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

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.