Dismissal on suspicion (“Verdachtskündigung”) – reasonable time period to give a statement regarding the accusations

On 21 March 2018, the state labor court of Schleswig-Holstein ruled that a valid “dismissal on suspicion” (“Verdachtskündigung”) requires that the affected employee had been granted a reasonable time period to give a statement regarding the accusations (docket number 3 Sa 398/17). A “dismissal on suspicion” is void if the employer issues the notice of termination after having granted a time period of only two working days to the employee to issue his statement regarding the accusations.

A so-called “dismissal on suspicion” can justify a dismissal if alleged misconduct of the employee has not been proven but there are indications which lead to a severe suspicion of such misconduct. In such a case a “dismissal on suspicion” can be justified as the severe suspicion itself may have resulted in the destruction of trust between employer and employee, which is necessary to continue the employment relationship. In order to issue a valid “dismissal on suspicion”, the employee must first be heard. He has to be granted the opportunity to give his opinion regarding the allegations.

In the case at hand, the employer wanted to dismiss the employee based on the suspicion that he had committed criminal actions. The employee had been equipped with a laptop for his service as a sales representative. The employee then became and remained incapacitated to work. After a while, the employer demanded that the employee give back the laptop. On 3 August 2016, the employee sent a different laptop to the employer (however, it remained in dispute whether this happened on purpose). The employer then issued a letter to the employee, asking him for a statement. The employee received the letter on Thursday evening, 4 August 2016, the earliest. In this letter, the employer requested a statement by 1 p.m. on Monday 8 August 2016. After the time period expired, the employer issued a “dismissal on suspicion”.

The state labor court of Schleswig-Holstein ruled that the time period of not even two full working days had been unreasonably short. Even though the employer knew from different disputes with the employee that the employee had legal counsel, the letter had not been faxed or sent to the employee’s legal counsel. Additionally, the employer knew about the employee’s incapacity to work. Based on these facts, the period of two working days for a statement was unreasonably short. Accordingly, the court ruled that the “dismissal on suspicion” was unjustified and void.

Fixed-term employment contract for actor in crime series – justified due to the specific characteristics of the work performance

According to the Federal Labour Court (Bundesarbeitsgericht, BAG) the employment contract of an actor in a crime series can be fixed-term according to Section 14 para 1 sentence 2 no. 4 of the German Part-Time Employment Act given the factual reason of the specific characteristics of the work as an actor (dated 30 August 2017, docket number: 7 AZR 864/15).

The plaintiff, an actor, worked for a production firm in a crime series in the role of a police officer in the homicide division for almost 18 years. During this period he had both framework agreements for periods of one year as well as individual agreements for individual episodes with the production firm. The last agreement terminated 18 November 2014. The production firm informed the actor that the contractual relationship ended that day. The actor however, took action against the production firm, claiming the contractual relationship did not end as the contract with the production firm was an employment contract and, thus, subject to the German Part-Time Employment Act and the time limitation was not justified.

While the Federal Labour Court agreed that the contract constituted an employment contract and was subject to the German Part-Time Employment Act, the court also ruled that the fixed-term employment contract was justified according to Section 14 para 1 sentence 2 no. 4 of the German Part-Time Employment Act due to the specific characteristics of the work performance.

According to the Federal Labour Court in the context of interpretation of the provision in questions all constitutional specialties resulting from the freedom of art according to Article 5 para 3 of the German Constitution must be taken into account. The time limitation for actors can be justified by the artistic freedom of the producer to choose and change the actors according to his artistic ideas. This also applies to television companies and their production firms. Therefore the production firm could justify the time limitation with the freedom of art. However, the court also stressed that the minimum protection of the temporary employee guaranteed by Article 12 of the German Constitution also has to be taken into account. Therefore, a weighing of the constitutional interests is necessary in order to bring about a settlement of the conflicting constitutional guarantees. In this specific case the court came to the conclusion that the interest of the employer, protected by the freedom of art, outweighs the interest of the employee, in particular if the employee plays a significant part in the realization of the artistic work. Thus, the fixed term of the employment contract was therefore justified.

Return from part-time to full time employment – new legislative initiative planned to become effective in 2019

Not long ago, the former German government failed to implement a right to return from part-time to full-time employment for employees. In May 2017, former German Secretary of Employment, Andrea Nahles, had to admit that her party’s plan to strengthen employee rights had not been implemented.
Just recently, the tide has turned: After the new government was formed, the Social Democratic Party and its new Secretary of Employment, Hubertus Heil, were able to announce a fresh approach to the part-time legislation. The Ministry of Employment has now provided a draft law to be presented to the German cabinet. This draft law includes specific regulations on a right to return from temporary part-time to full-time employment.
Applicable to all establishments with at least 45 employees, the law will enable employees not only to assert temporary part-time employment, but also to have a right to return to full time employment after the requested period. Such regulations could have significant impacts on employers in Germany. However, more specific details of the law are as yet unknown. Additionally, the law is only just to be presented to the cabinet, leaving a long legislative process with reasonable chances for changes ahead.
Nonetheless, one of the already planned restrictions of the new temporary part-time employment has already been released: In establishments with less than 200 regularly employed employees, the right to temporary part-time employment shall only be granted to one out of every fifteen employees. How the law and its specifications should be practically implemented and what its consequences are, remains unknown at this point in time.
Major parties of the opposition have already stated strong disagreements with the intended law. Thus, the legislative outcome is yet to be determined. Notwithstanding, the legislative process should be monitored carefully during the coming months.

Employer obligation to provide individual target agreements to safety authority

Employers may be required to provide safety authorities with information on individual target agreements with their employees. In a judgment dated 28 February 2018, the Dusseldorf administrative court confirmed a corresponding order by the local safety authority (docket number 29 K 4191/16).

In the case at hand, the employer offers consulting services. It is bound by a local collective bargaining agreement which provides for a regular weekly working time of 38 hours. Under the CBA, overtime of up to 3 hours per week can be agreed individually. Employees and their supervisors agree on annual individual targets (“Personal Business Commitments”). The procedure pertaining thereto is governed by a works council agreement. In the areas where consulting services are provided, productivity is measured by employee utilization, which describes employee billable hours compared to their working time. The maximum utilization possible under observance of working time limits, vacation entitlements etc. is set at 86,5%. In 2015, the target productivity was set at 80% utilization.

The works council argued that the individual targets could only be reached by employees if they considerably exceeded their working time, and it raised a complaint with the relevant safety authority responsible for health and safety in the workplace. As part of the enquiry, the authority requested further information regarding individual target agreements and asked the employer to review whether the targets were realistic and achievable. The employer provided only general information, stated that the target agreements had nothing to do with the employees’ working time and that only a small number of employees raised complaints against their target agreements. Subsequently, the authority issued an order to provide further specific information regarding the target agreements, including the number of target agreements, the achievement ratio and several sample agreements. The employer refused, arguing that the authority had no right to potentially influence target agreements and that this information was not necessary to determine compliance with health and safety standards.

The administrative court Dusseldorf upheld the order. According to the court, the request was covered by the authority’s powers to monitor compliance with regard to health and safety at the workplace. Dangers and risks to the employees’ health could arise not only from technical or environmental issues, but also from working conditions, organizational measures and work intensity. The court held that individual targets could increase pressure on employees, thereby increasing stress and psychological effects. Even though targets were part of an entrepreneurial strategy, the employer is also obliged to comply with health and safety standards, and the authority is allowed to monitor such compliance.

Limitation of the extension of an employment relationship beyond the statutory age limit is permissible

The European Court of Justice has ruled that the limitation of the extension of an employment relationship beyond the statutory age limit is permissible and does not constitutes an abuse of fixed-term employment contracts.
The case: A teacher in Bremen had reached the statutory retirement age and, according to the applicable collective bargaining agreement, the employment relationship with the city of Bremen would have ended with the achievement of the statutory retirement age. However, the parties agreed to continue the employment relationship until 31 July 2015 and thus deferred the automatic termination of the employment relationship according to section 44 No. 4 of the collective bargaining agreement. The teacher then applied again to defer the termination of the employment relationship further; however, this was declined and the teacher brought an action against the city of Bremen on the grounds that a time limitation on the postponement of the end of the employment relationship was not permissible under European law.
The LAG Bremen stayed the proceedings and referred questions to the ECJ for a preliminary ruling.
To the LAG Bremen it seemed questionable whether the provision of national law – Section 43, Sentence 3 SGB VI (social security statute book VI) – that allows the postponement of the termination of the employment relationship several times when the statutory retirement age is reached, without having to give a new reason for the time limitation, is compatible with European law. The court wanted to know if the national provision is compatible with the prohibition of discrimination on grounds of age and in accordance with the Council Directive 2000/78 establishing a general framework for equal treatment in employment and occupation and the framework agreement regarding fixed-term employment contracts which is annexed to Council Directive 1999/70/EC (to prevent abuse through successive fixed-term employment contracts).
The court decided on 28 February 2018 (docket number C-46/17) that the provision in question was compatible with European law and that it was not discriminatory on grounds of age or an abuse of fixed-term employment contracts.
The court stated that Art. 2 II of the Council Directive 2000/78/EC shall be interpreted as not precluding a national provision which, like the one in issue, makes the postponement of the date of termination of the employment relationship subject to the employer’s temporary consent for employees who have reached the statutory age limit.
Regarding the framework agreement the ECJ was doubtful whether a repeated postponement of the end of the employment relationship may even be considered as successive fixed-term contracts or would rather be seen as contractual postponement of the retirement age.
Even if the LAG Bremen comes to the conclusion that the postponement of the end of the employment relationship is to be considered as successive fixed-term contracts, Section 5 No. 1 of the framework agreement shall be interpreted as not precluding a national provision which, like the one in issue, allows the parties to the employment contract, indefinitely and without further conditions, to postpone the agreed termination of the employment relationship by agreement, possibly on several occasions, once the statutory retirement age has been reached, simply because the worker is entitled to an old-age pension by reaching the statutory retirement age.
An employee that has reached the statutory age limit is usually at the end of his working life and therefore does not have the alternative of an unlimited employment contract and is therefore in a different position to other employees. Furthermore, the extension of the employment relationship at issue ensures that the employee concerned will continue to be employed under the original conditions while retaining his right to an old-age pension.

Regarding employment contracts it therefore seems to make sense to always specify that the employment relationship ends once the statutory age limit is reached. The possibility of postponing the end of the employment relationship by agreement of both parties is still present in this case and can be used multiple times, without limitation.

Practical problems with the termination of temporary agency worker

The German law on temporary employment is very strict. In general, temporary agency workers are employees. This means that the temporary worker is protected as well as any other employee. Particularly relevant here is the protection against dismissal. In principle, under German Law an employee can be terminated for operational reasons if the employer cannot employ him anymore due to the loss of his position. In temporary employment, however, the temporary worker is not employed by the temporary work agency as employer itself. Instead, he works for another company. However, if the temporary work agency does not find a company where the temporary agency worker can work, this model will no longer work. Nevertheless, the temporary worker continues to be paid under German law during this period, since there is still a valid work contract with the temporary-work agency. Non-payment during this period is prohibited under German law.
For this reason, of course, the temporary work agency has an interest in terminating the employment contract in such a case. Such a termination is necessary, as even an automatic synchronization of this employment relationship with the periods of activity in a third company is inadmissible under German law. However, such termination is subject to strict conditions. If such a termination were allowed, the protection of temporary agency workers would be severely restricted. In a recent ruling, a German Labor Court (local labour court Mönchengladbach, 20th March 2018, docket number 1 Ca 2686/17) ruled on such a termination. Here there was the peculiarity that usually the temporary work agency only worked with one customer. This customer was unable to employ the temporary agency worker between January and March, so he was dismissed at the end of December by the temporary work agency as employer. This termination was inadmissible from the point of view of the court. It stated that the lack of use for three months is not enough. It is one of the purposes of the Temporary Employment Act (“Arbeitnehmerüberlassungsgesetz”) to counteract the use of temporary agency workers to perform permanent tasks. Due to the fact that the employment agency is working almost exclusively for only one company, the validity of the employment protection law would be practically repealed, if the lack of use would be sufficient for a termination. For this reason, the court declared the termination as ineffective.
Here it becomes clear that the German law of temporary employment is different than in many other countries. The temporary worker is also remunerated outside periods of work for a third company and his employment may not end automatically by the end of the transfer to the third company. This then also results in the problems related to the termination. For this reason, a precise examination of the circumstances is always necessary here.

Act of defiance or effective waiver of rights?

Due to the compulsory compensation payments, post-contractual non-competes are only common in Germany with regard to key employees with significant knowledge of the employer’s business or close client relationships. However, they are quite often the subject matter of legal disputes. Just recently the Federal Labour Court (Bundesarbeitsgericht, BAG) has ruled on the question of the effective revocation of a non-compete (31 January 2018; docket number: 10 AZR 392/17).
In the case at hand, the plaintiff had been with the defendant since February 2014. The employment contract provided for a non-compete of three months following the end of employment. In return, the plaintiff was entitled to a compensation payment of 50 percent of his last received monthly average remuneration. After the employment had ended on 31 January 2017, the plaintiff claimed compensation for February 2016 and set a deadline of 4 March 2016. Nevertheless, the defendant did not pay any compensation by this date and therefore on 8 March 2016 the plaintiff informed the defendant by email that he no longer felt obliged to adhere to the non-compete. The plaintiff then sued the defendant for compensation for the whole term of three months. The defendant argued that, by sending the email, the plaintiff had effectively revoked the post-contractual non-compete and therefore had waived his right to compensation.
While the Labour Court (Arbeitsgericht, ArbG) found in favour of the plaintiff, the Regional Labour Court Nuremberg (Landesarbeitsgericht, LAG) as well as the Federal Labour Court eventually granted compensation only for the time between 1 February and 8 March 2016. In conformity with its settled case law, the Federal Labour Court reasoned that post-contractual non-competes are reciprocal contracts and therefore subject to the general statutory provisions on revocation as set out in sec. 323 et. seq. German Civil Code (Bürgerliches Gesetzbuch, BGB). Compensation payment is only paid in return for refraining from competitive activities. Since the defendant did not grant such compensation, the plaintiff was entitled to revoke the non-compete. The Federal Labour Court did not object to the fact that the Labour Court considered the plaintiff’s email dated 8 March 2016 an effective revocation. Due to the ex-nunc effect of such a revocation, the plaintiff was therefore not entitled to any compensation as of 9 March 2016.

As a result of the compulsory compensation payments, post-contractual non-compete clauses can become a significant financial burden for employers. Therefore, this ruling is a sensible and welcome decision.

Peak performances of professional soccer player up to retirement not to be expected

In February 2016 we reported on a ruling of the Higher Labour Court Rheinland-Pfalz (Landesarbeitsgericht, LAG) in regard to a case of a goalkeeper who sued his former Bundesliga soccer club for unlimited employment and payment of missed bonuses
(https://blogs.dlapiper.com/employmentgermany/2016/02/18/no-second-bosman-total-relief-at-bundesliga/). Almost two years later, the Federal Labour Court (Bundesarbeitsgericht, BAG) has now confirmed on 16 January 2018 (docket-number: 7 AZR 312/16), that the established practice of employing professional soccer players only on a fixed-term basis does not violate German employment laws, as those fixed-term contracts with soccer players of the Bundesliga are generally justified in accordance with sec. 14 para. 1 sentence 2 no. 4 Part Time and Fixed-Term Employment Act (Teilzeit- und Befristungsgesetz, TzBfG) due to the characteristics of the work.

The plaintiff had been with the defendant club since July 2009. His last employment contract dated 7 July 2012 stated fixed-term employment until 30 June 2014 as well as an option to prolong the contract until June 2015 if he played in at least 23 out of the 34 Bundesliga matches that season. In addition, the plaintiff was entitled to bonus payments for each game that he was starting goalkeeper or played at least 45 minutes. The plaintiff did nine out of the first ten games of the season, before he got injured and did not play another Bundesliga match for the whole season.

Similarly to the Higher Labour Court’s argument, the Federal Labour Court dismissed the claims for unlimited employment and payment of missed bonuses by reasoning that in commercialized professional soccer with its public attention every professional player is expected to deliver athletic peak performances. However, since it cannot be expected that players deliver such performance up to the age of retirement, the court held, that the characteristic of modern professional soccer gives cause for fixed-term employments.

At first, the ruling seem odd, given the fact that employees performing very heavy work may also not be able to do their work up to the age of retirement, but still fixed-term employments in such industries are not justified by the characteristics of the work performed. However, taking into account the enormous wages that professional soccer players are paid, they may be considered less worthy of protection, and other circumstances such as the public image of the sport are considered more important.

Occupational Pensions: Submission by Federal Labour Court to the European Court of Justice regarding compensation for benefit reductions by the Pension Insurance Association

By order of 20 February 2018 (3 AZR 142/16 (A)), the Federal Labour Court asked the European Court of Justice for a preliminary ruling on the interpretation and direct application of Article 8 of Directive 2008/94/EC. According to that provision, Member States are required to ensure that the necessary measures are made to safeguard the interests of employees regarding pension entitlements in case of insolvency of the employer.

The plaintiff receives benefits from a company pension insurance fund (Pensionskasse) which were reduced by the company pension insurance fund due to economic difficulties. In the past, the plaintiff’s former employer compensated for these benefit reductions on the basis of its statutory liability. After the employer became insolvent, the plaintiff demanded that the Pension Insurance Association (PSV), as a provider of statutory insolvency insurance, should pay for the company pension insurance fund’s benefit cuts. The Regional Labour Court dismissed the claim. The State Labor Court granted it.

The Federal Labour Court submitted the case to the European Court of Justice.

The Federal Labour Court assumes that national law does not require the Pension Insurance Association to compensate for benefit reductions, if the benefits are provided by a company pension insurance fund. According to the Court, liability of the Pension Insurance Association can therefore at most arise from Article 8 of the Directive. This presupposes that the provision also applies to cases in which – as in this case – an employer cannot compensate for the benefit reductions of a company pension insurance fund due to its own insolvency. In addition, according to the Court’s view it is relevant under which conditions pursuant to Article 8 of the Directive a state insolvency protection is guaranteed. It also depends on whether the Directive has direct effect and whether the employee can therefore refer to the provision as against the Pension Insurance Association. The European Court of Justice is responsible for answering all these questions.

Occupational Pensions: Legitimacy of so-called “age difference clauses” in pension arrangements

By judgment of 20.02.2018 (3 AZR 43/17) the Federal Labour Court has ruled that a so-called “age difference clause” (Altersabstandsklausel) providing that spouses receive a survivor’s benefit only if they are no more than 15 years younger than the deceased former employee is admissible.

 

The plaintiff was born in 1968. She married her husband, who was born in 1950 and died in 2011, in 1995. The plaintiff’s deceased husband was granted a survivor’s pension promise by his employer. The pension scheme provided that spouses receive a survivor’s benefit only if they are no more than 15 years younger than the beneficiary (former employee). The plaintiff considered that clause to be inadmissible discrimination on grounds of age.

 

The Federal Labour Court dismissed the case and stated that the direct discrimination on grounds of age (according to the General Law on equal treatment [Allgemeines Gleichbehandlungsgesetz])  caused by the age-difference clause 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 more than 15 years, 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 more than 15 years only those spouses are excluded from benefits whose age difference to the beneficiary (deceased former employee) considerably exceeds the “usual” age difference between spouses.

 

The ruling creates legal certainty, since until now 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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