phase of the employment relationship.

Dr. Alexander Willemsen

1.5 Temporary agency workers also to be included in the calculation of the threshold value within the meaning of Sec. 111 sentence 1 BetrVG

Pursuant to Sec. 111 sentence 1 BetrVG, in the event of changes in the operational business of an enterprise which regularly has more than 20 employees with voting rights, employers must consult with the works council on a compromise of interests. When determining this threshold value, temporary agency workers working at the enterprise for longer than three months must be taken into consideration even though they do not have an employment relationship with the hiring enterprise.

This was decided by the Federal Labour Court by judgement of 18 October 2011 (docket no.: 1 AZR 335/10) and therewith confirms the opinion previously already held in legal literature. If no consultation takes place, then employees terminated during the course of the change in business operations have a claim under Sec. 113 para. 3 BetrVG to compensation for the disadvantage incurred by them. In the factual situation to be decided by the Federal Labour Court, the employer regularly employed 20 own employees as well as - since the beginning of November 2008 - one temporary agency worker. At the end of May 2009 the employer terminated the employment contracts of 11 industrial workers. It refused to negotiate with the works council on a compromise of interests. The claimant, who had been dismissed during the course of this change in business operations, sued the employer for compensation of the disadvantage incurred by him. The reduction of jobs represented a change in business operations that was subject to an obligation to agree on a compromise of interests, because – taking into consideration the temporary agency worker - the employer employed 21 employees – and thus more than 20 - with voting rights. The Federal Labour Court affirmed this.

For this reason, in case of envisaged changes in business operations in smaller enterprises attention must be paid to the number and term of employment of the temporary agency workers employed there, in order to avoid any claims to compensation for disadvantages suffered or a forbearance claim of the work council regarding the implementation of the planned measure without the observation of its co-determination rights.

Isabel Hexel

2. Developments in the Law

2.1 New law promoting mediation and other extrajudicial conflict-resolution proceedings

At the present time, labour law jurisdiction already strives even more than other jurisdictions to resolve disputes by trying to procure a settlement between the parties. In the course of the “draft bill to promote mediation and other extrajudicial conflict-resolution proceedings” now unanimously adopted by all fractions of the German Bundestag at its session on 30 November 2011, this will be reinforced in future by the possibility of mediation. Since the new statutory provisions are expected to have a direct effect upon judicial proceedings with the entry into force of the act, may we explain several key factors here:

Mediation is practised in three forms: internal court mediation, mediation closely related to court proceedings and extrajudicial mediation. Internal court mediation has also already been practised as a rule in labour law proceedings.

In the newly created Mediation Act the bases of mediation will be regulated; in particular the role of the mediator will be clarified in terms of the minimum requirements (cf. Draft Mediation Bill [Mediationsgesetz-Entwurf, MediationsG-E]).

To be specific, in future the labour court can suggest during labour court proceedings that extrajudicial mediation or mediation closely related to the court proceedings be conducted. Should the parties decide in favour hereof, the proceedings will be suspended for the duration of the mediation; after three months the court is obliged to recommence the proceedings unless both parties state that they envisage the conclusion of a settlement (sec. 54a para. 1 and para. 2 German Labour Courts Act, new version [Arbeitsgerichtsgesetz neue Fassung, ArbGG nF]).

In future, mediation in labour court proceedings shall not only encompass individual proceedings, but also court order proceedings (e.g. between employer and works council) (Sec. 80 para. 2 sentence 1 ArbGG nF).

The practical effects can be described in such a way that, in case of expected future court disputes, one will always have to consider how a court mediation proposal should be handled. On the one hand such mediation can procure the final resolution of the conflict, on the other side, however, it requires far greater time and expense even if it fails. Incidentally, the draft bill does not address the question of the mediator’s remuneration; more often than not the employer will be expected to assume the costs. In court order proceedings which end in a mediation, it is evident that the costs are certainly to be borne by the employer.

Jörn Kuhn

2.2 Family Care Leave Act enters into force on 1 January 2012

On 1 January 2012 the new German Family Care Leave Act [Familienpflegezeitgesetz, FPfZG] enters into force.

In future, it should be possible under easier conditions for employees to reduce their weekly working hours to a maximum of 15 hours for a period of up to 24 months in order to care for close relatives. As opposed to “classic” part-time employment where the remuneration is also reduced accordingly, the FPfZG enables this to be conducted through a system of a long-term credit balance of working hours and a contribution towards the remuneration. In addition to receiving the part-time employment salary, the employee also receives an additional sum financed by the Federal Office for Families [Bundesamt für Familien].

The reduced working hours can subsequently be made up for through work or financial compensation at the end of the family care leave (post-care phase), insofar as the employee was not already able to save up working hours before taking the family care leave.

During the family care leave and post-care phase special protection against dismissal exists, i.e. termination is only possible with the consent of an authority.

The employee does not have an enforceable claim to family care leave. Hence, this already requires an agreement between the parties to employment contract. It therewith lies in the hands of the employer to decide whether or not it wishes to incur the increased administrative outlay associated with the family care leave.

Kathrin Vossen