Compensation (severance pay) of director’s pension benefits

By judgment of 23.05.2017 (II ZR 6/16) the Federal Supreme Court (Bundesgerichtshof) has ruled that the prohibition against compensating for pension benefits according to Section 3 German Occupational Pension Act (Betriebsrentengesetz) may be derogated from by mutual consent and, as a result, ongoing pension benefits of a director can be paid out (severance pay).

In the present case, the admissibility of the compensation for an ongoing pension, which in principle according to Section 3 German Occupational Pension Act is inadmissible, was in dispute. However, the applicability of this provision (Section 3 German Occupational Pension Act) was excluded in the pension commitment granted to the director.

According to Section 17 para. 3 sentence 3 German Occupational Pension Act (as applicable until 31. December 2017; now regulated in Section 19 para 3), in principle there can be no derogation from the provisions of the German Occupational Pension Act to the detriment of employees. Section 17 para. 3 sentence 3 German Occupational Pension Act (as applicable until 31. December 2017; now regulated in Section 19 para 3) also applies to members of executive bodies such as directors in this context. However, according to Section 17 para. 3 sentence 1 German Occupational Pension Act (as applicable until 31. December 2017; now regulated in Section 19 para 1), deviations from certain provisions of the German Occupational Pension Act, such as Section 3 German Occupational Pension Act, are permissible, provided that this is regulated in a collective agreement.

The Federal Supreme Court has ruled that the exclusion of the applicability of Section 3 German Occupational Pension Act, according to which it is in principle inadmissible to pay out ongoing pension benefits, was allowed in the present case. Deviations from the German Occupational Pension Act may be agreed to the detriment of members of executive bodies, as far as deviations for employees can be agreed by collective agreements. Otherwise, members of executive bodies would be better protected by law than employees, although members of executive bodies are typically not inferior to the employer when negotiating their occupational pension.

By this decision the Federal Supreme Court follows the legal opinion of the Federal Labor Court in a previous ruling. Companies can therefore continue to agree to exclude the applicability of Section 3 German Occupational Pension Act with members of executive bodies.

Reform of the German Maternity Protection Act – What changes?

The new German Maternity Protection Act “Gesetz zur Innovation des Mutterschutzgesetzes (MuSchG)” has come into effect on 1 January 2018. The aim of the new regulation is to ensure a modern and responsible approach to maternity leave. In addition, the legislature aimed at making the Maternity Protection Act more comprehensible and clearer in its structure, thus facilitating its applicability.

Expansion of the protected target group

The regulations of the new MuSchG apply to an extended group of persons. Now pupils, students and interns are included provided it is a mandatory internship within the framework of school or university education.

The scope of application also extends to employee-like persons, who are economically dependent on a client.

Easing of working hours at night, overtime and on Sundays or public holidays

The prohibition on working at night, overtime and on Sundays or public holidays was eased. Within certain limits, women may decide for themselves whether they wish to work accordingly if there are no health reasons against it.

By express consent and after a regulatory approval procedure, working time can be extended until 10 pm.

Increased protection for miscarriages and disabled children

The period of protection following the birth of a disabled child can – at the request of the mother-  be extended from formerly eight to now twelve weeks.

In addition, protection against dismissal was introduced for women who miscarry after the twelfth week of pregnancy.

New protection for mothers in the workplace

The employer is obliged to take all possible measures to protect the woman and the unborn child in the workplace. An occupational employment ban should now be the last possible measure. The employer needs to examine whether the existing workplace can be made safe with reasonable means, such as a modification of the working conditions or a change of workplace, before a prohibition of employment is issued.

Civil servants, judges and soldiers

The same maternity protection level applies to civil servants, judges and soldiers as applies to other employees under the MuSchG.


Extraordinary termination due to feigning incapacity for work

On 7 July 2017 the State Labour Court in Cologne (docket number 4 Sa 936/16) decided that a strong suspicion that an incapacity for work is feigned, is sufficient to justify a termination for good cause, in the course of a dismissal on grounds of suspicion, even though a certificate of incapacity exists.

In general a certificate of incapacity for work has such strong evidential value that a trial judge is usually entitled to consider the proof of incapacity for work as demonstrated. However, the evidential value of a certificate of incapacity can be displaced if the employer demonstrates reasonable doubts regarding the accuracy of the certificate of incapacity for work.

In this case, the State Labour Court in Cologne assumed the accumulation of such factors with regard to the following facts: First of all the employee applied several times for vacation for a specified period of time, in order to take part at a specific event, in this case an art exhibition preview. As the first requests for vacation were refused, the employee approached the business management several times to try to achieve the granting of vacation. After the final rejection of vacation by the business management the employee submitted a certificate of incapacity including the period of the intended vacation. Corresponding to the certificate of incapacity the employee was absent during the time of the supposed incapacity for work. The period of incapacity for work exceeded the intended vacation by a few days. Furthermore it could be demonstrated by a private detective that the employee visited the specific event. In the subsequent hearing by the employer the employee provided false information about her stay regarding the relevant time period of incapacity for work and denied she visited the art preview.

The attending physician issued a certificate of incapacity for psychological illness. According to the statement made by the attending physician, the diagnosis depended only on her own experience in this field without any implementation of an objective diagnosis.

The employee was required to pay the charges of the private investigator. By sec. 249 civil code, liability for damages includes all expenses the wronged party was permitted to consider as necessary to prevent any impending disadvantages, so far as there were concrete suspicious facts concerning the matter. The duty to compensate for damage is limited to an amount or rather to measures a reasonable economically thinking employee would consider as appropriate and necessary having regard to the circumstances of the particular case.

In practice, this means:  If an employee reports sick after his/her application for leave was finally rejected and there are further circumstances which give rise to reasonable doubts regarding the credibility of the incapacity for work due to illness, it could be useful to engage a private investigator in order to displace the evidential value of the certificate of incapacity. However, regardless of this judgement it should be noted the medical examination by the medical service of the health insurance pursuant to sec 275 paragraph 1a sentence 3 SGB V is in case of doubt a far easier, less expensive and less risky opportunity for an employer to remove any doubt regarding to the incapacity for work (cf. BAG 28.05.2009 – 8 AZR 226/08 – Rn. 26).

Commencement of the „two months period“ for asserting claims for damages due to a violation of the General Act on Equal Treatment

On 29 June 2017 the Federal Labour Court ruled that a “rejection of an application” by a company requires an explicit or implied statement from the company that can be interpreted by the applicant in the way that his application was not successful. Only if such statement is received the two months period for asserting claims for damages due to a violation of the General Act on Equal Treatment commences (docket number 8 AZR 402/15).

If a job application is rejected by the potential employer for reasons which constitute a violation of the prohibition of adverse treatment, the applicant can claim damages under the German General Act on Equal Treatment. Sec. 15 para. 4 of the General Act on Equal Treatment states that such a claim for damages must be asserted in writing and generally “within a period of two months” (exceptions apply in case of deviating regulations in collective bargaining agreements). It further states that “this period [of two months] shall begin to run in the case of a job application […] upon receipt of the rejection”.

In the case at hand a company advertised for short term work in an office for the time period 18 March – 17 May 2013. The job advertisement violated the General Act on Equal Treatment as it stated that “German as mother tongue” was required for applicants. The applicant and later plaintiff, whose mother tongue is Russian, applied for the job in February 2013 and, at first, did not get any response from the company. Only after actively asking the company several months later in September 2013, the applicant was informed that his application had not been successful. The applicant claimed damages in the beginning of November 2013.

The Federal Labour Court ruled that the job advertisement was discriminatory and that the applicant was entitled to damages. In particular, the Federal Labour Court held that the applicant asserted his claims in time as the two months period of sec. 15 para. 4 of the General Act on Equal Treatment did not commence before the applicant received the response from the company in September 2013. The Federal Labour Court emphasized that a “rejection of an application” within the meaning of sec. 15 para. 4 of the General Act on Equal Treatment did not require a “formal letter” from the company. However, a “rejection of an application” in terms of Sec. 15 para. 4 of the General Act on Equal Treatment requires an explicit or implied statement from the company that can be interpreted by the applicant in the way that his application was not successful. If a company does not react at all, the requirements for such a “rejection” are not fulfilled.

The decision of the Federal Labour Court shows that applicants are not excluded from claiming damages under the General Act on Equal treatment even several months after their application, if their application had not been properly rejected by the company yet. As a result companies should not only avoid discriminatory job advertisements but also make sure to explicitly reject the applications of applicants they do not want to hire.

Threat to commit suicide or to run amok can justify a dismissal for cause with immediate effect

On 29 June 2017 the Federal Labour Court decided that a serious threat of committing suicide or to run amok can be a compelling reason to terminate an employment relationship for cause with immediate effect if the employee thereby seeks to exert pressure on the employer (docket number 2 AZR 47/16).

The employee and later plaintiff had been employed by the German federal state of Hesse since 1992 and worked – for most of the time – in road maintenance. He enjoyed special dismissal protection based on collective bargaining agreements. The employee had been suffering from psychological difficulties and, as a result, had a history of long-term and repeated sick leave. He had been recognized by the authorities as being “severely disabled” (“schwerbehindert”) in 2013.

The employee took part in a program to manage his work re-integration after a long-term sickness (“betriebliches Eingliederungsmanagement”). In August 2013 he attended a meeting regarding these integration measures. During this meeting there was discussion about which tasks the employee could still perform in spite of his psychological difficulties. The employee reacted very emotionally to a proposal by his employer. In this context the employee allegedly said in a very menacing manner that “he could not guarantee not to have a relapse”. He added that he “could also not guarantee not to kill himself or to run amok”. He also referred to his membership of a “rifle club”. According to a medical inspection the employee was sane and accountable at the time he made these comments. The employee did not subsequently distance himself from his comments.

The employer dismissed the employee for cause with immediate effect. The employee claimed that this dismissal was unjustified. The Labour Court (Arbeitsgericht) rejected his complaint. The employee, however, appealed against this decision and the Higher Regional Labour Court of Hesse (Landesarbeitsgericht Hessen) decided in his favour. It ruled that the threat was only a momentary failure and ultimately not credible. It hence regarded the dismissal for cause as not justified. It also stated that the employee was in a very emotional and unstable state. Furthermore it should be taken into account that a meeting regarding re-integration of a long term sick employee is to be considered a “protected environment” where the employee should be able to “open himself”.

The employer’s appeal to the Federal Labour Court (Bundesarbeitsgericht) was successful. According to the Federal Labour Court the lower instance did not take all relevant criteria into account and its overall consideration was not free from errors of law. In particular, the Federal Labour Court emphasized the severity of a “threat to commit suicide” and that the employee tried to exert pressure on his employer to prevent the assignment of certain tasks. It also made clear that the character of the meeting (integration management) was not relevant for assessing the gravity of the employee’s comments. The Federal Labour Court also stated that it was not decisive whether the employee was seriously considering suicide or running amok. It was sufficient that the threat seemed serious and that this impression was intended by the employee. The Federal Labour Court referred the matter back to the Higher Regional Labour Court for a new decision as the context and the exact content of the comments was still in dispute between the parties.

With this decision the Federal Labour Court is continuing its case law on threats made by employees to their employer. Such threats can qualify as a compelling reason for a dismissal for cause and it is not decisive whether the employee in fact plans to follow through with the threat. However, in each individual case all circumstances and the interests of both parties have to be taken into account. In the case at hand the employee allegedly threatened to harm himself and potentially others to gain personal advantages. The Federal Labour Court correctly stressed the gravity of such comments and made also clear that the context of a re-integration meeting with the employer does not change the severity of the threats.

No general participation right for representative of severely disabled people for warning notices

The Higher Regional Labour Court of Baden-Württemberg decided on 7 April, 2017 (docket number 7 TaBV 1/17) that the representative of severely disabled people has no right to be generally involved before a warning notice is issued to a disabled person.

The representative of severely disabled people requested the determination of a general right to be involved in warning notices against severely disabled people and people treated as such. The Labour Court of Reutlingen rejected the claim. The complaint against it before the Higher Regional Labour Court of Baden-Württemberg was unsuccessful.

The Labour Court of Reutlingen ruled that German law does not foresee this right to the extent demanded by the plaintiff. The Higher Regional Labour Court of Baden-Württemberg adopted the arguments brought forward by the Labour Court entirely.

German law stipulates a right of the representative of severely disabled people to be involved without delay and comprehensively in all matters affecting severely disabled people. This obligation does not exist though, if the interests of the severely disabled person are no more affected than of those not severely disabled. The regulation only has the objective to compensate for disability-related disadvantages. If there is no correlation between the warning notice and the disability there is no need for special protection. The representative only has to be involved if the behaviour of the disabled person could be connected to the disability.

German law also obligates the employer to involve the representative of severely disabled people when difficulties arise that could endanger the employment relationship. When a warning notice is given this does not constitute a difficulty within the meaning of these legal provisions. The warning notice does not constitute a danger to the employment relationship but is merely a means to call upon the employee to conduct himself in accordance with the contract.

Obligation to provide the works council with salary data does not allow for anonymized lists

Under the Works Constitution Act, the works council has a right to access information regarding the gross salary of employees. Such information is provided to the works council in form of a chart including relevant compensation details. In a case decided by the Higher Regional Labour Court of North Rhine Westphalia – Hamm – (judgment dated 19 September 2017, docket number 7 TaBV 43/17), the employer had, after initial disagreement, provided the works council with a list containing compensation data, however in anonymized form. The works council requested a de-anonymized list, matching the relevant compensation data with the employee name. The court held that the works council had a right to be provided with a de-anonymized overview, as the works council could not be expected to investigate each employee name individually. The court also held that a list including the relevant employee names did not cause data privacy concerns. Constitutional rights, if any, of employees were also found to be unsuitable to justify the employer’s position towards the works council. The court also confirmed that an employer’s obligation under the Remuneration Transparency Act to produce lists including employee compensation data, which allows for anonymized form, did not limit the works council’s information right.

Competencies of Labour Courts for Managing Director Service Contracts

The regional labour court of Cologne held in an order of 6 October 2017 (docket number 9 Ta 151/17) that the labour court is not competent to hear claims of managing directors, if there are no special circumstances that account for an employment relationship being established.

The parties concluded a managing director service contract on 21 July 2015. The first payment was stipulated for the 30 September 2015. The plaintiff claimed to have started with preparatory work for the planned business, and that there was a factual employment relationship from 21 July 2015 onwards. He argued that he had no budget responsibility, received orders from the shareholder and had to apply for leave. According to the plaintiff, on 7 September 2015 the shareholder’s meeting appointed him as the managing director. He terminated the contract extraordinarily with effect from 31 October 2015.

The plaintiff sued for employee’s salary before the labour court of Bonn, which decided that the legal action before the labour court was admissible. The respondent appealed this decision, arguing that there was no employment contract and that the ordinary courts would be competent.

The regional labour court of Cologne ordered that the labour court Bonn is not competent. There was no employment contract; any activity by the plaintiff was based on the managing director service contract, especially considering that he based his claims for remuneration on that contract.

If there are no special circumstances, contracts with managing directors are service contracts and not employment contracts. The orders from the shareholder the plaintiff referred to are merely a consequence of the right of instruction resulting from corporate law. There can be cases in which there is no difference to a right of instruction of an employer, but this cannot be assumed in the present case only because of the necessity to apply for leave. The managing director is obliged to take vacation in consultation with the company’s interests.

The regional labour court of Cologne regarded as crucial that the plaintiff was assigned responsible activities, which accounted for his special status. The mere fact that the plaintiff started his activities before he was appointed as a managing director by the shareholder’s meeting does not allow for any conclusions to be drawn with respect to the nature of the service contract.


Information right of the works council independent of employee consent

According to a recent judgment by the Higher Regional Labour Court in Munich (docket number 11 TaBV 36/17) of 27 September 2017, the works council is entitled to receive information regarding the existence of pregnant employees in the operation.

In the case at hand, the employer had provided employees with a right to “opt out” from forwarding the employer notification about their pregnancy to the works council. If employees objected to their information being forwarded, the works council did not receive such information due to privacy concerns. The works council argued that in order to be able to verify whether the employer complied with employee protection rights, and in particular provisions protecting expectant mothers, it was entitled to receive such information even if the employee had objected.

The Higher Regional Labour Court confirmed that the works council was entitled to receive information on pregnant employees within the operation. It stated that works council information rights were not subject to employee consent, and that the works council was only able to monitor compliance or inform employees about special rights and entitlements if it had complete information about relevant employee data, such as an employee’s pregnancy.

Employer’s financial risks in the event of not granting annual leave

I. Holiday right: Germany and Europe

In principle, every employee is entitled to annual leave – as emphasized by German law as well as EU law (Art. 7 (1) and (2) directive 2003/88/EC. In addition, the holiday must be taken during the current year (sec. 7 (3) Federal leave Act (“Bundesurlaubsgesetz – BUrlG”). A transfer to subsequent years is generally inadmissible (sec. 7 (3) BUrlG). Holiday can only be transferred to the following year in special cases and then only to be used within three months. However, employment contracts or collective agreements often provide for the possibility of a longer transfer period into the next year.
The problem of transferring the leave entitlement to subsequent years, however, is only dealt with in German law, not in European law. Here, therefore, national law still seems to be relevant.

II. The judgments of the ECJ, esp. judgment of 29 November 2017

Nevertheless, the ECJ has decided to the contrary in several judgments: In the Schultz-Hoff case in 2009 (docket number C-350/06), the ECJ emphasized,

“Article 7(2) of Directive 2003/88 must be interpreted as precluding national legislation or practices which provide that, on termination of the employment relationship, no allowance in lieu of paid annual leave not taken is to be paid to a worker who has been on sick leave for the whole or part of the leave year and/or of a carry-over period, which was the reason why he could not exercise his right to paid annual leave”.

Shortly thereafter, the ECJ was forced to modify its decision, stressing:

“Article 7(1) of Directive 2003/88/EC of the European Parliament and of the Council of 4 November 2003 concerning certain aspects of the organisation of working time must be interpreted as not precluding national provisions or practices, such as collective agreements, which limit, by a carry-over period of 15 months on the expiry of which the right to paid annual leave lapses, the accumulation of entitlement to such leave of a worker who is unfit for work for several consecutive reference periods”. (judgment from 22. November 2011, KHS, docket number C-214/10).

It is clear: The ECJ also decides on the transfer period for annual leave, which – so they thought so far – is limited in time. German law had to react to this and interpret sec. 7 (3) BUrlG in accordance with European law.
Surprisingly, the ECJ seems to change its position in a recent decision of 29 November 2017 (docket number C-214/16). A so-called bogus self-employed person – a worker who worked on the basis of a ‘self-employed commission-only contract’ not being entitled to the rights a worker gets (such as paid annual leave) – had sued for compensation in respect of the leave not granted to him from 1999 till 2012. It would have been expected, according to the above, that the ECJ limited the compensation. But this did not happen here. The ECJ emphasized:

“Article 7 of Directive 2003/88 must be interpreted as precluding national provisions or practices that prevent a worker from carrying over and, where appropriate, accumulating, until termination of his employment relationship, paid annual leave rights not exercised in respect of several consecutive reference periods because his employer refused to remunerate that leave.”

The result is that the employer has to financially compensate the 13 years of annual leave (ie at least 13 x 20 = 260 days). A time limit was denied. However, this does not mean that the ECJ now completely abandons its previous case-law. The ECJ wants in most cases to maintain the previous case law and to limit the accumulation of the holiday entitlement and the allowance in lieu. In particular, the judgment expressly recognizes that employers should be protected against excessive financial burden (recital 55). However, this protection is only granted if the employer really needs it. In this specific case the ECJ acknowledges, that “protection of the employer’s interests does not seem strictly necessary” (recital 59). It was only the employer to be blamed for not granting the bogus self-employed person leave. For this particular reason alone there is no time limit.

III. Consequences for the employer

The employer should therefore be “punished” for having violated regulations. In principle, he cannot therefore rely on the fact that the holiday and thus also the compensation claim cannot be accrued indefinitely. It is only important that he gives the worker the possibility to take annual leave. It is also important to check exactly whether there is bogus self-employment. Creative constructions for bypassing the rights of workers are strongly discouraged. Employers should always be advised to ensure that employees complete their vacation within one year. This minimizes the risks of – possibly even unlimited – compensation when leaving employment.

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