Newsletter Employment Law III/2015
It is and will remain inevitable within the field of labor law practice to deal with the current developments in European labor law at an early stage. We would like to draw your attention to the most recent decisions by the European Court of Justice [ECJ] which clearly demonstrate this need. The ECJ has for instance extended the concept of ‘worker’ again to include external directors and trainees within the scope of collective redundancies. Whether the said decision opened Pandora’s box and directors will in future be regarded as workers also within the scope of the German law relating to the protection against unfair dismissal remains to be seen. However, employers are in any case required to take ever more care, not only within the scope of calculating the threshold of workers but also – as shown in the following – to avoid company practices and even when giving notice of dismissal in small-sized companies.
1.1 Notification of collective redundancies must take GmbH directors into account
1.2 Time spent travelling by a field worker without a fixed or habitual place of work is working time
1.3 Opinion of the European Commission on permanent assignments of temporary agency workers
1.4 Company practice also in respect of special payments of varying amounts
1.5 Choose your words carefully! Ageist dismissal in small-sized companies
1.6 Composition of the co-determined supervisory board taking account of workers employed abroad
The ECJ has recently decided that external directors of a GmbH [German limited liability company] as well as trainees have also to be qualified as workers within the meaning of the European Collective Redundancies Directive (98/59/EC) (judgment of 9 July 2015 – C-229/14). Thus, they have to be taken into account in the thresholds for collective redundancies subject to the obligation to issue a notification.
The proceedings before the referring Labor Court of Verden were based on an action for protection against dismissal. Due to a closure of an establishment, the defendant had dismissed all workers for operational reasons without giving a prior notification of collective redundancies, since it assumed that it did not exceed the thresholds provided in Section 17 KSchG [German Act relating to protection against unfair dismissal] as it regularly employed 19 workers in its establishment. The plaintiff brought an action for protection against this dismissal. As the defendant also employed the director L, who did not hold any shares in the company, as well as Ms. S, who was undergoing training to re-qualify as an office assistant funded by the local employment agency and received the whole of her remuneration for the training from the Federal Employment Agency, the Labor Court referred the issue to the ECJ for a preliminary ruling whether these two persons were workers within the meaning of the Collective Redundancies Directive.
The ECJ decided that both the managing director L and the trainee Ms. S had to be regarded as workers within the meaning of the European Collective Redundancies Directive. The concept of ‘worker’ provided for in Article 1 (1) a) of the Collective Redundancies Directive had to be given an autonomous and independent meaning in the EU legal order. It is irrelevant whether said persons are regarded as workers also under national law. Rather, the concept of 'worker' had to be defined in accordance with objective criteria. The essential feature of an employment relationship was that, for a certain period of time, a person performed services for and under the direction of another person, in return for which he received remuneration, the Court stated. These conditions were met by the director L. For he was in a relationship of subordination to the capital company within the meaning of the ECJ’s settled case law in his capacity as director of that company who could at any time be removed from his duties against his will, who carried out his activities under the direction or supervision of another body of that company, who received remuneration for his services provided and did not hold any shares in that company, and thus satisfied the criteria for being treated as a ‘worker’ within the meaning of EU Directive. Ultimately, the concept of ‘worker’ had to be interpreted broadly due to the objective of the Directive to reinforce in particular the protection of the workers in the event of collective redundancies.
Also trainees and apprentices had to be regarded as ‘workers' in that respect, the Court found. The concept of ‘worker’ in EU law extended to a person who served a traineeship or periods of apprenticeship in an occupation, provided that the periods were served under the conditions of genuine and effective activity as an employed person, for and under the direction of an employer. In that context, the origin of the funds from which the person was remunerated was irrelevant, it stated.
In labor law practice this means that in future also external directors of a GmbH as well as trainees have to be taken into account in calculating the thresholds pursuant to Section 17 KSchG to determine whether the collective redundancies are subject to the obligation to issue a notification. The provision included in Section 17 (5) No. 1 KSchG that members of the body of legal entities are not regarded as workers within the meaning of Section 17 KSchG is thus inconsistent with EU law and has to be construed in conformity with European Community Law. This will not only entail that essentially more notifications of collective redundancies will be required but also that the dismissal of said persons has to be notified to the Federal Employment Agency if they are to be removed within the scope of collective redundancies.
However, it has to be assumed that the legal qualification of external directors and minority directors as workers will not only have consequences for the notification of collective redundancies. This decision by the ECJ ultimately only continues its previous settled case law (cf. e.g. decision of 11 November 2011 "Danosa", C-232/09), so that in case of doubt the concept of 'worker' will always have to be interpreted broadly if the applicable law is based on Union law such as the AGG [German General Equal Treatment Act], TzBfG [German act on part-time work and fixed-term contracts] or ArbZG [German Working Hours Act]. Whether this decision opened Pandora’s box and the German courts will extend this tendency also to the German protection against unfair dismissal remains to be seen.
1.2 Time spent travelling by a field worker without a fixed or habitual place of work is working time
The ECJ has further decided that the time spent travelling by a field worker from his home to the first customer and from the last customer to his home had to be considered as working time within the meaning of the Working Time Directive (2003/88/EC). This at least applied to a field worker who did not have a fixed or habitual place of work (judgment of 10 September 2015 - C-266/14).
Upon the request by a Spanish court for a preliminary ruling, the ECJ decided that the time spent traveling by the field worker constituted working time. The proceedings related to workers of a company which maintained and installed security systems to detect burglaries at customers’ premises in a territory assigned to them in Spain. Contrary to the practice existing until 2011, the workers had at last no more been assigned to a fixed place of work. Since then, the workers travelled from their home directly to the first customer and from the last customer to their home, partially covering distances of up to 100 km for each journey. The workers received a list of the customers they had to visit on the following day by mobile phone. Moreover, the employer could also give instructions to the workers during the working day.
The ECJ found that the time spent travelling between the home and the first and last customer, respectively, constituted working time. First of all, the Court made it clear that a period had to be classified either as working time or as rest period in accordance with Article 2 of the Directive. Working time was any period during which a worker was at work, was at the employer’s disposal and carried out his activities or performed his duties pursuant to the national laws. Even if the principal duty of the workers consisted of the maintenance and installation of security systems, the journey to the customer was a necessary means of performing the principal duty on the customer’s premises. Thus, the workers performed their duties also during the traveling time, the Court found. During those journeys, the workers acted on the instructions of the employer, who might change the order of the customers or cancel an appointment. Thus, those workers were not able to use their time freely and pursue their own interests, so that it had to be assumed that that time constituted working time.
The ECJ’s ruling directly impacts the German labor law. The ArbZG [German Working Hours Act] is also based on the implementation of the European Directive which is underlying the proceedings on the Spanish regulation. The ECJ has now clarified the issue controversially discussed so far whether time spent traveling from the workers’ home to the first customer and from the last customer to their home constitutes working time within the meaning of Section 2 (1) ArbZG – at least for workers without a habitual or fixed place of work. Against the background of this ruling, employers have to ensure that they observe the daily maximum working hours and the rest periods in particular when employing field workers.
After the European Court of Justice had failed to give an opinion on the interpretation of the concept of ‘temporarily’ in the Temporary Agency Work Directive (2008/104/EC) in its decision of 17 March 2015 (C-533/13), the Commission has now seized the opportunity to give its opinion within the scope of appeal proceedings (CHAP (2015) 00716).
The background of the appeal proceedings is the action brought by a temporary agency worker before the Regional Court of Berlin against the Federal Republic of Germany for damages arising from the insufficient implementation of the Temporary Agency Work Directive (ref. no. 28 O 6/15). The plaintiff has worked for more than eight years as a temporary agency worker in a hospital in the same job. She receives her remuneration in accordance with the collective agreements applicable to temporary agency work, so that her pay is considerably lower than the pay of the permanent staff. In her action for damages she claims the difference in pay accrued during the last three years. In her opinion, the German legislator had failed to prevent the permanent use of temporary agency workers on worse conditions, for which reason she was entitled to claim damages under Union Law aspects. In early 2015, the plaintiff additionally requested the European Commission to initiate infringement proceedings against the Federal Republic of Germany, setting out the same reasons. In mid-March 2015 the Commission initiated preliminary examinations in this case.
Meanwhile, an opinion of the Commission on the appeal proceedings and thus on the interpretation of the Directive has been made available. The Commission will abstain from initiating infringement proceedings for lack of any infringement of the provisions under EU law and close the appeal proceedings. The Commission set out the reason that the Directive did not provide for any limitation of the duration of the assignment of temporary agency workers to user undertakings. The protection afforded by the Temporary Agency Work Directive also applied to temporary agency workers who worked within the scope of a long-term assignment for a longer period under the supervision and direction of one and the same user undertaking, it stated. As the Directive did not require Germany to determine a maximum period for the assignment of temporary agency workers to user undertakings, the lack of such a limitation in the national regulations on the implementation of the Directive did not infringe its provisions.
The opinion of the Commission may influence the plans of the German federal government to implement a maximum period of 18 months for the assignment of temporary agency workers in the German Act on Temporary Agency Work (AÜG) in the future. If it is assumed that the Commission also regarded the permanent assignment of temporary agency workers as admissible, it will probably be difficult to justify such a legal limitation. We are eager to see whether the Federal Labor Court (or the lower courts) will deviate from its decision of 10 July 2013 (Federal Labor Court, NZA 2013, 1296) according to which the AÜG prohibits temporary agency work for a non-temporary period.
If the employer regularly (in the present case: over three years) grants a benefit called "special payment" in varying amounts without reservation at the end of the year the employee may conclude that it is a binding offer by the employer within the meaning of Section 145 BGB to effect an annual special payment. The employer may determine the amount of the annual special payment at his or her equitable discretion. If the employee leaves the company before the end of a year, he or she is entitled to claim such special payment pro rata temporis if the special payment (also) constitutes remuneration for work and services already performed (Federal Labor Court, judgment of 13 May 2015, ref. no. 10 AZR 266/14).
In the case underlying the decision, the plaintiff claimed a special payment amounting to €12,500.00 gross. The plaintiff was employed as site manager at the defendant from 1 May 1992 to 19 November 2010. In 2007, 2008 and 2009 the plaintiff received an amount indicated as “special payment” from the employer in addition to the payment of his salary for December and the Christmas allowance. These payments amounted to €10,000.00 (gross) in 2007 a well as to €12,500.00 (gross) in 2008 and 2009. In November 2010, the employment relationship between the plaintiff and the defendant was terminated. The plaintiff did not receive any special payment for 2010.
The Federal Labor Court now found that a benefit granted without reservation in varying amounts constituted a binding offer of the employer within the meaning of Section 145 BGB which the employee had accepted according to Section 151 BGB. For the employee did not need to draw the conclusion from the amount of a non-uniform special payment that the employer did not intend to commit himself on the merits. The employer’s intention to commit himself in particular resulted from the fact that the employer had decided only on the amount of the special payment each year, the Federal Labor Court stated. Moreover, the Federal Labor Court held the view that the specific special payment was a claim by the employee for his work and services performed and not a gratification of his loyalty to the company, since the special payment amounting to approx. 15 per cent of the overall remuneration made up a considerable part of it, and a Christmas allowance had been paid in addition. In this decision, the Federal Labor Court diverged from its former case law according to which periodical benefits in varying amounts did precisely not indicate any intention of the employer to legally commit himself to grant the benefits in future (Federal Labor Court, judgment of 28 February 1996, ref. no. 10 AZR 516/95).
Due to this decision, employers will not be able anymore to avoid the binding nature of an annual payment for the future by effecting the “voluntarily paid benefit” in varying amounts each year. In such a case, it is only at the employers' discretion to decide on the amount of the future payment (how payment is made) but not on the general obligation to grant the benefit (whether the benefit is paid).
It seems advisable to all parties participating in working life to be increasingly aware of the characteristics of discrimination set forth in Section 1 AGG at least since the German Equal Treatment Act (AGG) has entered into force in 2006. In particular the characteristics related to age, disability, sex and ethnic origin are regularly the subject matters of legal disputes before labor courts. The extent of sensitivity required is demonstrated in the case on which the Federal Labor Court has recently decided (Federal Labor Court of 23 July 2015, ref. no. 6 AZR 457/14):
Besides the plaintiff aged 63 years at the time of dismissal a medical group practice employed four other employees who were all younger than the plaintiff. The shareholder of the group practice terminated the employment contract made with the plaintiff due to changes in the business organization. The notice of dismissal read, amongst others, as follows:
We have been working together for more than 20 years now. We have made many experiences in that period and also went through a lot of changes. Meanwhile you have become eligible for pension and we are entering a new phase of life in the practice. We will see considerable changes in the laboratory area next year. This requires a restructuring of our practice.
Therefore, we have to terminate the employment contract made between us with effect as of 31 December 2013 subject to the contractual notice period. (...)“
The plaintiff challenged the effectiveness of the notice of dismissal claiming that it was discriminatory on the grounds of age and claimed compensation on that basis.
The German Act relating to protection against unfair dismissal [KSchG] did not apply to the employment relationship, since the sued practice did not employ the number of employees required for its application (cf. Section 23 KSchG). However, also in a so-called “small-sized company” employees are protected from the employer exercising the right of termination in bad faith or from dismissal which is ineffective for other reasons.
While the Higher Labor Court of Saxony as court of lower instance deemed the dismissal a discrimination of the plaintiff on the grounds of age, however also regarded it as justified on the grounds of the plaintiff’s eligibility for pension and the protection of younger employees (cf. Section 10 AGG), the Federal Labor Court denied this justification. The Federal Labor Court held that the dismissal contravened the prohibition of discrimination provided in Section 7 AGG and was thus ineffective. The respondent had not provided sufficient evidence that there was no age discrimination which had to be presumed due to the mention of the “eligibility for pension”, it stated. As the Federal Labor Court could not decide on the issue whether and to which amount the plaintiff was entitled to claim the compensation sought, if any, it remanded the case to the Higher Labor Court of Saxony.
The judgment has so far been published in a press release only. As soon as the reasons for the decision are available, it will have to be examined why the Federal Labor Court did not accept the eligibility for pension as a characteristic of differentiation. For the legislator acknowledges in Section 10 sentence 3, Nos. 5 and 6 AGG that the receipt of pensions is a criterion for the difference in treatment.
Apart from the above, the decision clearly illustrates again that employers should limit their notice of dismissal to declaring the dismissal and should avoid any additional indication to the backgrounds. Friendly explanations are in any case out of place and might be detrimental as shown in this case. In general, there is no need to give reasons for the notice of dismissal.
The Regional Court of Frankfurt am Main issued a spectacular order on 16 February 2015 (ref. no. 3-16 O 1/14) sparking a dispute again which had actually been settled as to whether employees of foreign subsidiaries have to be taken into account in determining the company size which is relevant for the application of the provisions of the corporate co-determination. The statement of reasons for the judgment is not convincing and will hardly be upheld.
The backgrounds of the proceedings have already been odd: The applicant, a professor of labor law and civil law as well as the director of the Zentrum für Arbeitsbeziehungen und Arbeitsrecht [Centre for Labor Relations and Labor Law] at the University of Munich, based his right to file the application on 100 nominal shares in the respondent, Deutsche Börse AG. He alleged that the supervisory board of the company, one-third of which was constituted of employee representatives, was not composed pursuant to the legal provisions since the German One-Third Participation Act was inconsistent with EU law and was thus inapplicable. The Regional Court found in its statement of reasons that the applicant primarily had a scientific interest in the outcome of the legal dispute and assumed that he had acquired the shares only because he was interested in the declaratory judgment sought.
The proceedings had a surprise outcome – at least in the first instance – which was completely different from what the applicant had hoped for: The Regional Court held that it was not a supervisory board one-third of which was composed of employee representatives according to the German One-Third Participation Act (as was the status quo at the respondent) which had to be established but a supervisory board constituted on a basis of parity according to the German Co-Determination Act. It set out the reason that the respondent had a total of 1747 workers employed in foreign subsidiaries who had to be added to the 1624 workers employed in Germany.
This decision has triggered considerable criticism within a short time: Without giving any sound reasons the Regional Court has overridden the opinion prevailing for many years that due to the principle of territoriality only the workers employed in German group companies had to be considered in the calculation of the thresholds defined in the German One-Third Participation Act or the German Co-Determination Act. Insofar the considerations made by the Reginal Court as to the wording of the Act and its systematics – which allegedly negate the principle of territoriality – are not convincing, above all since the Regional Court acknowledges itself that the legislative material relating to the German Co-Determination Act indicates that the legislator precisely intended that principle. A reference made to a previous decision (Regional Labor Court of Frankfurt a. M. of 1 April 1982, ref. 2/6 AktE 1/81) which obviously related to an individual case rather supports the prevailing opinion.
It is not only for the applicant that the decision of the Regional Court rather is a reformatio in peius: This casts doubts on a long-held unanimous concept and many German companies having subsidiaries abroad must now ask themselves whether they might have to establish a co-determined supervisory board. The decision by the Higher Regional Court of Frankfurt a. M. – where the appeal filed by the applicant is presently pending – is eagerly expected before the end of this year.
Dr. Alexander Willemsen
Since As announced in our last newsletter, the 7th Labor Law Day will take place in our Cologne office on 29 October 2015.
This year’s event will focus on personnel recruiting, the new Tarifeinheitsgesetz [German act relating to collective agreement uniformity], staff assignment within the group as well as on topical issues from the labor case law.
We would be very pleased to welcome you on this day in our office to participate in interesting presentations and lively discussions.
Dr. Gilbert Wurth
Telephone: +49 221 2091 351 / 381
Telefax: +49 221 2091 333
Telephone: +49 221 2091 351
Telefax: +49 221 2091 333
Telephone: +49 69 707968 140
Telefax: +49 69 707968 111
Telephone: +49 221 2091 348
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Recent matters we advised on include:
Arbitration proceedings between a Belgian and a Singaporean company concerning the delivery of parts for a big industrial complex to be erected in China.
Dr. Alexander Willemsen
Telephone: +49 221 2091 551
Telefax: +49 221 2091 333