No co-determination rights of the works council for stock options issued by a foreign parent company

In a judgment dated 3 August 2017, the Higher Regional Labour Court of Hessen has held that a works council’s co-determination rights do not extend to stock option plans by an employer’s foreign parent company (docket number 5 TaBV 23/17).

 

Under German law, works councils have a co-determination right regarding remuneration principles. In this case, the foreign parent company decided annually and independently from the local employing entity whether stock options were to be granted, which employees would receive these stock options and, if so, how many. Local employment documents of the German employees did not include any reference to the stock option award as part of their remuneration, and the German employing entity did not have any influence on the award process. The local works council claimed a co-determination right with regard to the award process based on the implementation of remuneration principles.

 

The Higher Regional Labour Court rejected this claim, stating that co-determination rights of the works council only applied if the employer had at least a certain amount of freedom to make an independent decision. Merely executing binding guidelines or decisions is not sufficient to trigger co-determination rights. Since the local employing entity had no say in the stock option award process, e.g., through a right to make proposals, there was no room for negotiations with the works council.

 

An appeal against this decision has been lodged with the Federal Labour Court under the docket number 1 ABR 57/17.

Addressing applicants “who are about to graduate”, asking for “very good German and English language skills” as well as a description of being a “young, dynamic company” is in general non-discriminatory

On 23 November 2017 the Federal Labour Court (Bundesarbeitsgericht, BAG) ruled in two parallel proceedings, each with the same plaintiff, on compensation claims for an alleged infringement of the principle of non-discrimination under the General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz, AGG) on the basis of two job advertisements. The first position required a completed degree, or that the applicant was about to graduate, as well as very good German and English language skills (docket number 8 AZR 372/16). The second position was advertised by a company that described itself as being “young, dynamic” (docket number 8 AZR 604/16). The defendants rejected the applications made by the plaintiff. As a result the plaintiff brought claims for compensation, inter alia, due to discrimination on grounds of age and ethnic origin. In support of this the plaintiff referred to the wording of the job advertisements.

The Federal Labour Court stated that applicants who consider themselves wronged because of a breach of the principle of equal treatment satisfy the burden of proof if they can present evidence that indicates, with overwhelming probability, that a disadvantage has occurred due to the reasons stated in sec. 1 General Equal Treatment Act.

Advertising a position which is contrary to the principle of non-discrimination, may justify the finding that an unsuccessful applicant was disadvantaged in the selection procedure and it is then down to the employer to refute the allegation. In the present cases however, no such evidence was provided.

“Being about to graduate” (8 AZR 372/16) and “young, dynamic company” (8 AZR 604/16)

It was held that “being about to graduate” did not refer to an exact age and it was not to be understood as a requirement that only addressed young applicants. According to the Federal Labour Court, older people would not have been seriously discouraged from submitting their applications and thus, it did not suggest discrimination because of age. The same applied to the company’s statement that it is ‘a young, dynamic company’ as this was held to be enterprise-related information that did not refer to the workforce or the desired applicants. However, it was suggested that this decision could be different if the company was, in fact, an old business or the terminology referred to a specific “team” and not the company as a whole.

“Very good German and English language skills” (8 AZR 372/16)

The Federal Labour Court elaborated that the request for the applicant to have very good knowledge of the German and English language was an expression of entrepreneurial freedom and not discrimination because of ethnic origin. It was not evident that this requirement was a mere pretext and the demand for two languages counters an inseparable connection with a particular ethnic group. The Court referred to its ruling of 15 December 2016 (docket number 8 AZR 418/15) and clarified that the case would be different if the job advertisement was exclusively and directly related to a native language, e.g. “German as mother tongue”. The mother tongue is connected to a linguistic area and to the ethnic origin of the person. This is different to other language skills as they can be taught and be evaluated in tests.

Practical implications

These judgements demonstrate that although the applicant generally has a favourable burden of proof, unsubstantiated allegations cannot give rise to a presumption to the detriment of the employer. A job advertisement is interpreted according to its objective content, whereby the court will take into account what the average applicant is likely to understand. The employer can rely on this objective interpretation. To survive on the market the employer can stipulate professional requirements. As long as there is no evidence that the demand for specific qualifications is merely an excuse, this does not constitute discrimination, e.g. because of ethnic origin. However, employers should avoid asking applicants to have a specific “mother tongue” language.

Current case law of the Federal Labour Court on forfeiture periods

In June 2018, the Federal Labour Court (Bundesarbeitsgericht, BAG) dealt intensively with forfeiture periods. The judgments addressed:

  • The date when the deadline starts to run (07 June 2018; docket number 8 AZR 96/17);
  • The suspension due to settlement negotiations (20 June 2018; docket number 5 AZR 262/17); and
  • The entitlement for statutory minimum wage during the period of incapacity for work despite forfeiture periods under tariffs (20 June 2018; docket number 5 AZR 377/17).

Start of the deadline run (8 AZR 96/17)

In this case, which concerned the disappearance of an unpaid car, the Court held that an employee could successfully invoke a contractual forfeiture period, meaning that all claims arising out of the employment were to expire within three months of their due date, unless they were previously asserted in writing against the other party. The Court ruled that the employer’s decision to sue the customer in court marks the beginning of the forfeiture period. In this case, nothing else could arise with regards to the employer’s duty to limit eventual damages as far as possible or the employer`s contractual accessory obligation, as in the absence of prospects of success, priority claims against the customer were not required.

Suspension of a forfeiture period due to settlement negotiations (5 AZR 262/17)

The Court stated that a forfeiture period due to settlement negotiations can be suspended under sec. 203 sent. 1 Civil Code (Bürgerliches Gesetzbuch, BGB), as long as the parties conduct pre-trial settlement negotiations. In addition, pursuant to sec. 209 Civil Code, the period during which the settlement negotiations take place, should not be included in the forfeiture period. In this case, the defendant rejected the claim, but stressed that he was willing to find a mutual solution.

Entitlement to statutory minimum wage despite tariff forfeiture period (5 AZR 377/17)

The Court also considered whether an employee would be entitled to continued remuneration where they are away from work due to sickness. The Court held that the entitlement to continued remuneration pursuant to sec. 3 para. 1 Continuation of Remuneration Act (Entgeltfortzahlungsgesetz, EFZG), in spite of its indispensability according to sec. 12 Continuation of Remuneration Act, may still be subject to a tariff forfeiture period. However, such a regulation will be ineffective under sec. 3 sent. 1 Act for the Regulation of a General Minimum Wage (Mindestlohngesetz, MiLoG), insofar as it also covers the statutory minimum wage, as the employee must be paid the statutory minimum wage during their incapacity to work.

Conclusion

The purpose of forfeiture periods is to provide the contractual partner with certainty as to when or whether he should expect further claims. Typically, it will be the employer who benefits from forfeiture periods as, in most cases, it is the employee who brings a claim against the employer. However, the ruling on the ‘start of the deadline run’ demonstrates that the employer must also ensure that (damage) claims are brought within the forfeiture period, ie. as soon as an objective view deems that some damage has occurred.

It still remains unclear whether forfeiture periods must expressly exclude statutory minimum wage claims in order to be effective. This long-awaited clarification was gallantly circumvented by the Federal Labour Court by calling on the suspension due to settlement negotiations. Also, the ruling on tariff forfeiture periods cannot be used in this respect, because tariff agreements are treated completely different than employment clauses. For the time being, employers should therefore include an express exemption for essential entitlements, such as the statutory minimum wage, in their forfeiture periods in order to avoid the entire forfeiture clause being null and void.

Transitional payment prior to retirement to be considered as an occupational pension

By judgment of 20.03.2018 (3 AZR 277/16) the Federal Labour Court has ruled that a transitional payment (taking into account pension payments) that is granted to a former employee during the first six months after their retirement is to be deemed to be an occupational pension and is, therefore, covered by the German Pension Insurance Association (Pensionssicherungsverein).

The former employee (plaintiff) was granted a transitional payment on the basis of a works agreement by his former employer, which was insolvent at the time when the payment was due. According to that agreement, the transitional payment was intended to be granted for a period of six months, provided that the employee retired from the employer immediately after his active period of employment ended.

As of January 2015, the plaintiff received an occupational pension. Due to his employer’s insolvency, this occupational pension was granted by the German Pension Insurance Association. The plaintiff claimed that the German Pension Insurance Association was obliged to pay the transitional payment as well, since, in his opinion, it was to be considered as an occupational pension according to German law. In the German Pension Insurance Association’s view the transitional payment was not to be classified as a pension benefit as defined by German occupational pension law.

The Federal Labour Court rejected the German Pension Insurance Association’s view and upheld the plaintiff’s claim, according to which the German Pension Insurance Association is now obliged to pay the transitional payment. The court argued that the transitional payment is referable to a risk as defined in the German Occupational Pension Act (“old age”). The terms of the payment require that the employee reaches retirement age; the payment  is not being made for the purpose of improving the plaintiff’s financial situation until he retires, but solely to improve his standard of living after retirement. As a result, the transitional payment is to be classified as a pension benefit.

The classification of such payments, commonly referred to as “transitional payments” (“Übergangszahlungen”), is often unclear. It always requires an in-depth analysis of the purpose that is intended by the payment. If the payment is referable to a risk as defined in the German Occupational Pension Act, it is to be considered as an occupational pension and will therefore be covered by the German Pension Insurance Association. This is not the case if, for example, the payment is only made until the employee reaches retirement or is compensation for the period until the employee has found a new job.

Minimum wage increase

The statutory minimum wage increases: to 9.19 euros on 1 January 2019 and to 9.35 euros per hour on 1 January 2020. This has been decided by the minimum wage commission. The increase is higher than expected.

The minimum wage is currently 8.84 euros gross per hour. Every two years, the Minimum Wage Commission (which consists of representatives of employers, unions and science) advises on adjusting the amount. . In doing so, it examines the level of the minimum wage that is suitable for contributing to an adequate minimum protection of employees, to enable fair and efficient conditions of competition, and not to jeopardize employment. Orientation is provided by general CBA developments.

Increase of 5.8 percent: According to the Commission’s proposal, the statutory minimum wage will rise by a total of 51 cents or 5.8 percent to 9.35 euros over the next two years. With this proposal the Commission goes beyond the expected increase. Looking at average increases of the past two years at CBA level, as suggested by the Commission’s Statutes for the normal case, it would have increased to EUR 9.19 per hour.

Change of case law for time limit contracts – Time limit without reason in case of previous employment always inadmissible

 

I. General Problems of time limit contracts

The agreement on a time limit for the employment contract often leads to problems in practical use. Caution is, however, required, since a fixed term is only permitted under special statutory conditions. If these reasons are not available and nevertheless a – impermissible – time limit is agreed, then the employment agreement with the limited term shall be deemed to have been concluded for an indefinite period of time (sec. 16 (1) Part-Time and Limited Term Employment Act (“Teilzeit- und Befristungsgesetz – TzBfG”).

The Part-Time and Limited Term Employment Act enables the use of fixed-term contracts with objective reasons (sec 14 (1) Part-Time and Limited Term Employment Act) and without objective reasons but with other regulations (sec 14 (2) and (3) Part-Time and Limited Term Employment Act).

 

II. Especially time limit without reasons

A time limit without objective reasons is currently permitted for a maximum of two years. Within this time, a shorter time limit can be extended up to three times (sec. 14 (2) 1 Part-Time and Limited Term Employment Act):

The limitation of the term of an employment agreement according to the calendar to up to two years where no objective grounds exist is permissible; moreover, a term fixed according to the calendar may be extended no more than three times up to a total term of two years.

As a result, a large part of employment contracts are initially closed on a temporary basis. However, legal changes are already planned here. A time limit without material reason should now only be possible for a maximum of 18 months (instead of 24 months). In this period, the time limit shall only be extended only once. (see our article regarding the new Coalition agreement).

 

III. In particular: Inadmissibility of prior employment

Regardless, however, the law emphasizes, that a fixed-term contract without objective reason is not permissible, if the employee has previously been employed by the employer (sec. 14 (2) 2 Part-Time and Limited Term Employment Act):

A fixed term pursuant to sent. 1 is not permissible if a fixed or unlimited term employment relationship had previously existed with the same employer.

Since 2011 the Federal Labour Court of Germany decided that the employee is not employed “already before”, if the employment relationship was more than three years in the past (docket number 7 AZR 716/09). This case-law, which has been widely criticized and contradicts the clear wording of the law, does no longer apply. This was stated by the German Federal Constitutional Court on 6 June 2018 (docket number – 1 BvL 7/14 and 1 BvR 1375/14). The court emphasized that the case law must comply with the clear wording of the law. For this reason, the previous case law must be abandoned. A time limit without material reason is therefore only permissible if there has not been an employment relationship with the employer before. Otherwise, only a time limit with reason (if there is a reason) is possible. This does not apply, however, when another contractual relationship with the employer (for example, training or internship) existed in the past. This is not an employment relationship and thus does not block a fixed-term contract without objective reason.

This, however, makes it clear that the possibility of a fixed-term contract without objective reason will be further restricted. Be it through the future legislative changes, be it through the now amended case law. Thus, it must be examined even more precisely than before whether an employment contract can be concluded for a limited period.

 

ECJ: Death of the employee does not cancel holiday compensation – this also applies to private employers

What happens to open holiday entitlements when the employee dies? It is clear that nobody else – not even the heirs – gets the holiday granted (as free time) . Nevertheless, European and German holiday law provide for compensation for untaken leave in special cases. However, this only occurs if it was not possible to claim the leave. It was questionable whether the death of the employee is such a case. This was already clearly confirmed by the ECJ in a decision in 2014 (ECJ from 12. June 2014 – docket number C-118/13 – Bollacke).

I. Compensation for death (and heredity)

The German Federal Labor Court (Bundesarbeitsgericht), however, saw this differently and stressed that it was not possible for this decision to be compatible with German law. For this reason, the ECJ was once again asked the following question: “Does Article 7 of Directive 2003/88 […] grant the heir of a worker who died while in an employment relationship a right to financial compensation for the worker’s minimum annual leave prior to his death, which is precluded by [german law]?” 

Advocate General Yves Bot clearly answered this question in his Opinion of 29 May 2018. He made it clear, that – as already decided by the ECJ – the claim for compensation by the death of the employee must not be dropped. Unmistakably he pointed out:

I would recall that the Court has already ruled in Bollacke, regarding the same provisions of German law, that Article 7 of Directive 2003/88 must be interpreted as precluding national legislation or practice, such as that at issue in the main proceedings, which provides that the entitlement to paid annual leave is lost without conferring entitlement to an allowance in lieu of outstanding paid annual leave, where the employment relationship is terminated by the death of the worker.”

 II. Consequences for implementation in Germany 

This view was to be expected. Only very rarely, the ECJ or the Advocate General deviates from a clear (current) decision of the court (as we have here in the Bollacke case). What is problematic, however, is what that means for German law, since the Federal Labor Court took the view that this was incompatible with German law. Here again, the Advocate General is very clear. He makes it clear that the view of the Federal Labor Court is not mandatory. Also the literature and other lower German Labor courts have deviated from the Federal Labor Court. Indirectly, the Federal Labor Court is therefore advised by the Advocate General to reconsider this point of view. The Federal Labor Court

should take into account, on the one hand, that those national provisions are formulated in a relatively broad and general manner and, on the other hand, that the orders for reference themselves seem to indicate that the incompatibility of the national legislation with EU law is based on the interpretation by the Bundesarbeitsgericht (Federal Labour Court) of those provisions.” 

But even in the event that this is not possible, the Advocate General points out a solution. Here, the Advocate General is causing a surprise. He emphasizes: “I therefore invite the Court to strengthen the enforceability of the fundamental social rights which possess the qualities that allow them to be relied on directly in disputes between individuals.” He demands here a “direct horizontal effect” of the European regulations. Whether such an effect exists is one of the most problematic issues of European law. Especially in employment law, this has far-reaching consequences. If such an effect is lacking, European law can never apply directly between employee and (private) employer. In other words, claims must therefore necessarily result from the national law (interpreted in the sense of the European law). But if such an interpretation is not possible, a claim against the employer would not be possible as well. Only claims for compensation could then be made against the state itself.

This makes it clear that this decision can have far-reaching consequences. 

III. Consequences 

First of all, we have to wait and see how far the ECJ joins the Advocate General. Very often there are hardly any discrepancies here. If, in fact, a far-reaching direct horizontal effect is affirmed by the ECJ, this would further strengthen the importance of European law. Even more than now, European law should be observed. Especially in employment law, almost all areas are determined by European law. This must be considered in the legal advice. This applies not only in Germany, but in all EU countries. Only in this way can the risks for the employer be minimized.

Commission adopts proposals for a European Labour Authority

The European Commission is taking more concrete new initiatives to further deliver on the European Pillar of Social Rights. More specifically, the Commission has presented its proposal for a European Labour Authority, as announced by President Juncker in 2017, as well as an initiative to ensure access to social protection for all workers and self-employed.

Over the last decade, the number of mobile citizens, people living and/or working in another Member State, has almost doubled to reach 17 million in 2017. According to the Commission the European Labour Authority will help individuals, businesses and national administrations to get the most out of the opportunities offered by free movement and to ensure fair labour mobility. The objective of the Authority is three-fold.
The Authority is intended to provide information to citizens and business on opportunities for jobs, apprenticeships, mobility schemes, recruitments and training, as well as guidance on rights and obligations to live, work and/or operate in another Member State of the EU.

In addition, according to Commission plans, the Authority will support cooperation between national authorities in cross-border situations, by helping them ensure that the EU rules that protect and regulate mobility are easily and effectively followed. Today, an extensive body of EU legislation regulates the free movement of workers and a number of such rules are being amended and modernised, such as for the coordination of social security systems across the EU and issues like posting of workers in the context of service provision (revision of the Posting of Workers Directive). The Commission’s priority is to make these rules fairer and fit-for-purpose but also to make sure that they can be correctly applied and enforced in an effective way in all economic sectors.

Third, the European Labour Authority will be able to provide mediation and facilitate solutions in case of cross-border disputes, such as in the event of company restructuring involving several Member States.

In accordance with the ordinary legislative procedure, this proposal for a Regulation will now be examined by the European Parliament and the Council. According to the Commission the European Labour Authority should be established as a new decentralised EU agency and, following the completion of the EU legislative process, should be up and running in 2019. To facilitate the establishment of the Authority and make sure it is rapidly up and running once created, the Commission is also setting up an advisory group composed of key stakeholders to look into the practical aspects of the future functioning of the Authority.

Requirements of offering of job performance, relationship to reintegration relationship

On 6 December 2017 the Federal Labor Court (docket number 5 AZR 815/16) decided an employee has to offer his job performance in accordance with the contract of employment, in order to claim remuneration for default of acceptance. It is not sufficient to offer an activity within a reintegration relationship according to sec. 74 Social Security Statute Book V (Sozialgesetzbuch V, SGB V), since the reintegration relationship is a contractual relationship sui generis, which is not part of the employment relationship. In contrast to the employment relationship, the reintegration relationship is not characterized by an exchange of performance and consideration, but by the purpose of rehabilitation.

The plaintiff is employed as teacher by the defendant federal state. From March 2007 he was incapacitated for work because of sickness. During the period of February 2008 until May 2009 a medical specialist treated him. She recommended a gradual reintegration into working life for three hours a day from 26 June 2009 until 3 July 2009. In the reintegration plan the medical specialist indicated that he would be fit to return to work by the end of the summer holidays. However, the defendant federal state did not implement the reintegration.

By letter dated 25 August 2009, the plaintiff’s representative stated that the incapacity for work would end on 31 August, a “solution about the employment” is necessary and that reintegration should take place. The defendant federal state refused to allow the plaintiff to return to work until his working capacity could be reviewed by a medical officer. In October 2009 the plaintiff’s representative submitted a medical certificate, which certified working capacity for normal basic school conditions. Furthermore the representative stated that from now on there was an obligation to employ and to remunerate the plaintiff. Subsequently the plaintiff demanded remuneration due to default of acceptance.

The Federal Labour Court decided that the plaintiff did not offer his job performance by the letter in October. Interpretation of the letter in October, under consideration of the previous correspondence, concluded that the plaintiff had only offered an activity relating to a reintegration relationship. An offer to work in a reintegration relationship does not comply with the job performance which is owed. Since the activity in a reintegration relationship is aimed at recovering working capacity, it does not just aim to satisfy the job performance owed. Therefore an employee does not render his owed job performance during reintegration relationship. Thus, during the reintegration relationship both parties are respectively exempted from major obligations.

Consequently, the plaintiff does not have a claim relating to remuneration due to default of acceptance, in the absence of offering his job performance.

This decision demonstrates the legal nature of the reintegration relationship and the consequences when claiming it.

A claim relating to remuneration for default of acceptance requires the employee to offer his job performance in an unambiguous way. The demand of reintegration does not amount to such an offer.

The refusal of the employer to agree to a reintegration relationship justifies a claim for compensation only if the employee is severely disabled or equal in law to a severely disabled person.

The General Data Protection Regulation (GDPR) entered into force

On 25 May 2018, the General Data Protection Regulation (GDPR) entered into force harmonizing the regulations for the processing of personal data by companies and public authorities within the EU. Under the GDPR, employees’ data protection rights are significantly reinforced. Infringement of the GDPR regulations may now result in high administrative fines of up to 20 million euros or up to 4% of the total worldwide annual turnover of the preceding financial year. Therefore employers are urgently advised to ensure compliance with the GDPR.

Particularly, the common practice of obtaining an employee’s individual consent to the processing of their personal data will in most cases not provide a sufficient legal basis to ensure compliance with the GDPR. Rather, employers should provide candidates and employees with detailed privacy notices, informing them on the legal bases for the processing of their personal data and their respective rights.

Works agreements with works councils will continue to be permissible as a legal basis for the processing of employee data. However, the GDPR sets up new strict prerequisites for works agreements which regulate the processing of employee data. In particular, Article 88 para. 2 GDPR requires them to include “suitable and specific measures to safeguard the data subject’s human dignity, legitimate interests and fundamental rights, with particular regard to the transparency of processing, the transfer of personal data within a group of undertakings, or a group of enterprises engaged in a joint economic activity and monitoring systems at the work place.”

Employers whose works agreements are not yet compliant with the GDPR should, as a first step, consider concluding a framework works agreement on the implementation of the GDPR with the works council. Such framework agreement should contain general guidelines for the transfer of the requirements of the GDPR to existing works agreements and clarify that they are to be applied and interpreted in conformity with the GDPR. In this context, it is advisable for such a framework agreement to be drafted in as much detail as possible in order to meet the requirements of the GDPR. Such a framework agreement may also have to be followed up with specific updates to the existing works agreements.

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