Post-contractual non-compete obligation must not cover all activities for a competitor

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Managing Director, Post-contractual non-compete

March 20, 2019

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In an indicative ruling dated August 02, 2018, the Higher Regional Court Munich (docket number 7 U 2107/18) has found that a post-contractual restraint which prohibited a managing director from working for a competitor in any way was invalid due to the lack of legitimate interests of the company. The managing director was therefore able to legitimately claim the invalidity of the non-compete obligation in the form of a preliminary injunction.

The indicative ruling is based on the following facts: The claimant worked for several years as managing director of the defendant. Following the termination of the contract by the defendant, the claimant started working for a competitor, also as managing director. His service contract contained a post-contractual non-compete obligation for one year following the termination of the contract, prohibiting any activity for a competitor, without being limited to senior roles. The claimant applied for a preliminary injunction arguing the invalidity of the post-contractual non-compete obligation.

The Higher Regional Court of Munich stated that the company’s legitimate interest in preventing a managing director from working for a competitor is proportional to the former managing director’s new position at the competitor. The lower the new position, the lower the company’s interests in preventing the activity for the competitor. Consequently, a post-contractual non-compete obligation must not cover any activity for a competitor, but only those activities where the company’s interest in preventing the activity outweighs the managing director’s interest in having a free choice of occupation.

In the present case, as the post-contractual non-compete obligation covered any activity for a competitor, it was deemed too broad and therefore ineffective in its entirety. The Higher Regional Court of Munich also denied a finding of partial validity, arguing such a decision would exceed the judicial scope of judgment.

The indicative ruling results in higher protection for managing directors compared to regular employees with regard to post-contractual non-compete obligations. For regular employees, § 74 para. 1 Commercial Code (HGB) enables a restraint to be found to be partially valid while the Higher Regional Court of Munich has now excluded such partial validity if the post-contractual non-compete obligation is agreed with a managing director.

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Mass redundancies: A compensation of disadvantage could be offset by a social plan severance

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Site closure, Termination, Uncategorized, Works Council

March 14, 2019

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On 12 February 2019 the Federal Labour Court (docket number 1 AZR 279/17) ruled that a social plan severance and a compensation of disadvantage (Nachteilsausgleich) need to be offset.

In March 2014, the employer took the decision to shut down its operation which the plaintiff was employed in. The employer informed the works council about the mass redundancy and tried – at least for a short period – to reach a balance of interest (Interessenausgleich). Before both proceedings were completed properly the employer terminated all the employees for operational reasons. Subsequently, the employer and works council concluded a social plan, which remains silent on offsetting a potential compensation of disadvantage.

Based on the failure to truly attempt to find a balance of interest prior to issuing the termination letters the plaintiff was awarded a compensation of disadvantage in the amount of 16.307.20 Euro by a Labour Court.

In the case at hand, the plaintiff claimed another 9,000.00 Euro severance on the basis of the social plan arguing that offsetting of both compensation payments would infringe the European Council Directive 98/59/EC on mass redundancy.

The courts of lower instance dismissed the claim. On appeal, the Federal Labour Court confirmed their dismissals.

Severances on the basis of a social plan and compensations of disadvantages cannot be claimed accumulatively, since the purpose of both payments is more or less identical. Offsetting both claims does not violate the Directive. Article 6 of the Directive obliges the member states to provide a possibility of judicial or administrative action, but does not name concrete sanctions. In March 2013, the Federal Labour Court (docket number 2 AZR 60/12) ruled that a breach of the information requirements on mass redundancies will lead to legally void terminations. This must be deemed a sufficient sanction in the meaning of the Directive. An additional sanction in form of an additional compensation is not demanded by the Directive.

The Federal Labour Courts decision delivers some legal certainty. The disadvantage compensation thus remains a blunt sword. However, due to the imminent ineffectiveness of the issued terminations, employers are well advised to take seriously the obligation to consult the works council on mass redundancies and the high demands placed on a proper notice of mass redundancies. In addition, several labour courts grant the works council injunctive relief (Unterlassungsanspruch) against the employer if the employer prematurely initiates the implementation of the intended measures, eg by issuing the termination letters.

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Job advertisements asking for church membership tend to be discriminatory

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Discrimination, Religious Belief

March 6, 2019

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In a judgment dated 25 October 2018 the Federal Labour Court (docket number 8 AZR 501/14) ruled that religious employers are no longer allowed to ask all applicants for membership of a Christian church in job advertisements. Unequal treatment on grounds of religion is only permissible if, according to the nature of the activities or the circumstances of their exercise, religion constitutes a substantial, legitimate and justified work-related requirement in light of the ethos of the religious employer.

The defendant, a Protestant Church employer, had publicly advertised a temporary part-time position as a consultant for an anti-racism research project. The job advertisement explicitly stated that membership in a Christian church is required. The non-denominational plaintiff applied for this job but wasn´t invited to a job interview. The defendant filled the position with a Protestant applicant.

The plaintiff requested at least five monthly salaries as compensation according to section 15 para. 2 General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz). The defendant denied discrimination on grounds of religion; in any case, claimed that the unequal treatment is justified according to section 9 para. 1 General Equal Treatment Act.

The Labour Court granted the plaintiff a compensation of one monthly salary. The Higher Labour Court of Berlin (28 May 2014 – docket number 4 Sa 157/14, 238/14) deemed the unequal treatment justified and dismissed the compensation claim in total.

On appeal, the Federal Labour Court suspended the proceedings and referred the matter to the European Court of Justice (17 April 2018 – docket number C-414/16). As a result of this decision, the plaintiff’s appeal was then partially successful. The defendant is obliged to pay compensation in the amount of two monthly salaries.

The unequal treatment on grounds of religion was not justified by way of exception. Section 9 para. 1 alt. 1 General Equal Treatment Act, according to which Church employers could determine whether a particular religion of a candidate constitutes a substantial, legitimate and justified professional requirement, must remain unapplied since it contradicts Art. 4 para. 2 of the anti-discrimination Directive 2000/78/EC. Thus justification only takes place if the religion is a substantial, legitimate and justified work-related requirement in light of the ethos of the religious employer.

In the case at hand, the Federal Labour Court seriously questions the substantiality of the work-related requirement. However, in any case, asking for church membership is not justified. There was no probable and significant risk that the defendant’s ethos would be compromised. The applicant would be involved in an internal opinion-forming process with the defendant and thus could not act independently in questions concerning the defendant’s ethos.

The decision will lead to a reorientation and review of the recruitment and personnel policies of Church employers in Germany. The question of whether a church membership is a substantial, legitimate and justified work-related requirement for a job position will be effectively controlled by the state (labour) courts in the future.

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Works Council has Right of Co-Determination Concerning Employer’s Twitter Account

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Social networks, Works Council

February 26, 2019

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On September 13, 2018 the State Labour Court Hamburg (docket number 2 TaBV 5/18) ruled that works councils have a right of co-determination concerning the employer’s Twitter account in accordance with Sec. 87 Para. 1 No. 6 Works Constitution Act as Twitter is a technical device designed to monitor the behaviour or performance of the employees.
The respondent in this trial is an employer which operates several cinemas in Germany. It created a Twitter account and tweets on a regular basis. The applicant – the established works council at the respondent – demands that the respondent refrain from using its Twitter account as long as it does not have the works council’s approval to use it.
The State Labour Court ruled that the respondent has to refrain from using its Twitter account as long as it does not have the applicant’s approval to use it since the works council has a right of co-determination concerning the respondent’s Twitter account in accordance with Sec. 87 Para. 1 No. 6 Works Constitution Act as Twitter is a technical device designed to monitor the behaviour or performance of the employees. Monitoring in this context means a process by which information about the behaviour or the performance of the employees is collected and – at least in general- recorded to make them available for later examination. In general, Sec. 87 Para. 1 No. 6 Works Constitution Act protects the employee’s general right of privacy. The employer’s Twitter account provides a platform to evaluate the employees’ behaviour and performance and it supports the employer to reach an open exchange of views with its customers. Twitter’s function called “Reply” enables any registered Twitter user to send a direct response to any of the employer’s tweets to evaluate any employee’s behaviour or performance. These replies can be seen by the employer and at least by any registered Twitter user. Depending on the content of the reply the employer can identify single employees and can use this data to evaluate this employee’s behaviour and performance. The fact that these replies are only a reaction to the employer’s tweet does not change anything since the employer does not have to intent to monitor the employees’ behaviour and performance with the provision of the technical device. Also the fact that these replies stay on the account of the repliers and cannot be deleted by the employer without the help of Twitter itself does not change anything. First, it does not matter where the actual reply is saved, it just matters who can see it. And second, the fact that the employer cannot delete the reply itself makes the interference with the employee’s general right of privacy even worse, and therefore it has to be especially protected by the works council.
After the Facebook decision of the Federal Labour Court in 2016 the State Labour Court Hamburg now decided that an employer’s Twitter account also creates a right of co-determination under the Works Constitution Act. The State Labour Court’s decision has been appealed at the Federal Labour Court. It remains to be seen if the decision will be affirmed.

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ECJ Advocate General: Companies are obligated to record daily and weekly working hours

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Working time

February 13, 2019

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The advocate general of the European Court of Justice is of the opinion that the member states have to pass a law which obliges companies to record the daily and weekly working hours of their fulltime employees, who are not contractually obligated to work overtime hours and who are not mobile employees, employees of the merchant navy or in the railway sector, to ensure the effective implementation of European Directive 2003/88/EG(2).
The EU wants to implement daily and weekly rest times and maximum working times mainly to promote healthy and safe working place conditions. This stands in close context with Art. 1 and 31 of the European Union’s Charter of Fundamental Rights which inter alia provide respect of human dignity and the right to maximum working hours and healthy, safe and dignified working conditions, and several member states’ constitutions. This shows how important the EU considers healthy and safe working place conditions and consequently all obstacles which hinder the implementation of these purposes have to be eliminated.
According to the advocate general only a system where the employer has to record its employees’ daily and weekly working hours can serve these purposes. Since the employee is always the weaker party in the employment contract he/she has to be protected. Without such a system there is no way to keep track of the worked hours or to differentiate between regular and overtime working hours and therefore there is no way to check if the directive is being complied with or not. Also, without such a system it is almost impossible for the employee to prove his/her position during a trial since there is no written evidence and other employees can be afraid of appearing as a witness against their own employer.
The advocate general does not require a specific system but leaves this decision to the member states. As Germany does not have a general obligation to record all daily and weekly working hours, but only overtime hours, it remains to be seen how the ECJ decides.

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Entitlement to overtime premiums regarding part-time employment

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Part-Time Work

January 12, 2019

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According to a judgment of the Federal Labour Court (Bundesarbeitsgericht, BAG) dated 19 December 2018 (docket number 10 AZR 231/18), part-time employees can be entitled to the payment of overtime premiums with regard to working hours that go past the agreed part-time hours but do not exceed the working hours of full-time employment.
In the case in question, the Plaintiff was a part-time employee for the Defendant. A framework collective agreement, which contained regulations on, i.a., overtime premiums and the possibility to determine annual working hours, applied to her employment relationship. Annual working hours had been set for the Plaintiff, and the Defendant paid the respective basic remuneration. However, the Defendant did not give the Plaintiff overtime premiums for the amount of time which exceeded the agreed working time, since the overall amount of time did not exceed the working hours of full-time employment. Subsequently, the Plaintiff filed a suit, claiming respective remuneration. The 10th Senate of the Federal Labour Court ruled in favour of the Plaintiff.
What is particularly remarkable is that the 10th Senate, with this judgment, has abandoned its previous opposing view: In a judgment dated 26 April 2017 (docket number 10 AZR 589/15) the 10th Senate still ruled that it was not – forbidden – discrimination of part-time employees when their entitlement to overtime premiums was conditional on the exceeding of the working hours of full-time employees. With the judgment at hand the 10th Senate agreed with the 6th Senate of the Federal Labour Court. According to the latter, the assumption of the same threshold for both part-time and full-time employees, from which overtime premiums are granted, treats part-time employees less favourably than full-time employees and thus contradicts para. 4 (1) Part-Time and Fixed-Term Act (Teilzeit- und Befristungsgesetz, TzBfG). Para. 4 (1) Part-Time and Fixed-Term Act – roughly translated – reads:
“A part-time employee must not be treated less favourably due to his part-time work than a comparable full-time employee, unless there are objective grounds justifying different treatment. A part-time employee shall be granted remuneration or another divisible non-cash benefit at least equal to the proportion of his or her working time to the working time of a comparable full-time employee.”
According to the 6th Senate’s view – which the 10th Senate now agrees with – the comparison between full-time and part-time employees has to be drawn with regard to each remuneration component individually (cf. judgment dated 23. March 2017, docket number 6 AZR 161/16). Therefore the remuneration for regular working hours on the one hand and remuneration for overtime on the other hand has to be compared separately. The 6th Senate outlined that, in principle, shorter working time may only be remunerated differently in terms of quantity, but not quality. Part-time employees would be treated less favourably than full-time employees, if the number of working hours from which on an entitlement to overtime premiums arises, was not decreased proportionally to their working hours. In particular, it would lead to the assumption of an identical limit of workload for part-time and full-time employees, which, ultimately, would result in the assumption of a higher individual limit of workload for part-time employees. Finally, the different working hours of full-time and part-time employees cannot constitute an objective reason according to para. 4 (1) Part-Time and Fixed-Term Act for a differentiating treatment.
As a result, the 10th Senate of the Federal Labour Court joined the above outlined opinion of the 6th Senate and ruled that employees who work part-time and whose working hours go beyond their respective part-time quota do not have to exceed the working hours of a full-time employment in order to be entitled to overtime premiums. This interpretation of the framework collective agreement corresponds to higher-ranking law, and is compatible with para. 4 (1) Part-Time and Fixed-Term Act.

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Occupational Pensions: Federal Labour Court confirmed its ruling with respect to so-called “age difference clauses” in pension arrangements

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Benefits, Discrimination, Pension

December 21, 2018

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By judgment of 11 December 2018 (docket number: 3 400/17) the Federal Labour Court has ruled that a so-called “age difference clause” (Altersabstandsklausel) providing that a survivor’s benefit is reduced if the age difference between the spouses is more than 10 years is admissible and is not to be considered as unjustified discrimination on grounds of age.

The plaintiff was born in 1945. Her husband was born in 1930 and died in 2014. The spouses married in 1966. The plaintiff’s deceased husband was granted a survivor’s pension promise by his employer. The corresponding pension plan contained a clause according to which the survivor’s benefit is reduced by 5 % for each year that exceeds an age difference of 10 years. The plaintiff considered that clause to be inadmissible.

The Federal Labour Court ruled that the clause does not constitute inadmissible discrimination on grounds of age according to the General Law on equal treatment (Allgemeines Gleichbehandlungsgesetz) since the discrimination is justified. The employer who grants a survivor’s pension has a legitimate interest in limiting the associated financial risk. According to the Court, the age difference clause is also necessary and appropriate. It does not unduly prejudice the legitimate interests of the employees entitled to benefits who are affected by the clause. At an age difference of 11 years or more, the common standard of living of the spouses is designed in such a way that the survivor spends part of his life without the beneficiary (deceased former employee). In addition, with an age difference of 11 years or more only those spouses are excluded from benefits whose age difference from the beneficiary (deceased former employee) considerably exceeds the “usual” age difference between spouses. Moreover, the clause does not lead to a complete exclusion of benefits if the age difference is more than 10 years, but only to a moderate, gradual reduction that causes a complete exclusion only if the age difference is 30 years or more.

With this ruling the Federal Labour Court confirmed its earlier ruling of February 2018. In this previous decision, the Court also denied discrimination on grounds of age with respect to a clause providing that spouses receive a survivor’s benefit only if they are no more than 15 years younger than the deceased former employee. Until then, it had not been clarified by the highest court, whether age difference clauses with regard to survivor’s benefits are in in accordance with the General Law on equal treatment.

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Notices of termination may not be signed before mass dismissal notification has been submitted

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Dismissal, Site closure, Termination, Works Council

December 12, 2018

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With its judgment dated 21 August 2018, the Higher Regional Labour Court of Baden-Wurttemberg (Landesarbeitsgericht Baden-Württemberg) decided that the dismissal of an employee as part of a mass redundancy is invalid if the notice of termination is signed prior to receipt of the mass dismissal notification to the authority. The time of the receipt of notice of termination by the employee is irrelevant (docket number: 12 Sa 17/18).

Under German law, the Employment Office must be notified prior to dismissals as part of a mass redundancy. This reflects obligations under the Directive 98/59/EC.

The termination at issue was issued as part of a shutdown of an operation. The employer had previously consulted with the works council on the planned shutdown and had entered into a balance of interests on 22 June 2017. Subsequently but on the same day, the employer drafted a mass dismissal notification which the Employment Office received on 26 June 2017. On 27 June, the employee received the termination letter, which was dated 26 June.

According to the Court, a mass dismissal notification must reach the employment agency before the employer reaches the final decision to terminate the employment relationship and before signing the termination letter. Even though the termination letter does not take effect before it has been received by the employee, the employer has already made the underlying termination decision at an earlier point in time, at the latest when signing the letter. The court held, however, that in the specific case it could not be established that the defendant had signed the dismissal notice of 26 June 2017 after the mass dismissal notification had been received by the Employment Agency on the same day. The dismissal was therefore held to be invalid.

Due to the fundamental impact of this judgment, the right to appeal to the Federal Labour Court has been expressly granted.

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Appointment of a Conciliation Committee dealing with the subject of a No Smoking Policy

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Works Council

December 6, 2018

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Under German law, works councils have so-called co-determination rights on certain subjects. This means that an employer must reach an agreement with the works council on these matters, such as rules and policies for employee conduct. Works council co-determination is, however, excluded if there are binding and final statutory provisions dealing with a certain matter. If no agreement can be reached through negotiations between the works council and the employer, a so-called conciliation committee will be established which can either reach an agreement or render a decision. The conciliation committee can be set up by mutual agreement, but it can also be established by a court order upon request by one party.

In a case decided by the Higher Regional Labour Court of Rhineland Palatinate on 20 September 2018, docket number 5 TaBV 13/18, an employer planned to implement a no smoking policy in its operation. It had previously agreed with its Joint Works Council on such a policy for its various operations. Under this existing policy, smoking was permitted indoors in designated areas as well as in specific locations outside. However, following a hazard assessment for one operation, in which it had been advised that smoking must be prohibited indoors, the employer planned to prohibit smoking indoors altogether. The works council objected and argued that the employer must first negotiate and honor the works council’s co-determination rights. As the employer refused negotiations, the works council requested the establishment by a conciliation committee through a court order.

The court granted the request, and in its order covered the following basic principles of works council co-determination rights:

  • The primary responsibility for works council co-determination rights is with the local works council. Therefore, absent specific circumstances, the local works council was free to exercise its rights and the works agreement entered into with the Joint Works Council did not provide a final agreement.
  • Even if there was a statutory provision that prohibited smoking inside or stipulated such a prohibition, the works council was not barred from exercising co-determination rights. The court held that even in such a case, the employer might still have leeway to provide rules regarding when and where the employees were allowed to smoke outside.

Based on these two key issues, the court established the conciliation committee. The committee will, after its establishment, assess its responsibility for the subject at hand and will then need to find a solution to implement a policy.

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Right of part-time employees to return to full-time

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Part-Time Work, Working time

December 3, 2018

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The German parliament has recently passed a law which amends the current Part-Time and Fixed-Term Act and will likely enter into force on 1 January 2019. Under the new law (so-called bridge-part-time-work), employees have the right to work part-time for a period of one to five years (“Part-Time-Period”) and return to full-time after the Part-Time-Period has expired. This right only applies if (i) at the time of the application the employee has been employed by his current employer for more than six months and (ii) the employer (e.g. the respective employing entity) employs more than 45 employees in Germany in total. Employers with more than 45 and not more than 200 employees may reject the employee’s claim if (i) one in 15 employees has already been granted bridge-part-time-work or (ii) operational reasons do not allow the (preliminary) reduction of the working time. Employers with more than 200 employees may only reject the claim to part-time work if operational reasons do not allow the (preliminary) reduction of working time. The employee must apply for the reduction in working time and the extent of the reduction at least three months prior to commencement of the Part-Time-Period. The right to return to full time is not contingent upon special personal circumstances, e.g. children below a certain age etc.

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