Reform of the German Occupational Pension Act (“Betriebsrentengesetz”)

Effective January 1, 2018, the German Occupational Pension Act will be reformed by the Act to Strengthen Occupational Pensions (“Betriebsrentenstärkungsgesetz“), adopted by the German Parliament on 1 June 2017.

In 2002, the German legislator issued a difficult challenge to the area of occupational pension provision with the introduction of the so-called “Riester Reform”. Together with the subsidised private “Riester pension”, occupational pensions were intended to compensate for the cuts to state pensions that had already been decided. The rationale was to keep the pension levels of future generations of pensioners stable. However, take-up of both the “Riester pension” and occupational pension provision has been insufficient and remains so.

The Act to Strengthen Occupational Pensions constitutes a renewed, concerted effort to swiftly facilitate, with the help of the so-called social partners, i.e., trade unions and works councils, widespread and efficient occupational pension schemes in those workplaces where take-up has thus far been traditionally low, namely in small and medium-sized enterprises (SMEs).

The new Act, with its so-called “social partner model”, creates exclusive flexibility for signatories to collective agreements. The introduction of a pure defined-contribution scheme enables employers to have, for the first time, limited liability and absolute cost certainty with regard to occupational pensions. Moreover, in future it will be possible to include entire workforces in an automatic salary sacrifice or deferred compensation pension plan without the express written consent of each individual employee (“auto-enrolment with the right to opt-out”).

Overall, this results in remarkable flexibility for the companies in question, though it also requires intelligent consideration of any pension arrangements that may already be in place.

Temporary workers and thresholds – When does a temporary worker count as a normal employee?

Temporary work is a hybrid in employment law and thus leads to many problems: Although there is an employment contract with the leasing company, the employee works for another company. The question of assignment to one of these companies arises in many aspects of German labor law. In particular, where the number of employees is decisive for legal standards, it must be clarified whether only “normal” employees or also temporary workers are covered.

Often, the law links legal consequences to a minimum number of employees in a company:

  • For example, in companies with more than ten employees, special protection against dismissal applies (sec 23 law against unfair dismissals (“Kündigungsschutzgesetz” – KSchG)). For this threshold regularly occupied temporary employment positions should be taken into account.
  • In companies with more than 20 employees, there are also special rights of participation in serious company changes (sec. 111 Works Constitution Act (“Betriebsverfassungsgesetz” – BetrVG). For this threshold, temporary workers who have been in the company for more than three months are also to be included.
  • The size of the works council also depends on the number of employees in the company. Here, too, temporary workers who are employed for more than three months in the company are to be included in the calculation (sec. 7 (2) Works Constitution Act).
  • The regulations on employee participation in the Supervisory Board (sec. 9 Co-determination Act (Mitbestimmungsgesetz (MitBestG)) also include temporary workers for the hurdle of 8,000 employees.

The Federal Labor Court of Germany has now had to decide on another element (docket number 2 AZR 90/17 (A)). With so-called collective redundancies (“Massenentlassungen”) the sec. 17 law against unfair dismissals justifies special measures, depending on how big the enterprise concerned is. This is based on the requirements of the Council Directive 98/59/EC of 20 July 1998 on the approximation of the laws of the Member States relating to collective redundancies. There are special reporting requirements for companies with 20 to 60 employees terminating more than 5 employees and 61 to 500 employees for the dismissal of 10% of the employees or more than 25 employees. In this specific case, 12 workers were dismissed. The company had less than 120 employees without temporary workers but more than 120 with temporary workers. It was therefore necessary to decide whether or not temporary workers should be taken into account. Here it would be in the interest of the employer to include temporary workers, since less than 10% would have been affected and there would be no reporting requirements. This question has been very controversial in Germany so far because there has not yet been a leading case on this point.

The Federal Labor Court of Germany has now ruled that the decisions on the other laws cannot be transferred to this case, since the specific purpose of the regulation must be upheld in each case. For this reason, the Federal Labor Court was unsure how to interpret the sec. 17 law against unfair dismissals. A definitive clarification cannot be taken by the Federal Labor Court, as this regulation is based on the European Council Directive 98/59/EC. The Federal Labor Court therefore submitted this question to the ECJ on 16 November 2017 for a ruling. Until the ECJ has decided on this (usually this takes one to two years), the question remains unanswered. Temporary workers thus remain a big problem to consider when calculating thresholds.

Suspicion of pretended sickness and activities for a competing company generally justified surveillance by a detective and immediate termination for cause

A new judgment of the Federal Labour Court (dated 29.6.2017, docket number 2 AZR 597/16) supports previous judgments concerning termination based on suspicion of breach of duties and furthermore sheds  light on the permissibility of carrying out surveillance on employees through a detective to clarify such suspicions.

In the case at hand the employee and employer argued about the effectiveness of an extraordinary dismissal. The employee was repeatedly certified unfit to work in 2014 and continuously certified unfit to work from end of January 2015 onwards. The employer suspected that the employee was not in fact sick, but used his time off sick to work for a competing company. The employer addressed the employee, but the employee did not speak out regarding this matter. Initial ground for suspicion was laid by the presence of his car at the carpark of the competing company, which was investigated by a detective instructed by the employer. Later on the employer learned of an email from the competing company addressed to a client of the employer, which again gave rise to such suspicions. Therefore the employer instructed a detective again, who, disguised as driver of a client, saw the employee conducting activities for the competing company, that were similar to those he conducted for the employer. The employer then dismissed the employee extraordinarily.

The Federal Labour Court ruled that activities for a competitor are in general an important reason for termination for cause. Also fraudulently obtaining a sick certificate is also considered an important reason to terminate extraordinarily. This does not only apply for the time period in which the employer is compelled to continue paying salaries but also afterwards.

Furthermore, the Federal Labour Court decided that the outcome of the detective’s surveillance could be used by the employer to justify the dismissal. Also, employers can generally claim compensation for the costs of legitimate detective investigations. However, the Federal Labour Court did not decide on whether or not the suspicions were sufficient for the termination for cause and the compensation of detective costs. Instead, the Federal Labour Court relegated this question back to the court previously engaged in the case.

For employers it is important to carefully assess the permissibility of detective surveillance in cases where it is suspected that employees are violating their contractual obligations. If the means of investigation are not legally permissible, this can render a termination null and void. It is good news for employers that with the present decision the Federal Labour Court emphasizes the legitimate interests of employers to investigate contractual violations of employees. The previous instance had considered these investigations illegal in the present case but are now overruled.

Occupational Pensions: Free bus ticket for wife to be considered as pension

By judgment of 23.06.2017 (6 Sa 173/17) the Regional Labour Court of Düsseldorf has ruled that with regard to the period from which the employee receives a pension, a free bus ticket provided by the employer to the employee’s wife is to be considered to be an occupational pension and therefore cannot be revoked.

The employer, a transport company, granted his employees and their husbands/wives a free bus ticket both for the period of employment and the period of retirement. The basis for these benefits was (inter alia) a works agreement of 1991. In 2016, the employer concluded a new works agreement, which was intended to replace all previous company provisions and works agreements regarding the free bus ticket, and according to which employees’ husbands and wives should no longer be granted a free bus ticket. The employee filed a suit against that.

The suit was only partly successful. In the opinion of the Regional Labour Court of Düsseldorf, the works agreement of 2016 could replace the provisions regarding the free bus tickets with effect from January 2016, since the previous provisions are of a collective nature and, therefore, according to the Federal Labor Court’s settled case law, could be subject to modification or cancellation by a subsequent works agreement. As a result, the plaintiff could not request a free bus ticket for his wife during his active period as an employee. However, the Regional Labour Court of Düsseldorf has ruled that the cancellation of the previous provisions by the works agreement of 2016 is ineffective insofar as it applies to the employee’s wife’s entitlement to a free bus ticket during the employee’s period of retirement. The Court pointed out that for the employee’s period of retirement the wife’s entitlement to a free bus ticket is to be considered to be an occupational pension, since the benefit is granted due to an insured event (the employee’s retirement age) and will be granted for the purposes of securing the employee’s standard of living in old age by saving costs within a joint family household. An intervention in occupational pensions is only possible under very strict conditions (due to the principles of the protection of legitimate expectations), which were not fulfilled the present case.

The decision shows that not only cash payments, but also benefits in kind, usage possibilities and discounts provided during retirement can be considered as an occupational pension. It does not matter whether such benefits are also granted to active employees.

Are workers in minor employment entitled to occupational pensions?

In an interesting appeal to the Federal Labour Court (docket number 3 AZR 83/16) the services trade union ver.di had been called upon by a female employee – who had originally been employed by the union Deutsche Postgewerkschaft since 1991 and had been working for the defendant since its merger with ver.di in 2001 – to obtain a pension. Since 2004, the applicant had been working in minor employment (a so called mini job or marginal employment with a maximum monthly income of Euro 450). The provisions of the 1995 pension scheme, which applied to the defendant, provide that all employees are to be registered with the unions’ support fund and that they are to be provided with a pension according to the applicable guidelines. However, individuals in minor employment are exempt.

Before 1 January 2013, as was the case with the appellant, contracts for mini jobs were not subject to compulsory pension insurance as a rule. This was later changed. As a result these individuals are now subject to compulsory insurance in the statutory pension insurance system as a rule. They have, however, the option to have themselves exempted on application from the obligation to pay contributions to the statutory pension system.
The employee alleged discrimination against part-time employment according to Sec. 4 para. 1 of the German Part-Time and Temporary Employment Act (Teilzeit- und Befristungsgesetz, TzBfG). Sec. 2 para. 2 of the TzBfG explicitly states that, individuals working in mini jobs are to be considered part-time employees just as employees working part-time, but above mini job remuneration level. The union considered the exclusion of marginal employees effective. It argued that the occupational retirement provision in particular served the purpose of supplementing statutory retirement provision; in view of the minor employment, the applicant under the old rules did not acquire any rights under the statutory pension scheme.

While the Labour Court of Rosenheim had dismissed the employee’s complaint, the Higher Labour Court of Munich had granted the claim (decision of 13 January 2016, docket number 10 Sa 544/15), arguing that the general non-discrimination principle not only applies to part-time employees vis-à-vis full-time employees but also to different treatment of different forms of part-time employment.
The hearing before the Third Senate of the Federal Labour Court was scheduled for 17 October. On the day before the union withdrew its appeal against this decision in favour of the employee.

Size (doesn’t) matter – Minimum size for police officers discriminates women

The ECJ ruled in a judgment on 18 October that a uniform minimum size as a requirement for men and women to get a job is inadmissible (docket number C-409/16). A Greek court had asked the ECJ whether “a height (in the case of men and women) of at least 1.70m”, is compatible with Directive 76/207/EEC which prohibits any indirect discrimination on grounds of sex as regards access to employment, vocational training and promotion, and working conditions.

“In the present case, the referring court itself found in its decision that a much larger number of women than men are of a height of less than 1.70m, such that, by the application of that law, women are very clearly at a disadvantage compared with men. It follows that the law at issue in the main proceedings constitutes indirect discrimination.”

Such an unequal treatment may be permitted if it is justified. This is the case if the unequal treatment is objectively justified by a legitimate aim, and the means of achieving that aim are appropriate and necessary. (see for a similar situation our article about age limits).

In general the ECJ has already held that the concern to ensure the operational capacity and proper functioning of the police services constitutes a legitimate aim. However, the suitability and the necessity of such a regulation are questionable, it is questionable whether it is not possible to use milder actions to achieve the goal. The ECJ points to two critical points: First, there are also police tasks where no physical force is necessary and secondly, the correlation between body size and higher assertiveness is questionable. This is also recognized by the ECJ:

“In that regard, while it is true that the exercise of police functions involving the protection of persons and goods, the arrest and custody of offenders and the conduct of crime prevention patrols may require the use of physical force requiring a particular physical aptitude, the fact remains that certain police functions, such as providing assistance to citizens or traffic control, do not clearly require the use of significant physical force. Furthermore, even if all the functions carried out by the Greek police required a particular physical aptitude, it would not appear that such an aptitude is necessarily connected with being of a certain minimum height and that shorter persons naturally lack that aptitude.”

The ECJ points in particular to lower minimum sizes for the greek army and coast guard. In this respect, a problem of coherence is again shown. Moreover, the Court emphasizes that other – more individual – selection criteria would allow a more precise and more specific differentiation.

Thus it shows again that special caution is required in case of unequal treatments. The existence of a legitimate goal does not automatically lead to justification. Rather, the concrete implementation must always be checked exactly.

Hurdles at the temporal limits of work contracts – When is a fixed-term contract valid?

In practice, fixed-term contracts lead to practical problems in a large number of cases. On the one hand, this is because they demand a variety of formalities (see our article from July 24 ). On the other hand, however, it is even more difficult to determine whether it is possible to limit the work contract temporarily at all. Both a limitation with and without reason are acknowledged. Both are apparent from the directive 1999/70/EC concerning the framework agreement on fixed-term work. This includes the following rules:

“To prevent abuse arising from the use of successive fixed-term employment contracts or relationships, Member States, […] shall, […], introduce […], one or more of the following measures:
(a) objective reasons justifying the renewal of such contracts or relationships;
(b) the maximum total duration of successive fixed-term employment contracts or relationships;
(c) the number of renewals of such contracts or relationships.”

This regulation thus enables the use of fixed-term contracts with objective reasons (a) and without objective reasons but with other regulations (b and c). German law has implemented these requirements in The Act on Part-Time Work and Fixed-Term Employment (“Teilzeit- und Befristungsgesetz – TzBfG”). Even according to this law the use of fixed-term contracts is possible both with (sec. 14 (1) TzBfG) and without (sec. 14 (2) TzBfG) objective reason.
The law emphasizes, however, that a fixed-term contract without objective reason is not permissible, if the employee has previously been employed by the employer. The German law uses the term “bereits zuvor“, which can be translated with “already before”. But what this means is controversial.

In 2011 the Federal Labour Court of Germany decided that the employee is not employed “already before”, if the employment relationship was more than three years in the past (docket number 7 AZR 716/09). In this case, a fixed-term contract without objective reasons should still be possible. The Federal Labor Court thus ignores the clear wording of the rules in sec 14 (2) TzBfG. For this reason, the judgment was strongly criticized and rejected both in the literature and the jurisprudence. The 18 regional labor courts, too, followed the judgment in part only, and further argued that a previous period of employment always prohibits a fixed-term contract without objective reason. Lastly, this view was shared by the regional Labour Court of Lower Saxony (Landesarbeitsgericht Niedersachsen) in July (docket number 6 Sa 1125/16).

The legal situation is obviously not clear. The employer cannot be confident that fixed-term contracts without objective reason are permissible, in the case of an employment more than three years in the past. As can be seen from the regional Labour Court of Lower Saxony, he cannot rely on the correctness of the case law of the Federal Labour Court, as this is massively criticized.

If an employer wants to act in the right way, a fixed-term contract without objective reason should only be concluded if there was no previous employment relationship with the employer at all. Otherwise, the risk is very high that there is a contract without a fixed term. However, the Federal Labor Court will again decide this issue in the near future. Here it is possible that the criticism is taken into account and the jurisprudence changed. For employers this would be desirable in any case. The law and jurisdiction should be so clear that every employer knows what rights and duties he has. This would also simplify the application of the rules for fixed-term contracts and minimize the practical problems.

Restructuring of a business in Germany – an overview

Where restructuring measures comprising collective redundancies become necessary, the employer must fulfil a number of legal requirements to successfully implement such measures. While it is sometimes tempting to implement the necessary restructuring in a way that ignores the various legal requirements (e.g. co-determination of the works council etc.), there are only exceptional situations in which such a way does not lead to a total failure of the original plan. For the employer, unlike for the employees, there is usually no alternative than to adhere closely to the rules of the law, which requires financial preparation, a solid planning, open communication and clear execution.

The most important legal issues are the works council’s consultation rights. The usual time frame for such consultations is 3 to 6 months, which can even be exceeded if the negotiations become complicated. However, a well-prepared employer will be able to control the situation and to limit delays to the process beyond the usual time frame to a minimum. Typically, the employer is forced by financial circumstances to undertake restructuring measures, albeit this is not a requirement. The main financial risks in restructuring measures are the length of the negotiation/implementation phase (with associated remuneration costs) and the amount of severance compensation. In order to keep both risks as small as possible, an employer should prepare the restructuring in great detail and give as much information as possible when informing the works council. This will limit delays to the consultation process and improve the negotiation atmosphere. The employer is obliged to inform the works council as soon as the restructuring is seriously planned, and before a final decision has been made.
Moreover, the employer is legally bound to negotiate with the works council about the restructuring measures to be taken with a view to reaching a so-called balance of interests agreement (Interessenausgleich). Even though there is no legal duty to come to such an agreement, the employer is banned from starting the implementation of the restructuring (e.g. by issuing termination notices) unless the negotiations with the works council end in agreement or have finally broken down. Furthermore, the employer and the works council must agree on a severance plan (Sozialplan) for all employees affected by the restructuring in order to provide compensation for the financial prejudice sustained by staff as a result of the envisaged restructuring measures.

Another important issue relates to the European Directive relating to collective redundancies (Mass Dismissal Directive) which also requires as prior information and consultation with employees’ representatives and the Employment Administration (Agentur für Arbeit).

In addition, individual protection of employees against dismissals has to be considered and dealt with, as even after successful agreement of collective agreements each affected employee can bring an unfair dismissal claim at the employment courts. A dismissal for business reasons is justified if the employer can prove that the employee’s function does not exist anymore, e.g. due to the closure of a production line or due to restructuring and downsizing of a working area. In addition, the employer must prove that he made the selection of those employees dismissed according to social criteria. This selection takes place among all employees at a site working on the same hierarchy level and having similar job qualifications. The social data to take into account are age, time of service at the company and family data such as the number of dependent children. It is important to note that a dismissal which is not valid under these legal criteria is void and the employee has the right to be reinstated.

The crucial point in each such reorganization is therefore to ensure that the employees remaining in the business are the right employees in terms of skills, willingness to perform and personal ability, while at the same time respecting in particular the above requirements of the information and consultation procedure and the social selection process.

Termination only on the basis of suspicion – Basics and difficulties

We recently reported on third parties’ pressure to terminate an employee in our blog. This time, too, we would like to take a current judgment (Federal Labour Court of Germany (“Bundesarbeitsgericht”) from 2.3.2017, docket number 2 AZR 698/15) as an opportunity to report on a further special possible termination: a termination based only on suspicion of unacceptable behavior.

German law also permits dismissal on grounds of suspected unlawful or unacceptable behavior (if it is a particularly serious suspicion and can be substantiated by facts). This means that the termination is permitted because of a presumed behavior, even if this behavior is not proven. The prerequisite of this termination is, however, that the employer has tried to clarify the truth completely, but this has remained unsuccessful. If, however, it turns out that the suspicion was faulty, termination is not possible; if the suspicion proves to be true, the employee can be terminated because of the concrete behavior.

It is also important that a deadline of two weeks has to be observed for the termination. It is necessary first of all that the employer has identified the facts as far as possible and has tried to clarify the suspicion. The worker must, in particular, be given the opportunity to comment; he must be heard. Only if, despite all these measures, the suspicion cannot be clarified, is a suspicion termination possible, which is to be pronounced within two weeks after the conclusion of the observation and hearing.

But what happens if the employee has been released in criminal proceedings? Is the employer still able to rely on the suspicion of a corresponding infringement? What is the allowed reason for the suspicion of the employer? These questions are answered by the current judgment of the Federal Labor Court. In the first place, it is clarified that the labor courts (when reviewing a dismissal) are not bound by the decision of the criminal courts. A suspicious termination thus also remains possible despite an acquittal. The decisive factor is the independent assessment of the facts by the labor courts. The acquittal can be considered here as an additional fact, but all circumstances must be considered comprehensively.

Thus, the grounds of a termination based only on suspicion have become clear: Criminal law and labor law differ. Labor law demands a serious suspicion based on facts, which must be submitted by the employer. In addition, it is imperative that the suspicious behavior was most likely true. Ultimately, all incriminating and mitigating facts must be weighed. Only under these conditions can the employment relationship be terminated without any clear evidence of a misconduct.

Allowances for work on Sundays, bank holidays or at night are protected against attachment

On 23 August 2017 the Federal Labour Court ruled (judgment, 10 AZR 859/16) that allowances for work on Sundays, on bank holidays and at night are protected against attachment so far as the amount of such payments is common practice. Whether the extent and amount of such allowances are “common”, which means they are protected against attachments (according to sec 850a no. 3 ZPO), can be linked to sec. 3b EStG.

In the current case, a personal insolvency proceeding was annulled, where the plaintiff was in a phase of good conduct (Wohlverhaltensphase) and assigned the attachable remuneration to a trustee. Between May 2015 and March 2016 the defendant transferred the attachable amount of the net remuneration of the plaintiff to the trustee by taking into account the allowances which were agreed in the tariff agreement for work on Saturdays and Sundays, on bank holidays, at night and on alternate shifts. According to the plaintiff these allowances are an unseizable extra payment for difficult working conditions (Erschwerniszulage) pursuant to sec. 850a no. 3 ZPO and therefore claimed for a payment of 1.144, 91 Euro, which had been overpaid by the defendant to the trustee.

The Federal Labour Court annulled the judgement of the Higher Labour Court. However, the Federal Labour Court confirmed that allowances for work on Sundays, on bank holidays and at night are extra pay for difficult working conditions according to sec. 850a no. 3 ZPO and consequently are unseizable. The Federal Labour Court refers to sec. 6 para. 5 ArbZG which regulates a compensation obligation for working at night, which has been classified as hard conditions by the legislative authority. Furthermore, working on Sundays and on bank holidays is particularly protected by the constitution (Art. 140 GG related with Atr. 139 WRV). Besides that sec 9 ArbZG prohibits working on such days.

There is no similar classification by the legislative authority regarding allowances for shiftwork and for work on Saturdays, hence such payments are not protected against attachment.

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