New Law on Pay Transparency soon to be adopted by German Bundestag

At the beginning of this week (13 February 2017), the German government introduced the bill on pay transparency (which was adopted before by the cabinet on 11 January 2017) to the German Bundestag. The German federal assembly was asked beforehand for its opinion and did not raise any concerns. The draft bill will be debated in parliament in the upcoming weeks. The Bundestag may amend or change parts of the draft bill. However, it is not likely that there will be major changes. The new Remuneration Transparency Act is planned to enter into force on 1 July 2017 although that date may still change.

New employers’ obligations as to equal pay and transparency:

There will be three new obligations on employers:

First of all, there is the employee’s individual right to be informed about remuneration within the operation if the employer employs regularly more than 200 employees.

The information must be provided within three months of the request. The information right covers the average remuneration of all employees of the opposite sex performing the same or the same type of work. It includes information about two further salary components at the employee’s option. If there are fewer than six employees of the opposite sex performing the same or the same type of work, the average remuneration must not be disclosed. If a difference in remuneration is found, the employee is entitled to payment of the amount of remuneration that would have to be paid if there had not been an unlawful discrimination based on sex. This comprises a claim for compensation for past differences in remuneration for up to three years (the statutory period of limitation) and salary adjustment for the future.

According to the transitional provisions, the employee may request information for the first time after six months from the entry into force of the new law.

Secondly, a non-binding request/recommendation is introduced by the new law: Employers with more than 500 employees shall ideally conduct testing procedures on the salary structure within the operation to ensure that the employer’s statutory obligation to pay equal pay is fulfilled.

Thirdly, employers with more than 500 employees that are subject to reporting obligations according to Section 246 in conjunction with Section 289 of the German Commercial Code (Handelsgesetzbuch, HGB) will have to prepare a report on equality and equal pay describing company measures to enhance and ensure (pay) equality. If no measures are taken, the report must give reasons why not. This report needs to be produced every three or five years depending on whether or not the employer is bound by collective bargaining contracts and will be attached to the status report required by Section 246 in conjunction with Section 289 of the German Commercial Code (Handelsgesetzbuch, HGB) and thus published.

According to the transitional provisions, the first report is due in the year following the year of the entry into force, in 2018.

Dismissal Protection Act not applicable to managing directors despite employee status

While recent EU law developments on the potential employee status of managing directors (cf. ECJ, June 9, 2015, docket no. C-229/14 – Balkaya) and decisions of the German Federal Labour Court regarding the procedural issue of giving managing directors access to the Labour Courts under certain circumstances have somewhat blurred the dividing lines between managing directors and employees, a recent decision of the Higher Labour Court of Berlin-Brandenburg seems to bring some clarity to the issue.

It has been a fundamental principle of German employment law that all protective laws and regulations relevant for employees do not apply to the contractual relationship between a company and a managing director. However, former managing directors have repeatedly challenged this principle, e.g. in an attempt to gain protection under the Dismissal Protection Act (Kündigungsschutzgesetz, KSchG), while Sec. 14 para. 1 of the Dismissal Protection Act expressly states that employee-specific dismissal protection does not apply to members of a representative body of the company.

In its decision of August 25, 2016 (docket number: 21 Sa 1493/15 21 Sa 575/16) the Higher Labour Court Berlin-Brandenburg clarified that Sec. 14 para. 1 of the Dismissal Protection Act refers to the formal position of managing director, irrespective of the nature of the underlying contractual situation.

The plaintiff argued that he was only formally appointed managing director but actually worked as a normal employee during the entire relationship to the defendant, so that he should benefit from the provisions of the Dismissal Protection Act which provides for strong dismissal protection after six months of employment and in operations of more than 10 employees.

The court decided that Sec. 14 para. 1 of the Dismissal Protection Act was applicable as this provision refers to the formal position of managing directors. The termination therefore did not have to be socially justified according to the strict rules of the Dismissal Protection Act. The law only refers to the function as a representative body and the legal representative power as such at the time of termination. According to the court this was not only confirmed by the wording of the provision but also by the provision’s systematic context. Also, the content and rationale of the provision indicate that only the function as a representative body is relevant as the provision aims at achieving a balance between corporate and contractual law and at making it possible to terminate representative bodies without being bound by dismissal protection.

The decision has been appealed and it remains to be seen whether the Federal Labour Court will confirm or overrule and grant more protection to (former) managing directors by applying the Dismissal Protection Act.

Increase of Working also for Disabled Employees!?

On 26 January 2017, the Federal State Labour Court (Bundesarbeitsgericht) ruled that a disabled part-time employee may not claim damages for discrimination where his employer did not offer him an increase in weekly working hours, unlike his colleagues (docket number: 8 AZR 736/15).

In the case at hand, the employer, a courier service provider, employed 16 part-time employees. Due to the acquisition of a new customer the employer was able to offer additional working hours, which the employer offered to 14 employees. He excluded a new joiner as well as the disabled plaintiff, who claimed an increase in his weekly working hours as well as a compensation due to the alleged discriminatory behaviour of his employer.

The claim for the increase in weekly working hours is not covered by the German anti-discrimination rules (AGG – Allgemeines Gleichbehandlungsgesetz). The AGG only provides financial compensation for discriminatory behaviour. Moreover, the Federal Labour Court declined the employee´s reference to the legislative evidence rules. According to sec 22 AGG the discriminating party has to refute the assumption of discriminatory behaviour if the plaintiff provided evidence which leads to a “predominant likelihood” of discrimination. From the judge´s perspective it was only “possible” that the employee had not been offered the increase in working hours for a discriminatory reason, but the causal connection between the employee´s disability and the employer´s decision was not “likely” as required by German anti-discrimination regulations.

This recent decision gives a clear signal to employers. An employee who can refer to an attribute protected by AGG cannot claim any unequal treatment only by referring to this attribute, but will need sufficient evidence which indicates a predominant likelihood that the treatment was discriminatory.

Headscarfs in Nurseries

The German Federal Constitutional Court (Bundesverfassungsgericht) ruled on 18 October 2016 that a general prohibition on wearing a headscarf which applied to a teacher in a local nursery violates the constitutional right of freedom of belief (docket number: 1 BvR 354/11).

 

The appellant wore a headscarf as a symbol of her Muslim belief during her work as a teacher in a local nursery. After refusing to take off the headscarf during her working hours, she was given a warning by her employer, based on an alleged violation of section 7 para. 6 of the local rules on nurseries (now section 7 para. 8) (Kindertagesstättengesetz). This rule prohibits teachers from making any kind of political, religious or other manifestation if they can lead to a violation of the neutrality of the institution towards parents and their children or a violation of the general peace in the institution.

 

The Federal Constitutional Court decided that there is no violation of the institution’s or the state’s neutrality if a teacher wears a headscarf typical for her religious belief. The wearing of such religious symbols is protected under the constitutional right of freedom of belief and there is no constitutional protection whatsoever for being spared from other peoples’ religious manifestations. In Germany, an “Islamic headscarf” is not rare and its wearing does not lead to the impression of the state or the state’s institutions also being Islamic. It is the state’s duty of neutrality to treat each religion equally.

 

The obligation of the state to be neutral differentiates between schools and nurseries. Parents have more than one option for childcare and there is also no obligation for parents to send their children to nursery. It is therefore the parents’ decision whether or not to let their children be looked after by teachers wearing an Islamic headscarf.

 

With this decision, a general prohibition on headscarves in institutions other than those with a religious ethos becomes almost impossible. The differentiation made by the German Federal Labour Court (Bundesarbeitsgericht) between younger children in nurseries who are more easily influenced and children of school age is thus invalid.

 

Two decisions by the European Court of Justice (Europäischer Gerichtshof) are coming up soon in this context, in which the two Advocates-General gave different opinions.

Revision of the Law on Temporary Work from 1 April 2017

The German Parliament (Bundestag), with the approval of the Federal Council (Bundesrat), has passed amendments to the “Law on Temporary Work”. The new rules will enter into force on 1 April 2017 and do not only have impact on leasing personnel but also on work and service contracts.

The key changes introduced by the reform are summarized as follows:

The deployment of temporary workers to the same hirer is limited to a maximum duration of 18 consecutive months. The calculation of the period is linked to the individual temporary worker and not to the respective position. Periods of interruption of work of less than 3 months must be added to the calculation. Exemptions to the maximum duration period can be agreed by means of a collective bargaining agreement (CBA).

The new provisions legally allow to permanently fill a position with temporary workers. After the expiry of the 18 month period, the hirer may engage another temporary worker to the same position. The original temporary worker may also be engaged again after a three month period of interruption in his engagement.

The current law already entitles temporary workers to equal pay. However, the new provisions restrict the ability of the collective bargaining parties to deviate from this principle. Exemptions may only be agreed for the first 9 months. Branch surcharge wage agreements (Branchenzuschlagstarifverträge) may provide a longer derogation of up to 15 months if, at the end of this period, the temporary worker will be entitled to remuneration comparable with the standard tariff wage of comparable employees in the respective industry. The agreement must also provide a gradual increase in pay, starting no later than 6 weeks after the beginning of the temporary worker’s engagement.

The employee leasing agreement between the lender and the hirer must specify the supply of temporary workers as the subject matter. Before the supply of a temporary worker, the contractual parties must name the temporary worker with reference to the agreement. These new regulatory provisions have profound effects as they aim to tackle the improper use of (fictitious) work or service contracts. Under the current law it is possible to hold a “precautionary” license to lease temporary workers although not using it because of having agreed on a work or service contract. If it subsequently turns out that the supposed work or service contract should be classified as a temporary employment contract, the mere presence of the license retrospectively legalizes the incorrect contractual situation without any sanctions. From the perspective of the legislator, the parties agree upon the supposed work or service contracts to evade the strict legal framework of temporary work. In practice, this approach has also been adopted in situations of uncertainty about how the contract should be correctly classified.

From April, this situation will no longer be possible because of the duty to state in the contract that the agreement is for the supply of temporary workers. The new laws also introduce administrative fines for the lender and the hirer in the event of infringements. In addition, the laws provide that the employment relationship between the “lender” and the “temporary worker” is void. Instead an employment relationship will be deemed to exist between the “hirer” and the “temporary worker”. These sanctions have so far only been applied to the supply of temporary workers without possessing a license.

The legal consequence of a void employment relationship not only occurs in the event of not specifying the nature of the contract, and where there has been an unauthorized supply of temporary workers, but also in the case of exceeding the duration of 18 months. The law introduces a new provision allowing temporary workers to declare their wish to remain employed by the lender within one month. However, this option is subject to strict bureaucratic procedures.

The Works Council’s right of co-determination regarding the Employer’s Facebook presence

The German Federal Labour Court (Bundesarbeitsgericht) decided on 13 December 2016 that the Works Council has a right of co-determination when the employer’s Facebook page allows other users to post comments, which are related to the behaviour and performance of the employees.

The employer operates a blood donor service. The doctors working at the blood donation events and all other employees wear name tags during their work. The employer’s Facebook page was established as a marketing strategy and gives users the option of posting comments. Some comments were made in relation to the staff’s behaviour and performance.

The Works Council feared that the employer could be looking specifically for employee misbehaviour and therefore requested a right of co-determination. The employer might be able to control and monitor the employees by reading the evaluations made by the Facebook users, which could then lead to high monitoring pressure for the affected employees. The employer considered that it could unilaterally set up the Facebook page. The comments made by Facebook users would not lead to the collection or use of data or to any other kind of performance control.

The German Federal Labour Court ruled that the Works Council has a right of co-determination as far as the direct publication of posts is concerned. Any comment which is directed towards the evaluation of an employee’s behaviour or performance is to be equated with monitoring employees using a technical device in the meaning of section 87 para. 1 number 6 of the Works Constitution Act (Betriebsverfassungsgesetz).

The Works Council’s right of co-determination always applies when personal data comes into play and makes it objectively possible for the employer to monitor his staff. It is irrelevant whether the employer actually does use the data. The option to comment on staff on an employer’s public Facebook page might influence the employer as well as the employee himself. To be on the safe side, employers should include the Works Council in the setup of their Facebook page.

40 Euro lump sum compensation in the event of late or incomplete wages

On 22 November 2016, the Labour Court Cologne decided that an employer who pays late or incomplete wages is obliged to pay lump sum compensation in the amount of 40 Euros to the affected employee (Judgement of 22.11.2016 – 12 SA 524/16).

In 2011 the European Parliament and the Council of the European Union passed the Directive 2011/7/EU on combating late payment in commercial transactions. “The aim of this Directive is to combat late payment in commercial transactions, in order to ensure the proper functioning of the internal market, thereby fostering the competitiveness of undertakings and in particular of SMEs. It shall apply to all payments made as remuneration for commercial transactions.” (Art. 1 para. 1 ff. Directive 20111/7/EU).

As of 29 July 2014 the Directive was implemented in German law without limitation by sec. 288 para. 5 German Civil Code. According to sec. 288 para. 5 German Civil Code a creditor is entitled to claim lump sum compensation in the amount of 40 Euros in the event of a debtor’s default. This lump sum payment is due regardless of whether loss or damage, and in any amount, has been incurred by the creditor.

In this case the Labour Court Cologne had to determine whether new sec. 288 para. 5 German Civil Code also applies to arrears of wages. The plaintiff claimed among other things a lump sum compensation of 40 Euros from the defendant, due to late and incomplete payment of his wages. The complaint was based on new sec. 288 para. 5 German Civil Code. The Labour Court decided that the already existing provision on default also applies to wages claims. (Judgement of 22.11.2016 – 12 SA 524/16). Consequently, the employer is obliged to pay a lump sum compensation in the amount of 40 Euros to the employee in the event of late or incomplete payment of wages.

However, the Labour Court Cologne has permitted an appeal to the Federal Labour Court.

Employer’s subsidiary liability for occupational pension payments

By judgement of 20 September 2016 (BAG, docket number 3 AZR 302/15), the Federal Labour Court ruled that an employer is liable for occupational pension payments, where the pension payments have been granted on the basis of a collective agreement and the implementation via an external pension provider could not take place during the vesting period.

The employee had an employment relationship as of October 1988 and was granted a pension promise by the employer. On the basis of the employment contract and according to collective agreements, the employer was obliged to provide for a pension scheme in the shape of direct life insurance via a special external pension provider. As the employer had not been a member of this special external pension provider until March 1991, the employee only could build up a pension entitlement with effect from April 1991. The employee claimed for higher pension payments. The defendant employer argued that he did not want to grant a pension promise without reserve, but only where he became a member of the external pension provider.

The Federal Labour Court considered the claim to be founded. According to the German Occupational Pension Act(Betriebsrentengesetz), an employer is also liable for pension payments where the pension scheme has not been provided by the employer, but by an external pension provider. Under German law, there is a strict differentiation between the basic obligation under employment law and the form/implementation of a pension scheme. Where an employer makes use of an external pension provider, this external pension provider can only be considered as a supporting vehicle. If the pension payments cannot be made by the external pension provider, the employer is obliged to make the payments out of his assets.

The employer’s subsidiary liability for occupational pension payments is a significant principle of German occupational pension law. Currently, there is a draft of a new law aiming to strengthen the system of occupational pensions in Germany. This new law provides (inter alia) the option of a pure defined contribution promise without the employer’s subsidiary liability for the pension payments. This requires that the pure defined contribution promise is implemented on the basis of a collective agreement of the social partners according to German labour law.

Requirements concerning pension adjustments

By judgment of 7 June 2016 (BAG, docket number 3 AZR 193/15), the Federal Labour Court ruled that an employer is allowed to refuse pension adjustments due to economic reasons, where the employer is not able to continue generating a sufficient equity yield rate or has a lack of equity capital.

The parties were in dispute about pension adjustments as at 1 April 2008 and 1 April 2011. The employee, who has received an occupational pension since 1999, was granted a pension promise by the former group parent company. Within the group, several restructuring measures have taken place, whereby all pension obligations have been transferred to another subsidiary company of the group. All subsidiary companies have been subject to yearly bundled pension adjustments as at 1 April, for the first time as at 1 April 2002. As at 1 April 2005, 1 April 2008 and 1 April 2011 no adjustments were made (according to the employer due to economic reasons). As a result, the employee claimed both against the successor company of the former group parent company and the successor company of the former subsidiary company which had taken over the pension obligations.

The Federal Labour Court considered the claims to be unfounded. The successor company of the former group parent company was allowed to refuse adjustments due to economic reasons. According to the Federal Labour Court the economic situation is forward-looking, describing the employer’s future capacity and providing a forecast. As a basis for assessing this forecast, the employer’s economic development in the past is significant, provided that conclusions for the employer’s economic development in the future can be drawn out of this. Where the employer is not able to continue generating a sufficient equity yield rate or has a lack of equity capital, he is allowed to refuse pension adjustments. Regarding the claim against the successor company of the former subsidiary company which had taken over the pension obligations, the relevant requirements have not been fulfilled. According to German Occupational Pension Act (Betriebsrentengesetz), an assumption of debt (with discharging effect) is only permitted under very strict requirements.

By means of this judgment, the Federal Labour Court confirmed its previous view concerning pension adjustment and assumption of debt with discharging effect. Under German law, an employer planning to transfer pension obligations must evaluate precisely whether all (compulsory) regulations of German Occupational Pension Act are fulfilled.

No laptop for works council

It depends on the specific circumstances of the individual case whether a works council with eleven members, which is already provided with two personal computers, can claim to be provided with an additional laptop.

The defendant runs a freight company with 350 employees. Its works council, which has eleven members, already works with two internet-enabled computers. The works council’s request for an additional laptop was rejected by the Labour Court (Arbeitsgericht). The works council appealed the Labour Court’s decision.

According to sec. 40 para 2 of the Works Constitution Act (BetrVG) the employer is obliged to provide required material resources as well as information and communication equipment for the work council’s day-to-day-management. The Higher Labour Court in Hessen (Landesarbeitsgericht Hessen; docket no: 16 TaBV 219/15) stated on 25 July 2016 that the works council’s request must be assessed in relation to the actual circumstances in the business establishment. The court stated that a weighing of interests must take place, taking into account not only whether the requested material resource serves the works council’s statutory tasks, but also the employer’s interests (including financial aspects). The court rejected the claim at the basis of no evident reason was shown that two desktop computers are not sufficient for the works council’s activities. That would only be the case if more than two works council’s members had to usually work at a computer at once. Furthermore, at the defendant’s company the provision of laptops is not common. In addition, the court considered that the employer is willing to provide the works council a laptop in specific cases for a certain period, e.g. meetings of the works council and that the costs of the provision of a laptop would be significantly higher than the provision of a desktop computer.

 

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