Age 60 as a legitimate reason to terminate a service relationship with a managing director

The attainment of age 60 can be agreed as an age limit in a service agreement allowing for the termination of the contract. This was decided by the Hamm Higher Regional Court in a judgment dated 19 June 2017, docket number 8 U 18/17. Such an age limit does not violate the General Equal Treatment Act, at least as long as the managing director is entitled to a pension payment thereafter.

The plaintiff, born in 1955, had been the managing director of the company since 2005. The service contract was last renewed up to 31 August 2018. However, the contract also included a provision allowing both parties to terminate the contract with a notice period of six months “upon entering the 61st year of life”. In June 2016, the company terminated the contract effective as of 31 December 2016. The plaintiff challenged the termination and, inter alia, argued that the termination was discriminatory.

The Higher Regional Court ruled in favour of the company and confirmed the validity of the termination based on the contractual provision. While it left open the question whether managing directors are protected by the General Equal Treatment Act, it held that even if it did apply the termination was valid. The court stated that a termination based on age could be justified as the job requirements for a managing director were high and that a company could have a legitimate interest to install a successor. If the managing director was sure to receive pension benefits following his termination, termination due to age – even below the statutory retirement age – could be in compliance with anti-discrimination laws.

Employees exempted from their duties are allowed to take part in a corporate event

On 22 June 2017 (docket number 8 CA 5233/16) the labour court in Cologne found that an employee is allowed to take part in company outings and events although he is on garden leave.

The employee and subsequently plaintiff had been working for the employer, an association that operates retirement homes, for almost three decades. Triggered by a change in the employer’s executive board, the employee agreed to be on garden leave for the last two years prior to his pension start date. Although on garden leave, he was still initially invited to the employer’s events, e.g. the Christmas party. Following another change in the employer’s executive board, the new chairman subsequently denied the employee any access to upcoming company outings or events.

The employee sued his employer and claimed to have a right to participate in company outings until his actual pension start date, even though he was on garden leave. He asserted that he had been orally granted an invitation to the upcoming events. Furthermore, the employee claimed that the General Principle of Equal Treatment would not allow the employer to exclude him from attending those events.

The labour court found that the employee had a right to participate in company outings on two different grounds – based on the General Principle of Equal Treatment and additionally based on an invitation that was made orally. The court ruled that, as long as company outings are generally held open to all employees, this constitutes a benefit on collective grounds. In such a case, an employer can only deny attendance to an individual employee based on an objective reason. Additionally, the court clearly stated that an employee might have the right to attend company outings, if this was granted to him individually.

The court stated that limiting access to company outings only to “active” employees could be seen as an objective reason for not inviting employees on garden leave. The court also made clear that an individual employee might be excluded from company outings if this employee had severely disturbed past events. However, as neither was the case here, the court ruled that there was no objective reason for excluding the employee from participating in the event. It emphasized that being on garden leave itself does not establish an objective reason on its own for an employee to be excluded from company events.

Employers should be aware of the fact that they are not able to exclude individual employees from generally open company outings or events, unless they can present an objective reason. According to the labour court in Cologne an option to prevent employees on garden leave from attending company outings or events could be to limit access to such events only to “active” employees. However, the decision can still be appealed and it has yet to be seen whether courts of a higher instance share the point of view of the labour court in Cologne.

Discriminatory job advertisement – No claim for damages if applicant was not “seriously” applying for the job

If an applicant applies for a job solely to bring a claim then he will have no claim for damages, even if the job advertisement violates the General Act on Equal Treatment (judgement of the Munich labour court dated 24 November 2016, docket number 173 C 8860/16).

A company advertised a voluntary job at a marketing agency in a local newspaper. The role required the employee to have frequent conversations with customers over the phone. The advertisement read, inter alia, “We are looking for a female employee with a friendly voice.”

The male applicant (and later plaintiff), who had an education as a banker, called the company to ask for an e-mail address for the application. He told the company on the phone that a female friend wanted to apply for the job. Subsequently, he applied for the job himself via e-mail. The company refused the application on the grounds that they had already selected “another male applicant” for the role.

The applicant sued the company for damages under the General Act on Equal Treatment on grounds that the employment advertisement was discriminatory. The company argued that the applicant was overqualified for the job and his application was not serious.

The labour court ruled in favour of the company. It argued that there was no need to determine whether the job was suitable for the applicant (although this was doubtful as he was clearly “overqualified” for the job). According to the labour court, the deciding factor was the fact that the applicant could not demonstrate a legitimate interest in the job and the application did not seem to be serious. In particular, it did not have sufficient references to the specific job offered. Rather, the e-mail sent by the applicant included unstructured text modules which indicated that it was used to apply for a number of different jobs without being modified accordingly.

Moreover, the labour court took into account the fact that the applicant had already sued several companies in the past, claiming damages for alleged violations of the General Act on Equal Treatment. In this context, the labour court referred to an e-mail from the applicant to a third party in which the applicant was talking about financing his cost of living by bringing discrimination claims to court.

The labour court concluded that the applicant was misusing the statutory provisions on discrimination in order to claim damages for financial gain. It ruled that, although the job advertisement of the company was in fact discriminatory, the applicant was not entitled to compensation under the General Act on Equal Treatment.

Penalty clause unenforceable where non-compete obligation is invalid

If a post-contractual non-compete obligation is invalid and therefore non-binding, a penalty clause intended to protect this clause is unenforceable (judgment of the Solingen labour court dated 20 June 2017, docket number 3 Ca 153/17).

The employee worked for a travel agent and had mainly sold cruises. The employee’s contract included a post-contractual non-compete obligation for the duration of three months post-termination.  After leaving the company, she joined another travel agent.

Under statutory law, a non-compete obligation is not binding insofar as it does not protect the employer’s legitimate interests. A legitimate interest can exist if the non-compete aims to protect business secrets or if it serves to protect clients. However, the mere interest of limiting competition is not protected.

In this case, the employer could not demonstrate a legitimate interest in the post-contractual non-compete. While it argued that clients in the cruise business required trusted advisors and were also attached to their respective advisors, it also stated that a three month limit was sufficient as clients would then look for other advisors. Based on this inconsistency, the court could not find that there was a legitimate interest. It even held that, typically, a short non-compete obligation may indicate that its primary goal is to limit competition rather than protect legitimate business interests.

Employee’s request for fixed-term employment narrowly interpreted

Entering into a valid fixed-term contract can be a bit of a challenge under German law. Under the Fixed Term and Part-Time Employment Act (TzBfG), one of the reasons which may be used to justify a fixed-term contract is that there are reasons relating to the circumstances of the particular employee. A recent case decided by the Federal Labour Court shows that these reasons will be narrowly interpreted (judgment dated 18 January 2017, docket number 7 AZR 236/ 15).

Originally, the employee had had a contract that limited her employment to age 65, i.e. the former statutory pension age. When revamping its company pension scheme, the employer offered employees the options to leave their employment and draw pension benefits early once they had turned 60. The employee did not immediately accept but, later on, accepted the offer. After reconsidering the early retirement option, she consequently sued and challenged the validity of the fixed-term provision.

The Federal Labour Court found the fixed-term provision to be invalid. While the employee had signed the contract, converting her previously unlimited unemployment into a fixed-term employment relationship, the court demanded objective reasons for evidencing a genuine employee interest in the fixed-term employment relationship. The standard applied by the Federal Court was whether the employee would, if an unlimited contract had been offered, have rejected that offer and only wanted to enter into a fixed-term contract. The court found that the employee would only have had a genuine choice if the employer had offered a limited as well as an unlimited contract, both with the option to draw early pension benefits. The court also held that the mere possibility of receiving company pension benefits did not qualify as a valid reason to limit the contract duration by way of a fixed-term contract.

Inadmissible evidence through installation of a keylogger

Using a software keylogger may not always be much help in supporting a termination for cause, as a recent case before the Federal Labour Court shows (judgment dated 27 July 2017, docket number 2 AZR 681/16).

The employee had worked for the employer since 2011. When opening up its network, the company informed employees that internet and software use would be monitored. The company monitored keyboard use and also produced screenshots regularly. As a result of this, the company noticed that the employee had spent considerable parts of his working time on private use of the network. The company therefore issued an immediate termination for cause and, as a precaution, also observed the regular notice period.

The employee challenged the dismissal, and it was held invalid. The evidence obtained through the use of the keylogging software was found to be inadmissible, as the company had not had the right to install this software and had violated the employees right to “informational self-determination”. As the software monitored private activities of the employee, its lawful installation would have required a suspicion based on facts that a crime was being committed or, at least, a serious breach of duties. This standard was not met.

Competing activities during notice period can justify an immediate termination for cause

In its judgment dated 12 April 2017 (docket number 3 Sa 202/16), the Higher Regional Labour Court of Schleswig Holstein found that activities for a competitor during an employee’s notice period may justify an immediate termination for cause.
Under the employment contract, the employee had committed not to hold any shares of a company in direct or indirect competition with his employer without first obtaining prior approval. In addition, under a statutory non-compete obligation, an employee may not carry out competing activities to the employer’s disadvantage.

The employee was found to be in breach of both the contractual and statutory obligation. As he had been holding more than 50% of the shares in a competing company without getting prior approval, he had violated his contractual obligation. Whilst merely holding shares does not violate the statutory non-compete obligation as such, holding more than 50% of the shares, and thus having a major influence, does.

The court also found that the dismissal was justified after weighing the relevant interests of both the employer and the employee. The employee was a proxy holder at the employer, meaning that he had been authorized to represent the employer in important legal and business matters. In addition, he had been very active in his work for the competitor, and any additional day of employment with access to documents and information would have entailed further business risks for the employer.

Forfeiture clause was valid to prevent employee’s claim despite not excluding minimum wage entitlement

In a judgement of 9 May 2017 (docket number 7 Sa 560/16 ) the regional labour court of Nurnberg held that a forfeiture clause which did not exclude entitlement to minimum remuneration was not invalid. The forfeiture clause simply did not apply to claims for minimum remuneration.

The parties had entered into an employment contract which contained the following forfeiture clause:

All claims of the parties arising under the employment contract shall be deemed forfeited unless they are asserted in writing against the other party within three (3) months after they arise and, in case of a rejection of the claim or no response for two weeks, they are taken to court within a further period of three (3) months after the rejection of the claim or two weeks after making the first written claim.

The employee raised a claim against the employer. Approximately 1.5 months later, the employer rejected the claim. Almost four months after this, the employee took the claim to court. The employee argued that his claim was not forfeited on the basis that the forfeiture clause was invalid because it also covered entitlement to minimum remuneration. The employee asserted that the clause could not be preserved in part because this would violate the statutory transparency requirements.

The court rejected the employee’s reasoning. It held that the clause was only invalid to the extent that it covered entitlement to the minimum wage (which was not claimed by the employee). Further, the court did not consider that the statutory transparency requirements were violated. The court held that obligations to exclude minimum remuneration entitlements stem from statutory law. It said that it was (or should be) common knowledge that there is no obligation to exclude minimum wage entitlement from a forfeiture clause.

The regional labour court has allowed an appeal to the Federal Labour Court. We will update you about any further developments. In any case, we recommend that minimum remuneration should be excluded from the scope of forfeiture clauses and we are happy to assist in amending your employment contracts.

New to age limits: What is allowed, what is not allowed?

Age limits remain a permanent issue in employment law in Europe. They come into play in different ways: On the one hand, as a maximum age limit for the commencement of a particular career;  on the other hand – even more relevant – as an age limit at which the employment relationship automatically terminates. A third similar case  is the provision of benefits (for example additional leave days) from or to a certain age.

All these instances have already been the subject of several decisions of the ECJ, most recently on 5 July 2017 (docket number C-190/16). The reason for the multitude of judgments is that these age limits constitute (direct) unequal treatment on grounds of age under European law (see article 1 and  2 Council Directive 2000/78/EC). This difference in treatment is only permitted if it is justified (article 6 Council Directive 2000/78/EC). This is only the case, “if, within the context of national law, they are objectively and reasonably justified by a legitimate aim, […], and if the means of achieving that aim are appropriate and necessary“. 

This presents many problems in practice. The legislator (or the employer, which adopts such a regulation) must take into account precisely the objectives pursued by a regulation and whether these objectives cannot be pursued elsewhere. This explains why some age limits are permissible and others are inadmissible.

The most important decisions of recent years are:

 

  • ECJ from 12. October 2010 – docket number C-45/09 (Rosenbladt) – Termination at statutory pension age is permitted
  • ECJ from 5. July 2012 – docket number C-141/11 (Hörnfeldt) – Termination at statutory pension age is permitted and regardless of the pension level
  • ECJ from 18. November 2010 – docket number C-250/09 and C-268/09 (Georgiev) – Age limit of 68 years for professors is permissible in the specific case
  • ECJ from 13 September 2011 – docket number C-447/09 (Prigge) – Age limit of 60 years for pilots is inadmissible in the specific case
  • ECJ from 12. January 2010 – docket number C-229/08 and C-341/08 (Petersen) – Age limit of 68 years for contract dentists is inadmissible in the specific case
  • ECJ from 6. November 2012 – docket number C-286/12 (Commission / Hongrie) – Age limit of 62 years is inadmissible for judges, prosecutors and notaries in the specific case
  • ECJ from 5. July 2017 – docket number C-190/16 (Fries) – Age limit of 65 years for pilots is permitted in the specific case

 

It is therefore important that there is always a legitimate aim which the legislature or the individual employer pursues. In the current case the goal was “establishing and maintaining a high uniform level of civil aviation safety“.

This aim must also be appropriate and necessary. Two points are relevant here: On the one hand, the ECJ often checks  at this point whether the regulation is consistently enforced. In this case, the legislator must not be contradictory (so-called coherence). Only when a aim is pursued broadly and not only in individual regulations is it recognized as permissible.

On the other hand, the ECJ now makes it clear that rigid age limits (as in most cases) are also permissible. There is no need for a single case test or an exact medical proof of the limitations on the individual from the age of 65 onwards, otherwise an efficient and practicable age limit would not be conceivable. Here the age limit is “based on extensive professional debate and expertise; they are, as objective and reasonable references for decision‑makers, of particular relevance in assessing the proportionality of the provision of EU law at issue in the present case”. A single case test would also be impractical. The ECJ here refers in large part to the detailed arguments of the Advocate General Bobek in his Opinion from 21. March 2017 (recitals 60 – 62).

On the whole, the judgments show, in any case, that caution should be exercised in every case of regulations or provisions connected to age. It is always advisable to consult legal assistance in order to avoid invalidity of the regulations.

German Employee Boardroom Participation under European Scrutiny

On 4 May 2017, the Advocate General delivered his Opinion in the case of TUI/Erzberger (docket number: C-566/15) in front of the ECJ and found that the German provisions on employee participation do not violate European law. He has now been confirmed by the ECJ on 18 July 2017.

The Higher Regional Court Berlin (Kammergericht Berlin) referred the following question to the ECJ: Do, the German provisions on employee participation conform with European Law? In particular, the Court asked whether it is compatible with Article 18 TFEU relating to the principle of non‑discrimination on grounds of nationality and Article 45 TFEU relating to freedom of movement for workers for a Member State to grant the right to vote,  and stand as a candidate,  for the employees’ representatives in the supervisory body of a company only to those workers who are employed in establishments of the company or in companies of the group within the national territory?

Mr Erzberger, a minority shareholder of TUI AG had brought the case before the Berlin court challenging the composition of the company’s Supervisory Board. German law gives employees of a German corporation and of its subsidiaries the right of co-determination through elected employee representatives on the corporation’s supervisory board. There  are detailed rules for the election which is organized by the employee representative bodies at works level. Employees working in branches or subsidiaries in other EU Member States are excluded from the election.

The ECJ has now followed the Advocate General’s lead. It has taken the view that the German provisions on corporate participation do not violate European law. Articles 18 and 45 TFEU must be interpreted as meaning that they do not preclude legislation, such as that at issue, which provides that only employees employed in the establishments of a company or in the companies of the group situated on national territory have a right to vote for, and to stand for election as employee representatives on the supervisory board of that company.

The right to vote and to stand for elections for the employees’ representatives in a supervisory body of a company is one of the ‘other conditions of work and employment’ according to Article 45 (2) TFEU.

However, in the case of TUI Group employees employed by subsidiaries established in other Member States, the necessary cross-border connection is missing. Yet, Article 45 TFEU is applicable to workers employed in Germany. Article 45 TFEU is not concerned with any disparities in treatment of employees which may result from divergences existing between the laws of the various Member States, so long as the latter affect all persons subject to them in accordance with objective criteria and without regard to their nationality. This is also not altered by the cross-border nature of the group of companies. The employment situation of the employee is still mainly determined by the legislation of the Member State in which the  employee’s activities are carried out. The court held that EU law does not, in the field of representation and collective defence of the interests of workers in the management or supervisory bodies of a company established under national law, a field which, to date, has not been harmonised or even coordinated at Union level, prevent a Member State from providing that the legislation it has adopted be applicable only to workers employed by establishments located in its national territory. EU law cannot guarantee to a worker that moving to a Member State other than his Member State of origin will be neutral in terms of social security, since, given the disparities between the Member States’ social security schemes and legislation, such a move may be more or less advantageous for the person concerned in that regard.

The Court generally follows the opinion of the Advocate General. This has been confirmed once more. At the hearing on 24 January 2017, the EU Commission had also already stepped back from its previous contrary opinion and took the position that the German provisions do not violate EU law. Therefore, it was unlikely that the feared changes in the field of German employee participation would actually occur. Anything else would also have been extremely difficult in the current political environment of the Member States.

The case was tried by the Grand Chamber, emphasising that its significance has not gone unnoticed by the court. The ruling was widely welcomed by employers and unions alike as a clear confirmation of the existing German rules on employee boardroom participation. A ruling in favour of Erzberger could have had considerable implications for other Member States’ systems of board-level employee representation. There are no EU rules providing for universal and automatic inclusion of employees outside the domestic territory.

The Regional Court Frankfurt recently had to decide a similar case that did not, however, concern the right to vote, and stand as a candidate, for the employees’ representatives in the supervisory body of a company. It held that employees of foreign subsidiaries were to be taken into account when looking at the thresholds regarding the number of employees that trigger application of employee boardroom participation rules (Drittelbeteiligungsgesetz; Mitbestimmungsgesetz). Upon appeal the Higher Regional Court Frankfurt (decision of 17 June, 2016, docket number 21 W 91/15) stayed the proceedings until a final decision in the present TUI/Erzberger case. It will be interesting to see the outcome of this case as well, as many believe it will end up with the German Federal Court of Justice or potentially again with the ECJ.

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