Bogus self-employment – right to paid leave without any time limit?

According to the Advocate General’s opinion to the European Court of Justice (dated 8 June 2017, C-214/16, C. King v The Sash Window Workshop Ltd and Richard Dollar) the right to paid holiday carries over until the worker has an opportunity to exercise his right to paid leave. On termination of the employment relationship, the worker can claim an allowance in lieu of paid annual leave that has not been taken up until the date on which the employer made available to the worker an adequate facility for the exercise of the right to paid annual leave.

Mr King worked for the defendant as a self-employed salesman for 13 years between 1999 and 2012. He was paid only by way of commission. The contract was silent on the question of paid annual leave and Mr King assumed that as a self-employed person he had no right to paid holiday. After his dismissal in 2012 he instituted proceedings in the UK Employment Tribunal which decided among other things that Mr King was a “worker” and that he was entitled to paid holidays for the whole 13 year period. Part of the claim for paid holiday was for holiday to which Mr King was entitled but did not in fact take.

The Advocate General held that the employer has to implement the facility for the exercise of the right to paid holiday. If the employee does not have the opportunity to exercise the right it does not expire unless the employer implements such facility. Consequently, if an adequate facility for the exercise of the right was never provided, then an allowance in lieu is to cover the full period of employment until termination of the employment relationship.

The EU jurisdiction concerning the limitation and expiry of the right, e.g. in the case of long term sickness (Schultz-Hoff, C-350/06), is not relevant as it assumed that the right already existed. Therefore, it concerned the conditions for the entitlement to and granting of paid annual leave. The opportunity to exercise the right, however, is a pre-condition for that.

If the European Court of Justice (ECJ) follows the Advocate General’s opinion, customers or employers take the serious economic risk for being sued for holiday entitlements or allowance in lieu on termination. In the case of bogus self-employment the claim will always refer to the whole length of the contractual relationship as holiday entitlement is never a part of such contract. This will also have an impact on the amount of back payment of social security contributions as paid holiday entitlement is part of the remuneration of an employee. The distinction between employment and self-employed activities is once again in focus.

Problems of holiday calculation when changing working days

The Federal Labour Court of Germany (Bundesarbeitsgericht) ruled on 24 February 2017 (docket number 9 AZR 7/16)  how to calculate  annual  holiday when an employee changes from a part-time to a full-time job.

Calculating the number of days’ holiday after an increase or decrease in working days is one of the most complicated topics in German vacation law. In general two situations are possible:

 

  • Reduction of the weekly work days; or
  • Increase of the weekly work days.

 

Both are problematic. If there is a reduction or an increase just in the daily working hours, then – under German law, which calculates the vacation in days – the number of days’ holiday remains the same.

Within these two scenarios two options are possible:

 

  • The employee already took all of the holiday; or
  • Some holiday is left over.

 

Both the Federal Labour Court of Germany and the European Court of Justice emphasize that the vacation has to be calculated separately for full- and part-time periods. During part-time work the vacation is reduced pro rata temporis. There will never be a reduction or increase in already accrued leave.

The following principles apply in the case of leave which has not yet been claimed: If an employee works for 6 months at 3 days a week and then changes to 5 days per week, and the annual holiday for full-time work is 30 days, then he will get 10 days plus 15 days for the whole year. The same happens if he previously worked 5 days a week and changed to 3 days a week. This leads to the fact that in the second case the time off work is longer than in the first case (more than eight weeks compared to five weeks as the week is now shorter), but this is expressly accepted by the jurisprudence.

The Federal Labor Court has now decided a case where the employee had already taken the entire leave before the change in working days. Here the employee worked 4 days per week for 8 months before she switched to full-time. Her annual vacation was 30 days for full-time work. During her part-time working period she took the entire annual leave of 24 days (30 x 4/5). After the change she claimed a further 2 days leave for the full time period. This was rightly denied by the court, as the entire annual leave had already been taken. Additional holidays are therefore not to be granted.

A calculation with respect to the individual time sections is only to be carried out if the holiday has not yet been claimed. The decisive factor is always the time of the claim. Conversely, this also means that a change from full-time to part-time does not compensate for excessive leave. As a result, it produces fair and accurate results, provided caution is taken in the calculation.

New Act on Remuneration Transparency

Following up our blog post from December 19, 2016 where we reported about a legislative proposal to promote equal pay between women and men, the Remuneration Transparency Act has now entered into force.

Arguing that women still earn 7 % less than men even if statistics account for women frequently working part-time, less often climbing up the career ladder and rather working in social professions with lower salaries, the German Government felt that at least larger employers (beyond 200 employed persons) should be held responsible for their actions in this context. To close the gender pay gap the two legislative chambers of Germany have now adopted the Remuneration Transparency Act (Entgelttransparenzgesetz).

For employers it is worth taking a closer look at least at three new requirements that may impact them in the future:

• employee’s individual right to information about comparable colleagues’ pay,
• request to establish internal control procedures at company level and
• obligations to publish reports on equality and equal pay.

Let’s look at the three main issues in more detail:

  1. First, women and men working for employers with more than 200 employees will have an individual right to information in order to compare their proper remuneration with the one of colleagues of the opposite sex performing an equal or equivalent activity. This right to information does not allow employees however to obtain information about the exact pay of individual co-employees. It can only be asked for the criteria and procedures used for the wage-setting and the average gross monthly salary of a comparison group of at least 6 co-employees. In principle a written request may be made every two years, with an initial waiting period of six months after adoption of the Act. The employer has to respond in writing three months after receipt of the request. If he refuses to provide the required information, the employer bears the burden of proof in the event of a legal action. While the Act does not provide direct sanctions for noncompliance employees can however claim compensation of unduly denied payments on the basis of existing antidiscrimination rules (sec. 15 Equal Treatment Act / AGG).
  2. Employers with more than 500 employees are moreover strongly encouraged to establish operational control procedures to verify regularly that payment structures comply with the requirement of equal pay. Even if this is not a strict legal obligation the provision may gain practical relevance as the omission to establish control procedures could become part of the evidence battle for potential claimants.
  3. Employers with more than 500 employees, who are further required to publish a status report (Lagebericht) under the German Commercial Code, are obliged to combine their status report with a public report on equal pay. This report shall provide every three or five years (depending on whether the employer is bound by or applies a collective wage agreement) which measures were adopted to promote gender equality and equal pay during the last reference period and their impact. The first report has to be published within one year after the Act has come into force and shall only cover the preceding year.

The enforcement of the duties under this new piece of legislation does not provide for the usual administrative penalties. Instead, enforcement is delegated to employees who find a powerful tool to monitor their employer’s compliance with the fundamental principle of equal pay. They enjoy the reversed burden of proof if the company does not provide the necessary data or reports. It remains to be seen whether the works council bodies, which are widespread in Germany, put equal pay back on their agenda. Works councils have a general duty to ensure their company’s compliance with the law which would enable them to request reports and review information provided to individuals. Therefore it is recommended to quickly adapt relevant company structures to comply with the new requirements.

Written by Jannik Thiel and Bernd Borgmann

Ramadan – Impact on the employment relationship?

Ramadan is a challenge for both employers and employees alike, e.g. if employees do not perform as usual because of their daily fasting.

The ever-changing period of the fasting month falls between 27 May and 24 June this year. For a month Muslims abstain from eating food between five o’clock in the morning and nine o’clock in the evening. This creates challenges and it cannot be ruled out that strict fasting during the day and nocturnal eating and celebrations affect the usual efficiency and good performance of employees.

In principle, every employee enjoys freedom of worship. This is also reflected by the jurisprudence of the Federal Labor Court. Smaller mistakes or minor disturbances such as lack of concentration must be accepted by the employer. If, however, the employee carries out activities which involve particular risks or normal operational processes are considerably disrupted because of the fasting, the employer may have to consider potential measures or even a termination as the last resort. As a form of compromise, fasting may have to be postponed, which, as an aside, is an option that is recognized in certain circumstances for cases of illness or pregnancy.
In general, employers should plan ahead and, if possible seek to accommodate performance fluctuations in projects which are sensitive to quality or with regard to timing. If, however, the employee cannot be replaced, the employer may require that the fasting be postponed until after the expiry of a project deadline. This is in line with the principle of mutual consideration in the employment relationship. If the employee is not willing to agree to this, termination may be permitted in individual cases. Note, however, that mere adherence to the fasting period alone will not of itself justify a person-related termination of the employment relationship.
Should the physical strain connected to strict fasting temporarily impede an employee from performing their usual work, the employer may be required to temporarily assign other tasks to the employee instead of issuing a warning or considering a termination. In principle, this applies equally to small businesses, where the conflict between work obligations and freedom of religion can possibly lead to greater difficulty. While an employee may in certain circumstances be justified in disregarding the employer’s directions to carry out certain tasks without being in breach of his contractual duties, the employer, in turn, would be justified in withholding pay to the corresponding extent or for the corresponding period of time. An employer might also consider allocating different working hours during the fasting month.
According to the principle of equal treatment, individual employees may not be given unjustified preferential treatment. At the same time, the Equal Treatment Act prohibits discrimination against individual employees on account of their religion. In this complex situation, employers should actively engage with the employees concerned in an attempt to meet the special needs of Muslim employees.

Ineffective termination in spite of frequent short term absences due to illness

On 7 March 2017, the Higher Labour Court (LAG Mecklenburg-Western Pomerania, docket number 2 Sa 158/16) decided that a termination can be ineffective even though the employee’s absences due to illnesses are frequent and significant. The illness must fulfill the requirements of the negative prognosis that the employee will not come back to work for the foreseeable future.

The parties were in dispute about the social justification of a termination due to illness. The plaintiff worked for the defendant, who runs a production operation, since 2003 as a machine operator. From August 2011 until the end of September 2014  the plaintiff was frequently and significantly absent from work. She suffered from several diseases such as a pinched nerve in her elbow, bronchitis and an urinary tract infection. In addition to that, she went through a divorce from her husband and suffered an accompanying life crisis. From 2011 until 2014 she was absent on 301 working days. In October 2015, after the plaintiff was absent six times (for 37 working days), the defendant decided to give her a notice. In the first instance court the plaintiff’s claim was successful.

The Higher Labour Court decided as second instance that the termination was not effective as per sec. 1 of the Dismissal Protection Act (KSchG) because it could not be justified under social aspects. There could be no negative forecast regarding the plaintiff’s absence from work in the future.

The specific illness has to be included in the negative prognosis: A pinched nerve does not fulfill these requirements because injuries of the skeleton or tissue heal in normal cases. There was no evidence for the assumption that the other diseases are chronic. Furthermore, the plaintiff’s physical reaction and life crisis as a result of her divorce are insufficient for a negative prognosis. Based on general experience it can be assumed that a life crisis can be overcome.

A negative prognosis could only be based on the plaintiff’s morbidity if a judicial assessment would conclude that the number and length of the plaintiff’s diseases are above the average of other employees’ comparable diseases.

 

 

Age discrimination within the recruitment process and the burden of proof of justification

By judgment of 15 December 2016  (BAG, docket number 8 AZR 454/15), the Federal Labour Court has ruled that the employer bears the burden of proof for justification within the meaning of sec. 3 para 2 half sentence 2 of the General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz, AGG) .

In the present case, the plaintiff claimed compensation due to age discrimination in the recruitment process. The defendant is a company who runs a web portal and employs about 400 employees with an average age of 27. It published a job advertisement, looking for a “Junior Consultant for the Accounts payable department (m/f)” and searched for a “person who has just finished commercial training”. The 36 year old applicant had a corresponding level of education as an industrial clerk and had worked as an accountant for more than 10 years but his application was rejected by the defendant. The plaintiff claimed EUR 2.750,00  compensation cf. sec. 15 para 2 of the General Equal Treatment Act. In the first instance the Labour Court allowed the plaintiff’s claim. The higher court agreed with the Labour Court and therefore rejected the defendant’s appeal.

The Federal Labour Court confirms the decision of the Labour Court that the plaintiff was indirectly discriminated against by not being employed, according to sec. 3 para 2 of the General Equal Treatment Act. However, the Federal Labour Court stated that the requirement, as described in the job advertisement, also directly discriminated against older persons, like the plaintiff, compared with younger persons in terms of sec. 3 para 1 of the General Equal Treatment Act.

In case of a presumption of discrimination the other party bears the burden of proof for justification, that there is no breach of the principle of equal treatment. The defendant neither disproved this presumption nor explained why direct discrimination according to sec. 8 para 1, 10 of the General Equal Treatment Act would be permitted. The requirement for a “person who  has just finished commercial training” discriminates against older persons. In general, applicants with longer professional work experience are typically older than job starters. The requirement would indirectly impact on age and is not justified in accordance with sec. 3 para. 2 of the General Equal Treatment Act. The defendants’ general statement that the requirement ensures a good atmosphere in the workplace as a person who has just finished commercial training contributes to a “better relationship of subordination and flexibility”, is not sufficient.

In order to avoid  compensation claims against the employer, job advertisements always needs to be drafted in a gender and age neutral manner.

Determination of a termination with change of terms of employment

By judgment of 1 January 2017 (BAG, docket number 2 AZR 68/16), the Federal Labour Court ruled that a contract offer communicated by a termination with change of terms of employment has to be as precise as possible so that the employee can readily accept the contract offer.

The parties were in dispute about a change of terms of employment. After a serious accident the plaintiff, an electrical engineer, suffered from serious head injuries. After a special test, the defendant assumed that the plaintiff was no longer able to do complex programming operations for the company. Therefore, the defendant offered him a termination with change of terms of employment, under which he would still work as an electrical engineer but his task field would no longer include the creation of software but would be “all work in the warehouse”. In addition to that, the plaintiff would agree to “working on construction sites”. His hourly wage should be 8,50 € gross (instead of 2.709 € gross/month as before).The plaintiff accepted the offer under the condition of the social justification of the change of the working conditions. The Labour Court (Arbeitsgericht) and the Higher Labour Court (Landesarbeitsgericht) rejected the employee’s claim regarding the lack of social justification for the change.

The plaintiff’s appeal to the Federal Labor Court was successful. According to the ruling, the changes to the plaintiff’s working conditions were not socially justified. The termination with change of terms of employment was not  as precise as possible so that the employee could readily accept the contract offer, because the plaintiff could not know what his duties under the contract would be. In addition, the plaintiff could not extrapolate from the offered hourly wage to a particular occupation.

Leaving the workplace to take care of a sick dog can lead to termination

The Higher Labour Court Nuremberg (Landesarbeitsgericht Nürnberg, docket number 5 Sa 59/17) ruled on 21 July 2016, that leaving the workplace to take care of a sick dog can lead to termination. The Higher Labour Court confirmed the respective decision of the Labour Court Nürnberg (Arbeitsgericht).

The defendant as an employer operates a pipe cleaning company and employed the plaintiff. The parties agreed a 6-month probationary period from 1 April 2015 until 30 September 2015.

At the beginning of July 2015 the plaintiff’s dog suffered a stroke. As a result the plaintiff called the manager of the defendant and asked for one day’s holiday for the next day. The manager did not grant the day off. The next day, the plaintiff did not come to work and did not submit a certificate of disability (Arbeitsunfähigkeitsbescheinigung) to work for that day. The defendant terminated the employment agreement within the probationary period based on an unexcused absence from work.

The plaintiff alleged that the dismissal violated Sec. 616 German Civil Code (Bürgerliches Gesetzbuch). This provision allows an absence from work, if it is based on a reason to do with the person of the employee, e.g. doctor’s appointments during working hours.

The Higher Labour Court ruled that Sec. 616 German Civil Code also covers cases where the employee has to take care of his or her pet, if the pet needs medical attention. However, the employee needs to demonstrate and prove, that this is the case. Therefore the employee needs to inform his employer about the pet’s illness, the medical attention and, in this case, that there was no other possibility to take care of the dog either by a third person or at another time. The plaintiff’s explanation – that he could not attend work because of his dog’s sickness- was, according to the court ruling, not sufficient. The termination was therefore valid.

 

New legislation on Act on Part-Time Work and Fixed-Term Employment postponed

In the course of assembling a parliamentary majority after the 2013 federal elections in Germany, the CDU and SPD parties agreed in their coalition agreement on adopting legislation on increasing flexibility for employees. One of the proposals provides for the employee’s right to return to full-time work after a fixed period of part-time work. As the current session of the Bundestag comes to a close, the Federal Ministry of Labor and Social Affairs recently submitted a draft to address this objective.

The draft deals with the introduction of an employee’s right to return to full-time work after a certain period of part-time work. At the moment, the Part-Time and Temporary Employment Act allows any employee in a company with more than 15 employees to have his work schedule reduced to part-time work, yet there is no right to have full-time work reinstated as the employer may refer to important operational reasons that constitute an obstacle to the reinstatement of full-time work.

With the proposed change to the existing law the employer would have to prove that there is no suitable position available or that the employee is not suitable for any available position in order to ward off the employee’s claim. This change will especially affect medium-sized businesses as the minimum size of a company to be affected is set at only 15 employees.

It seems unlikely that the changes proposed by the German Ministry of Labor and Social Affairs will pass the Bundestag prior to the elections which will be held in September as the draft appears to be stuck in the coalition committee and the window for the whole legislative process will close soon. However, should the parties of CDU, CSU, and SPD form another “great coalition”, this might be one of the first legislative acts to follow.

Industrial action may take place in an employer’s parking lot

In a judgment dated 30 March 2017, the Higher Regional Labour Court Berlin-Brandenburg held that a trade union may take industrial action on an employer’s premises (docket number: 24 Sa 979/16).

In this case, the trade union Ver.di had planned to picket in the company parking lot of a large online retailer. Its goal was to pressure the employer to apply the local collective bargaining agreements applicable to the retail sector. By choosing the company parking lot, the trade union hoped to reach as many employees as possible. While the court of first instance had held that the employer did not have to accept industrial action on its premises, this decision was reversed on appeal. According to the court, the right to take industrial action allowed limitations on the employer’s property rights. Due to the location of the employer’s site, it considered the parking lot to be the most appropriate and effective location for the trade union’s measures, which it found did not affect the employer’s business activities. The court, however, also underlined that the employer was not required to provide other means to support the industrial action.

Due to the general importance of the legal issues involved, the court has allowed an appeal to the Federal Labour Court for review.

 

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