Employer may not issue polemic reference letter as coercive measures may follow

While an employee’s enforceable claim to have a reference letter issued generally only covers the formal and substantial minimum requirements of such a letter, this does not apply if the employee is issued a reference letter which is stated in such a polemical and ironic way that its submission by the employee to a potential employer would expose the employee to ridicule. This decision was made by the Cologne State Employment Court in a decision dated 14 February 2017 (LAG Köln, docket no. 12 Ta 17/17). Employers who issue such polemical reference letters risk coercive measures such as penalty payments or imprisonment.

The legal dispute started with the dismissal of a housekeeper. In a settlement it was agreed that the employer would issue a benevolent and extended reference letter. As the employer did not issue the promised reference letter, the local employment court set a penalty payment in the amount of EUR 500 and, by way of substitute, imprisonment. While another dispute arose about the employer’s statement that he was unable to send the reference letter to the employee’s address, the employer issued a reference letter which referred to, among other matters, the housekeeper’s gender-dependent popularity and her inclination to take breaks whenever she felt the urge to.

During its examination of the claim, the court generally does not validate the content of the reference letter – this is subject to the general court proceeding and not the compulsory execution of a claim which has already been confirmed by the court. However, the State Employment Court held that the issuing of a grossly personal, polemical and ironic reference letter which exposes the employee to ridicule does not fulfill the minimum requirements which any detailed reference letter is subject to. For this reason, the “reference letter” issued by the employer did not constitute any fulfillment of the employee’s claim. A detailed reference letter violating these minimum requirements may rather be compared to a reference letter which contains no evaluation of performance at all – therefore, it may not fulfill the minimum requirements of a detailed reference letter.

Shortened notice period during probationary period requires clear language

German law allows a short notice period of two weeks during a probationary period, which can be agreed for up to six months. However, if the employment contract generally provides for a longer notice period, without making clear that this longer notice period only applies after the end of the probationary period, that longer notice period will also apply during the probationary period. Following this judgment by the Federal Labour Court dated 23 March 2017 (docket number: 6 AZR 705/15), employment contracts should therefore clearly specify the circumstances under which an extended notice period shall apply.

In this case, the employee had worked as a flight attendant for the employer since April 2014. Sec. 3 of his employment contract specified that the first six months of the employment relationship was a probationary period. Sec. 8 of the contract included a notice period of six weeks to the end of the month, without distinguishing between employment during and after the probationary period. The employer issued a dismissal letter on 5 September 2014, providing for a termination date of 20 September 2014. The employee subsequently successfully challenged the dismissal, which therefore only became effective on 31 October 2104.

Employer May Ban Employees From Wearing Headscarves

In a recent ruling made on March 14, 2017, the European Court of Justice (ECJ) decided (docket nos. C-157/15, C-188/15) that employers may prohibit staff from wearing Islamic headscarves under certain circumstances. The ECJ held that such prohibitions do not constitute “direct discrimination”; instead, limits on visible religious wear shall be considered permitted under EU law as long as all such items would be covered by a company policy. Any ban would thus need to cover crucifixes, kippahs and turbans too.

The court, however, additionally stated that such internal regulations would constitute indirect discrimination if employees of certain beliefs would be especially affected by the policy. Such a determination would need to be based on the employer’s desire to show clients that the employer’s company as a whole pursues the goal of religious neutrality. However, indirect discrimination is permissible if it is objectively justified by a legitimate aim. If the means of achieving it are appropriate and necessary, a company’s neutrality policy may thus remain in effect.

The decision followed the dismissal of two employees in Belgium and France who refused to remove their headscarves. The Belgian woman worked as a receptionist for a company that had an internal policy prohibiting the wearing of any religious attire. The French claimant, a design engineer, was dismissed after she refused to stop wearing the headscarf after a client had complained about her attire. Following the referral back to the French Court of Cassation, this court must now establish whether the employer’s policy was a genuine and determining occupational requirement.

Change in shareholders does not trigger ARD-implementing legislation

The Federal Labour Court has clarified that sec. 613a of the German Civil Code, which implements the Acquired Rights Directive into German law, does not apply in case of a change of shareholders (judgment of the Federal Labour Court dated 23 March 2017, docket number 8 AZR 89/15).

The parties had been in dispute about the correct amount of salary due to the employee. The employee’s contract included a provision according to which the provisions of a collective bargaining agreement were to apply “in their relevant form applicable from time to time.” The employing company had been sold to a different shareholder in 2002 and subsequently argued that following the decision of the European Court of Justice in Alemo-Herron (C-426/11), it would only be bound by the provisions of the collective bargaining agreement which were in place at the time it was acquired. While the impact of a transfer of business on clauses such as the one above is still unclear and cases regarding this issues are pending with the European Court of Justice, the Federal Labour Court highlighted that a share acquisition does not fall within the scope of the Acquired Rights Directive and, therefore, a transfer of business had not taken place. The employee was therefore entitled to remuneration as provided in the current form of the collective bargaining agreement.

Works council’s request to dismiss an employee qualifies as an urgent operational reason for dismissal

Under German law, the works council can request that an employer dismisses or reassigns an employee if the employee has violated the law or has grossly violated principles set forth in sec. 75 of the Works Constitution Act, such as by showing racist or xenophobic behavior in the workplace. If the employer does not comply with this request, the works council may apply for a court order instructing the employer to dismiss or reassign the employee.

In a judgment dated 28 March 2017 (docket number 2 AZR 551/16), the Federal Labour Court held that a court order instructing the employer to dismiss an employee qualifies as an urgent operational reason, which will justify the employee’s dismissal in subsequent unfair dismissal litigation. In this case, the works council had obtained a court order for dismissal, which the employer had complied with. While the order was not sufficient to justify an immediate termination for cause, the employee’s unfair dismissal litigation brought against the termination with notice was unsuccessful in all instances, as the court order was held to have a binding effect.

Non-compete clauses – No Compensation for Abstention – Severability Clause

Non-compete provisions valid for the period after an employment relationship has ended are invalid unless the agreement provides for a compensation payment of 50% of the employee’s former salary during the entire duration of the post-contractual non-compete obligation. This decision by the German Federal Employment Court (docket no. 10 AZR 448/15, dated March 22, 2017) was made after a plaintiff filed a claim for monthly compensation for abstention after she had her employment contract terminated.

The employment contract itself contained a paragraph in which the parties had agreed on a non-compete for a period of two years after the end of the employment relationship. During that period, the employee would not be allowed to work with any company that competes directly or indirectly with the employer. Failure to comply would result in an obligation on the employee to pay a fine of EUR 10,000.00. The agreement did not provide for a compensation payment. The contract’s collateral clauses contained a severability clause which required the parties to the contract to replace invalid provisions with valid provisions that resemble the original intentions of the parties as closely as possible.

Having abided by the non-compete provision, the plaintiff claimed retroactive payment of monthly compensation for abstention from competition. While both the Employment Court and the State Employment Court granted the claim, the Federal Employment Court denied the claim. Non-compete clauses containing no provision for abstention compensation are invalid and do not entitle any contractual party to any claim. As the court held, both parties are interested in knowing whether or not such a clause is valid at the beginning of the post-contractual period. Such knowledge cannot be gained on any side by looking at the contract alone; instead, legal assessments are required.

A severability clause may not alter the invalidity of the original contractual clause, rendering the non-compete provision valid. As the clause was invalid from the beginning, it did not entitle the plaintiff to any compensation for abstention. By issuing this decision, the Federal Employment Court made clear that commonly-used severability clauses which alter an invalid prohibitory non-compete clause into a valid clause connected with a claim for compensation are also invalid.

Reverse discrimination – permissible privileged treatment of working experience with the same employer

Being one of the four fundamental freedoms of the European Union’s internal market, the free movement of persons as defined by Art. 45 TFEU (AEUV) grants all citizens of the member states the right to work cross-border as well as protecting them from any discrimination compared to domestic workers. If a national provision is incompatible with one of the four freedoms it must be disapplied. However, according to the Court of Justice of the European Union (CJEU) these freedoms only apply in cases with a foreign connection. The consequence may be that national regulations might not apply to foreigners due to incompatibility with European law, yet residents of a member state might not be able to refer to these freedoms, if the issue does not show any foreign connection. This phenomenon is called reverse discrimination.

According to these principles the federal labour court (Bundesarbeitsgericht, BAG) ruled (23 February 2017 – docket number: 6 AZR 843/15) that a national Collective Bargaining Agreement (CBA) which prioritized working experience gained at the employer in comparison to equivalent times at other employers when it came to grouping employees, did not violate the European regulation on free movement as stated in Art. 45 TFEU and Art. 7 of the EU Regulation 492/2011.

In this case the plaintiff had been employed as a kindergarten teacher by the defendant state since 2014 and received remuneration in accordance with the remuneration grade of the respective CBA she was assigned to. Prior to this employment the plaintiff had been employed by different employers in Germany since 1997. She held that the section of the CBA, according to which an employee was assigned to a higher remuneration grade if he had working experience with the same employer compared to the equivalent time worked at other employers, was a violation of the right of free movement and therefore she was entitled to higher remuneration.

The federal labour court ruled that in cases where employees have only worked in Germany and have not gained any qualifications in other member states of the European Union, the section of the CBA does not show a sufficient foreign connection. In accordance with the rulings of the CJEU the scope of the European regulations on free movement is not opened up in such cases. Furthermore, there are no national provisions preventing the privileged treatment of professional experience with the same employer. Therefore the plaintiff was not entitled to higher remuneration.

Boon and bane of social media

Employers often encourage their employees to create social media profiles with platforms like XING or LinkedIn since they will also benefit from the marketing effects. However, using social media may also cause substantial internal conflicts. Such a conflict was recently subject to a ruling by the Regional Labor Court of Cologne (Landesarbeitsgericht Köln, LAG) on 7 February 2017 (docket number: 12 Sa 745/16). The court ruled that the fact of changing your occupational status to “freelancer” in your XING profile alone, may not justify a termination without cause due to unauthorized competitive business activities.

 

The plaintiff and defendant – a tax consultancy firm – mutually agreed a termination agreement with several months of a phasing-out period (Auslauffrist). Just before the end of the employment relationship the defendant noticed that the plaintiff had changed the occupational status of his private XING profile to “freelancer”. The defendant saw this as an unauthorized competitive business activity and therefore issued a termination without cause. Since the social network XING is predominately used for business purposes, the defendant assumed that the plaintiff was actively promoting his freelance activity in competition to the defendant and wanted to steal clients.

 

The court found that the termination was void. Although employees are principally prohibited from acting in competition to the employer during the entire time the employment relationship is in place, they are allowed to take actions that enable them to compete with the employer once the employment relationship has ended. Therefore, activities are only considered as prohibited competitive behavior if the employee actively promotes his competitive occupation towards the outside world. According to the court, the mere incorrect statement of being currently occupied as “freelancer” without any additional special circumstances, was insufficient to cross the line to prohibited competitive behavior. Another decisive factor was that the name of the defendant was still listed as current activity and that the plaintiff did not state that he was looking for any freelancing clients on his profile.

Federal Labor Court has tightened legal requirements concerning a special procedure regarding the calculation of vested pension entitlements (so-called “insurance contract solution” (“versicherungsvertragliche Lösung”))

By judgment of 19 Mai 2016 (BAG, docket number 3 AZR 794/14), the Federal Labor Court has ruled that an employer’s choice in favor of the so-called “insurance contract solution” – which is a special procedure for calculating vested pension entitlements – requires in every single case a new corresponding declaration to the employee and the insurance company, regardless of whether such declarations have already been made in the past on the basis of a works agreement or a collective insurance contract.

When granting a pension promise through a direct life insurance (Direktversicherung) or a captive pension insurance (Pensionskasse), an employer can choose the so-called “insurance contract solution” according to the German Occupational Pension Act (Betriebsrentengesetz). By doing so, a future pension payment arising from a vested pension entitlement can be limited to a certain amount (= pension payment claimable on the basis of the life insurance contract). This requires a corresponding declaration to both the employee and the insurance company (at the latest within 3 month following termination of employment). An employer’s choice in favor of the “insurance contract solution” used to be a part of the pension scheme/promise itself and as such did not have to be declared again at the time of termination of employment. In the present case the Federal Labor Court had to determine whether this was sufficient.

The Federal Labor Court declared the previous practice inadmissible. An employer’s choice in favor of the “insurance contract solution” can still be made prior to termination of employment, but this requires a close/specific factual and temporal relation between the employer’s declaration and the imminent termination of employment. In addition, it is necessary for the employer to make his declaration on an individual basis and not – as in this case – on the basis of a works agreement. The judgement has far-reaching consequences and will give rise to the need for action by all employers concerned.

No discrimination of disabled people in case of reduction of occupational pensions because of prematurely claiming

By judgment of 13 October 2016 (BAG, docket number 3 AZR 439/15), the Federal Labour Court ruled that a reduction of occupational pension payments due to prematurely claiming prior to reaching the fixed retirement age as provided for in the pension plan does not constitute discrimination on grounds of disability according to the German General Law on equal treatment (Allgemeines Gleichbehandlungsgesetzt – AGG). 

The employee, classified as disabled, was in an employment relationship until April 2013. From May 2013, the employee received both a statutory old age pension payment for disabled people from the German Statutory Pension Insurance and an occupational pension payment from the employer. The occupational pension payment was subject to a reduction, which was a result of an amendment of the pension plan, according to which an employee’s occupational pension payment is reduced by 0.4 percent for every month of claiming prematurely.

The Federal Labour Court ruled that there is no discrimination against the employee linked to his disability, because the fixed retirement age and the corresponding provisions in the pension plan concerning a reduction of occupational pension payments have been introduced for all employees, not differentiating between disabled employees and non-disabled employees. The employee is treated in the same way as each employee in a comparable case, regardless of his disability. The occupational pension payments of non-disabled people will also be reduced when claiming prematurely. The employee also cannot rely on the fact that from experience disabled employees tend to retire earlier than non-disabled employees, because the longer an employee works, the higher is their performance. Considering an occupational pension payment as a benefit for an employee’s performance, the situations differ significantly from one another and therefore cannot be subject to discrimination.

When creating a pension plan, employers always have to take into consideration the prohibition on discrimination according to the German General Law on equal treatment. Regarding this, there are many questions still open and unclear, for example whether it is possible to exclude employees from pension entitlements because of disability in certain cases. Relevant jurisdiction has to be monitored carefully.

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