Following severe protests against the written form requirement for notifying working conditions, which had only entered into force on 1 August 2022, the legislator has acknowledged these protests and plans to slacken the requirements of the German Act on the Notification of Conditions in the Employment Relationship (Nachweisgesetz, "NachwG") again with the Fourth Bureaucracy Relief Act (Viertes Bürokratieentlastungsgesetz, "BEG IV"). Additionally, it should soon become clear whether there will be an end to the substantial effects of an erroneous mass dismissal notification on the validity of dismissals by the employer; following a high-profile ruling by the ECJ in June 2023, the German Federal Labour Court (Bundesarbeitsgericht, "BAG") will be deciding on this issue before the year is out. You will find this ECJ decision and the latest developments in legislation, along with further important labour court rulings, in this third issue of our Focus on Labour Law.
In our webinar series "Focus on Labour Law - LIVE!" we will be presenting the topic "Between regulation and the pressure to act - current legal developments on remuneration" on 28 September 2023, at 9.00 am. Register for the webinar here.
1. New case law
1.1 Mass dismissal proceedings: ECJ rejects individual protection with regard to the obligation to forward the notification letter to the employment agency – is this a turning point?
Companies must notify the works council about planned mass dismissals. A copy of this notification must be forwarded to the employment agency according to Sec. 17 (3) sentence 1 of the German Unfair Dismissals Act (Kündigungsschutzgesetz, "KSchG"). If procedural errors are made in a mass dismissal procedure, pursuant to previous BAG case law the dismissal ran the risk of its invalidity. In its ruling of 13 June 2023 (C-134/22), the ECJ has now ruled that the obligation to forward the notification letter to the employment agency no longer protects the individual. Will this lead to a change in the BAG's case law on the system of sanctioning errors in mass dismissal proceedings?
The key issue of the decision is the interpretation of the purpose of the company's obligation, as provided in Art. 2 (3) subpara. 2 of the European Collective Redundancies Directive, to forward to the competent national authority a copy of the notification and consultation letter sent to the employee representation. In the initial proceedings before the BAG (6 AZR 155/21), the mass dismissal procedure with the works council had indeed been conducted properly. Only the forwarding of the corresponding information notice to the employment agency had been omitted. Whether this leads to the invalidity of the dismissal in the context of the said mass dismissal is unclear.
Neither the European Directive nor the national provision of Sec. 17 KSchG provide for a specific legal consequence in such case. Consequently, in past violations in the context of mass dismissal proceedings, the BAG examined whether the violated norm provided the employees with individual protection and not just collective protection. If this was affirmed, the violation led to the invalidity of the dismissal. Since the EU norms are to be interpreted by the ECJ according to their protective purpose, the BAG referred the question to the ECJ for a preliminary ruling and suspended the proceedings.
The ECJ explicitly states in its ruling that the forwarding of the information notice to the authority does not grant employees individual protection. The Advocate General's opinion even suggests that the mass dismissal notification procedure fundamentally does not provide individual legal protection. Its purpose is exclusively to serve the collective interest. Although this topic was not the subject of the proceedings, we must now ask whether dismissals can be invalid at all on grounds of a violation of the mass dismissal notification provisions. This is particularly relevant, as the BAG had also suspended other proceedings dealing with errors in the mass dismissal notification procedure until the referral decision.
In all events, it is now clear from the ECJ decision that the obligation to forward the information notice according to Sec. 17 (3) sentence 1 KSchG does not grant employees individual protection. This decision is particularly welcome. The Sixth Senate must now continue the appeal on points of law on 14 December 2023 and decide on the invalidity of the dismissal. It remains to be seen whether this will be the starting point for a change in the BAG's case law on the legal consequences of violations of provisions of the mass dismissal procedure. The ECJ's decision and, in particular, the Advocate General's opinion, give us at least high hopes of further relief for companies in mass dismissal notification proceedings.
Isabel Hexel
1.2 Termination without notice for inflammatory statements in private chat group
Are private chat groups confidential? No, decided the BAG in its ruling of 24 August 2023 - 2 AZR 17/23. Employees making extremely insulting, racist, sexist and violence-inciting comments about superiors and colleagues can only plead a legitimate expectation of confidentiality in exceptional cases.
The plaintiff had belonged to a private chat group with five other workers since 2014. In November 2020, a former colleague joined the group. According to the lower court's findings, all group members were "long-term friends" and some of them were related to each other. The plaintiff made – as did other members - insulting, racist and contemptuous remarks about superiors and colleagues, among others. The defendant accidentally gained knowledge of the contents of the private chat through a leak and subsequently dismissed the plaintiff by way of extraordinary termination without notice.
Both lower courts upheld the plaintiff's action against dismissal, proceeding on the assumption of a legitimate expectation of confidentiality within the private chat group. The BAG has now ruled in favour of the defendant employer and referred the case back to the Regional Labour Court (Landesarbeitsgericht, "LAG").
An expectation of confidentiality is only justified if the members of the chat group can claim the special protection of a sphere of confidential communication under their right to protection of their personality. This in turn depends on the content of the messages exchanged and the size and composition of the chat group. If the messages are insulting and contemptuous messages about company employees, a special explanation is required as to why the employees could reasonably expect that the content would not be passed on to a third party by any member of the group.
The plaintiff will now have to explain to the LAG why - in view of the size of the chat group, its changed composition, the varying participation of the group members in the chats and the use of a medium designed to rapidly pass on statements - he should consider himself entitled to legitimately expect confidentiality.
It is not uncommon for private-work chat groups to exist that are sometimes used by individual employees as a playground for defamatory statements about other company employees and managers. Their seemingly confidential character can also lead to an increasing intensity of such remarks. The BAG has now strengthened the - procedural - legal position of companies in their efforts to consistently sanction remarks that are insulting, inflammatory or even incite violence in a work context. It clearly establishes that private chat groups fundamentally do not represent a parallel and hence (labour) law-free zone. In exceptional cases in which employees do have a legitimate expectation of confidentiality, they bear the burden of representation and proof, which means that they definitely bear an increased risk of litigation if they have made serious remarks in the chat.
Dr. Johannes Kaesbach
1.3 Termination for operational reasons in the matrix structure
The transfer of tasks to another group company within a matrix structure can lead to the elimination of the need for employment and therefore justify a dismissal for operational reasons. The employer's entrepreneurial freedom, which is protected by the German Constitution, also applies without restriction in corporate group situations and is only limited in cases of abuse. This has now been confirmed by the BAG with welcomed clarity.
The plaintiff was employed as Vice President & Country Manager Germany in the sales department of the defendant, the German subsidiary of a US corporation. Several sales directors reported to the plaintiff; the plaintiff in turn reported to an employee who held the position of Area Vice President at a group company based in London. The defendant decided that all sales directors were to report in future directly to the Area Vice President and that the plaintiff's position was to be eliminated. The action brought against the dismissal for operational reasons was unsuccessful before the BAG.
In its ruling, the BAG emphasised the freedom of the employer's organisational decision (BAG of 28 February 2023 - 2 AZR 227/22); it was not the employer's decision as such that had to be "urgent" - for example, for economic reasons - in order to justify the dismissal. It was not for the courts to prescribe the employer a "better" or "more correct" organisation. Hence, the enterprise could also make organisational decisions that were not economically imperative. The boundary was merely their arbitrariness, i.e. if the measure decided was evidently unobjective, unreasonable or arbitrary. The decision as to whether certain tasks should continue to be carried out at the employer's own company or should be undertaken by third companies was part of the entrepreneurial freedom protected by the German Constitution. This also included the transfer of tasks within a group, for example on the basis of an agreement initiated by the group parent company within a matrix organisation. Only in cases where an entrepreneurial decision was used as a pretext to force individual employees out of their employment relationship could extraneous considerations exist that would exceed the boundaries of entrepreneurial freedom.
It was previously unclear whether, in a case of outsourcing within a group, the BAG would draw the boundaries of entrepreneurial freedom of decision to the same extent as in the case of a transfer of tasks to third parties. It has now decided on this question with welcome clarity. Additionally, not considered by the BAG to be an aspect of relevance to the decision was the fact that it was highly unlikely that the defendant itself decided on the reorganisation within the matrix structure, but had probably merely implemented the decision of the group parent company. This is also to be welcomed and gives group companies in Germany considerable leeway in shaping their company organisation and in justifying any dismissals for operational reasons on this basis.
Kathrin Vossen
1.4 Payment in lieu of holiday in case of collectively agreed preclusive periods
The claim to payment in lieu of the statutory minimum holiday can expire in accordance with collectively agreed preclusive periods. If the employment relationship ended before the announcement of the ECJ's so-called "Max Planck decision" in 2018 and if employees could previously not have been reasonably expected to judicially claim payment in lieu of holiday, the claim neither had to be asserted within a collectively agreed preclusive period nor did the limitation period begin before the end of 2018 (BAG dated 31 January 2023 - 9 AZR 244/20). Employees enjoy protection of legitimate expectations insofar.
The defendant had employed the plaintiff since 10 April 2017, most recently as online editor. The employment relationship ended with effect as per the expiry of 30 September 2014. In August 2018, the plaintiff demanded compensation from the defendant for a total of 65 days of holiday from the years 2007 to 2010. The defendant rejected this in reference to the statute of limitations and the expiry clause under the relevant general collective agreement. Pursuant to Sec. 18 No. 1 sentence 1 of the general collective agreement, unfulfilled claims arising from the employment relationship have to be asserted within three months after having become due. Both lower courts dismissed the action. The BAG took a different stand and upheld the plaintiff's claim.
Unsurprisingly, the BAG initially stated that the employee's claim to annual holiday converted into a payment claim in lieu of the holiday upon termination of the employment relationship (Sec. 7, subsection 4 German Holidays Act [Bundesurlaubsgesetz, "BUrlG"]). At the time of termination of the employment relationship, the plaintiff had not been obliged to assert this claim within the meaning of the collectively agreed preclusive period, since the case law at that time still proceeded on the assumption that holiday claims automatically expire at the end of the holiday year or after the expiry of a permissible carry-over period. The plaintiff would only have had to demand payment in lieu of the holiday after the ECJ's decision of 6 November 2018 - C-684/16 ("Max Planck decision").
The claim to payment in lieu of the holiday had also not yet become statute-barred. The claim was fundamentally subject to the statute of limitations, whereby the limitation period regularly began at the end of the year in which the employee left the employment relationship. However, there were deviations in the start of the limitation period in cases where it was unreasonable to expect employees to judicially assert a claim to payment in lieu of holiday in the absence of any prospects of success. In this case, the limitation period did not begin before the end of the year of the Max Planck decision.
Although the BAG's decision fits seamlessly into previous case law, it is nevertheless surprising: with a view to the Max Planck decision, the BAG grants employees protection of their legitimate expectations for the first time. No such protection is offered to companies. Companies are therefore still well advised to comply with the ECJ's obligation to cooperate in good time and to inform their employees of any outstanding holiday claims and request that they take them. A good time to fulfil this obligation is after the summer holidays!
The protection of legitimate expectations granted to employees by the BAG should, however, give little cause for concern in practice, as it should only be of little relevance: Only claims to payment in lieu of holiday from the years up to 2015 that were already asserted before the end of 2021 are likely to have a prospects of success, as the statute of limitations will have been suspended by their judicial assertion.
Alexandra Groth
1.5 No payment in lieu of "additional holiday" granted over and above the minimum holiday
The protective rule of Art. 7 (2) of Directive 2003/88/EC only applies to the paid four-week minimum annual holiday - standardised as a minimum norm in Art. 7 (1) of this Directive – and not to annual holiday exceeding this ("additional holiday"). Accordingly, the "additional holiday" is not dependent on the employer's compliance with the obligations to notify employees of the minimum holiday and request that they take such holiday (Higher Administrative Court [Oberverwaltungsgericht, "OVG"] of Lüneburg, 26 June 2023 - 5 LA 119/22).
The plaintiff, a civil servant and senior railway official, retired in 2018 after having reached the standard retirement age. In 2021, he asserted a claim before the Regional Administrative Court (Verwaltungsgericht, "VG") of Hanover for payment in lieu of holiday not taken in the calendar year 2018 amounting to a total of twelve days. He argued that, according to Art. 7 (2) of Directive 2003/88/EC, employees were entitled to payment in lieu of holiday for the minimum paid annual holiday when their employment relationship ended. This also applied to civil servants. Furthermore, the plaintiff had not received any individual information in text form about the specific scope of his holiday claims, including their relevant expiry periods.
The OVG Lüneburg did not agree with this argumentation in its decision of 26 June 2023 - 5 LA 119/22. It was neither in line with the content or structure of Directive 2003/88/EC nor with the case law on the subject. The Directive contained minimum safety and health requirements for the organisation of working time; the "minimum paid annual holiday" was four weeks. Art. 15 of Directive 2003/88/EC gave member states the right to apply or adopt more favourable laws, regulations and administrative provisions by way of derogation. The holiday in excess of this four-week minimum holiday was a more favourable provision within the meaning of the norm. The conditions for claiming and being granted this "additional holiday" were therefore governed by national law, with the result that, as a rule, only the recreational holiday not wholly or partially taken had to be compensated in the amount of the minimum leave entitlement granted under EU law.
As regards the employer's obligations to inform employees about their holiday and request that they take it, the OVG clarified that the BAG's statements to this effect - namely that the company had to ensure in a concrete and completely transparent manner that the employees were actually able to take their paid annual holiday - only referred to the statutory minimum holiday pursuant to Sec. 3 BUrlG, which amounted to "at least 24 working days" and thus only covered the "paid minimum annual leave of four weeks" pursuant to Art. 7 of Directive 2003/88/EC as standardised under EU law.
In its decision, the OVG consistently implements the established case law of both the German Federal Administrative Court (Bundesverwaltungsgericht, "BVerwG") and the BAG. It is sufficiently clear both from this case law and from the wording of Art. 7 (1) of Directive 2003/88/EC that the national legislator is entitled to allow time limits for the assertion of payment in lieu of unused holiday at the end of the employment relationship. And as the OVG also clarifies, the expiry of "additional holiday" does not depend on the fact that the employer informs the civil servant of the imminent forfeiture insofar.
Lisa Striegler
1.6 Night-work bonuses - differentiations still permissible
According to media reports, several thousand lawsuits were pending by shift workers who had sued for higher night bonuses. The BAG has made a large number of decisions on this in recent months. Different levels of night-work bonuses are still permissible as long as certain conditions are met.
In all of the cases at issue, the initial situation was almost identical. The underlying collective agreement stipulated a lower level of night bonuses for night shifts than was the case for other night work. In addition, there were further compensations for night shifts, such as free shifts. The plaintiff employees of the shift-work companies argued that they were also entitled to claim the higher bonuses. They were unjustifiably being treated unequally. The night bonus was always granted against the background of health impairments, irrespective of whether the work took place during or outside the framework of a night shift.
The BAG had initially suspended the proceedings and referred them to the ECJ. The ECJ stated that EU law was not applicable to the legal questions to be clarified. The BAG (inter alia BAG of 22 February 2023 - 10 AZR 332/20, BAG of 28 June 2023 - 10 AZR 471/21) had initially established in its decisions the comparability of employees who perform alternating-shift work or shift work at night or other night work. The respective supplementary payment elements were also consistently linked to the work performed during the night period defined in the collective agreement.
The BAG was of the opinion that the objective reason for the unequal treatment in the case of different levels of night-work bonuses lay exclusively in the fact that irregular night work was more difficult to plan and therefore justified higher compensation than plannable night-work. This purpose of the compensation in turn had to be evident from the underlying collective agreements.
The BAG clearly stated that the health protection purpose does not justify different night bonuses. According to the BAG, night work is harmful to everyone according to established scientific work-related findings. According to the BAG's case law, the reason given - that work outside the working time framework occurs less frequently - also does not constitute an objective reason that might justify unequal treatment.
In practice, regulations on night bonuses are not only found in collective agreements, but also in shop agreements and employment contracts. Companies should check on the basis of case law whether the risk of unequal treatment can clearly be ruled out. If this is not the case, adjustments need to be made for the future. For the past, creative solutions can be found to rule out lawsuits. Statutes of limitation and preclusive periods can also help in this context.
Jörn Kuhn
1.7 Data protection does not protect offenders - no ban on using public video surveillance
Contrary to the opinion of the LAG Lower Saxony, the BAG ruled on 29 June 2023 (docket No. 2 AZR 296/22) that the findings obtained from an open video surveillance are not subject to a prohibition of use in unfair dismissal proceedings even in the absence of data protection conformity. Here, the BAG also did not consider contrary information in a shop agreement to be binding and thus continues its case law on the prohibition of the use of evidence in exceptional cases only.
In the case to be decided (we had already reported on this here in our article dated 19 December 2022), a company accused one of its employees of working time fraud. As evidence, the defendant employer referred in the unfair dismissal proceedings to corresponding video recordings made at the entrance to the factory premises. In addition, there was a notice at the factory premises stating that video surveillance was being carried out and with the deletion deadlines for the recordings. However, the shop agreement concluded with the works council on this matter stipulated a prohibition on using evidence for the data obtained by means of electronic attendance recording through the use of card readers.
The LAG Lower Saxony ruled that the dismissal was invalid in the absence of evidence of a violation of working hours. The video recordings submitted could not be used as evidence on grounds of the provision in the shop agreement and violated data protection regulations, as the deletion deadlines had not been met. The BAG took a different view. The BAG stated in this respect that the relevant video recordings from the video surveillance were to be examined. Even if the data processing by the video surveillance system did not comply with the data protection requirements of the GDPR, this did not prevent data processing by the labour courts. Moreover, since the video surveillance was open, it was also irrelevant how long the company waited before viewing the footage for the first time with the result the deletion deadline had already expired. The BAG referred the case back to the LAG for a new decision.
The BAG's decision confirms that data protection does not protect offenders. In the opinion of the BAG, a possible breach of data protection does not necessarily lead to a prohibition of the use of the data. However, please note that the BAG expressly left open whether a breach of data protection precludes the use of data in proceedings in cases where this breach is accompanied by a serious encroachment on fundamental rights. Thus, the decision is unlikely to apply in cases of the covert surveillance of employees. However, if the company indicates that (video) surveillance is being carried out and the recording radius only covers those work areas that do not fall within the scope of protection of the private and intimate sphere of employees (e.g. washrooms and changing rooms), then - after weighing the interests involved - data protection breaches should not prevent the use of data. Furthermore, the BAG affirms that prohibitions on the use of evidence agreed in shop agreements are not binding for the labour courts, thus providing companies with an option for action to prove misconduct under the employment contract even in the case of a contrary shop agreement.
Annabelle Marceau
1.8 Entitlement to a "zero social plan"? Federal Labour Court further specifies the legal limits of social plan funding
If a company challenges a social plan drawn up by a conciliation board on grounds of over-funding, it must demonstrate that the social plan is economically unreasonable. The BAG has now ruled in the case of a joint venture that the boundary of reasonableness is exceeded if the fulfilment of the liabilities already leads to balance sheet over-indebtedness of just the contractual employer.
The parties dispute the validity of a social plan for a company closure with a volume of EUR 3 million, which was decided by conciliation board. The company no longer had any equity capital, despite compensation payments from the holding company with which it operated a joint venture. The holding company's liquidity commitment, which was limited to EUR 4 million, was explicitly not intended to cover liquidity shortfalls due to a social plan and had already been used up by the time the social plan had been drawn up. Against this background, the company had challenged the decision of the conciliation board and pleaded economic unreasonableness. In its decision of 14 February 2023 - 1 ABR 28/21, the BAG upheld the appeal and ruled that the decision was invalid as the conciliation board had exceeded its discretionary powers.
In this context, the BAG emphasised that the solely decisive matter was the financial circumstances of the contractual employer and that, even in the case of a joint venture, a social plan was not already economically reasonable if it was only economically reasonable for one of several funding companies. If the contracting employer did not have the funds and could not safely obtain them in the short term through savings or realisations, then the social plan was economically unreasonable. Since the liquidity commitment of the group company did not contain sufficient liquid funds to meet the social plan liabilities and these had already been used up, the commitment had to be disregarded.
Furthermore, the BAG found that the provision for the funding of social plans under Sec. 123 of the German Insolvency Code (Insolvenzordnung, "InsO") was neither applicable by analogy in the case of insolvency nor did it offer an "orientation criterion" for assessing the economic reasonableness of a social plan funding outside of insolvency. The applicable criterion was solely Sec. 112 (5) of the German Shop Constitution Act (BetrVG), which, in addition to compensation for the disadvantages suffered by the employees, required economic justifiability for the company. According to this, the boundary of reasonableness was exceeded if the fulfilment of the obligations under the social plan led to the company's illiquidity, its balance sheet over-indebtedness or an unacceptable reduction of its equity capital. In individual cases, even a social plan of zero may be appropriate.
The BAG thus continues its case law of recent years and takes a more critical view of the economic reasonableness of social plan funding. It therewith clearly rejects excessive demands being put upon a company in a difficult economic situation. Nevertheless, in view of the questions on social plan funding that have still been left open by the BAG, comprehensive preparation of the social plan negotiations is advisable. For example, it has not yet been decided what influence control and profit and loss transfer agreements have in determining the volume of the social plan or whether only the financial situation of the contractual employer should be taken into account if the social plan provides for the joint and several liability of all companies involved in the joint venture.
Anja Dombrowsky
1.9 The works council's rights to information in the case of desk sharing
Since the corona pandemic at the very latest, the topic of desk sharing has become an ongoing labour law issue. The co-determination and participation rights of the works council are also of particular relevance. In its decision of 10 January 2023 (docket No. 2 TaBV 1/21), the LAG Saxony has now further extended the works council's rights to information and has clarified that co-determination rights must be observed not only when desk sharing is introduced, but also in daily practice.
The defendant company had already established the practice of desk sharing. In addition to requesting information on how the workplaces were basically equipped, the works council requested information on the room planning and the allocation of workstations. According to the works council, this was the only way it could check whether the agreed desk-sharing quota was being adhered to and that rooms were not being overused. The company pointed out that it rents the rooms in an already furnished conditioned and that the daily workstations are first allocated on site.
The Regional Labour Court granted the works council's application, affirming that the right of co-determination with regard to the planning of workstations according to Sec. 90 (1) No. 4 BetrVG was also affected in the case of relocations. Although the wording only covered the planning and establishment of workstations, which was not at issue here, the court was of the opinion that such planning could not be carried out irrespective of the number of employees occupying a room. Only in this way could the works council check compliance with the agreed desk-sharing quota or the overcrowding of individual rooms. In this case, the co-determination required with regard to the planning of workstations was also to be extended to the occupation of rooms. This meant, in particular, that the works council must also be informed in good time about short-term workstation relocations of individual employees and daily varying allocations of workplace. Even the delegation of room planning to another company, which is fundamentally permissible, does not release the company from its duty to provide information.
Desk sharing has become increasingly popular in recent years. The advantages are obvious: companies do not have to provide an individual workstation for every employee and save on expensive office rent and resources, employees can flexibly change workstations and teams or work in a home office. However, the comprehensive notification rights of the works council considerably limit the flexibility of desk- sharing concepts as, according to the Regional Labour Court, the works council's notification right also includes the daily and individual workstation occupancy of employees, even if this changes spontaneously. This is likely to considerably restrict the manageability of desk sharing in daily practice.
The problems surrounding co-determination rights in desk sharing remain controversial: The LAG Saxony allowed the appeal to the BAG (docket No. 1 ABR 7/23) to clarify the fundamental question of whether "individual relocations", i.e. the assignment of individual employees to existing workstations, are covered by co-determination under Sec. 90 (1) No. 4 BetrVG. It therefore remains to be seen how the BAG will decide on the appeal.
Fatoumata Kaba
1.10 Calculation of commission and target bonus for works council members exempted from work
Works council members exempted from their work duties may neither be favoured nor disadvantaged in terms of their remuneration. This sometimes poses difficult questions for companies. The LAG Hamburg (ruling of 26 April 2023 - 3 Sa 29/22) had to decide on a case concerning the question of how to correctly calculate the commission and target bonus of a works council member exempted from his work duties.
The plaintiff was initially employed as a motor vehicle salesman and, according to the contractual remuneration regulations, received in addition to his fixed salary not only substantial commissions based on the sale, delivery and financing of motor vehicles, but also a target achievement bonus. Since being exempted from his work duties due to his position as works council member pursuant to Sec. 38 BetrVG, the plaintiff had received a guaranteed income in the form of a fixed salary, which had been calculated on the basis of average earnings in the one-year reference period from 01 November 2019 to 31 October 2020, thus taking into account a perpetuated commission. In addition, the plaintiff had continued to receive the target achievement bonus, which was calculated on the basis of the mean value of the comparison group. In his action, the plaintiff claimed subsequent sales commissions and a higher target achievement bonus.
The LAG Hamburg denied the plaintiff the subsequent commission. With the guaranteed income, the parties had agreed on a specific calculation method. In that the plaintiff now asserted subsequent commission claims, he was acting contrary to this agreement, and this would put him in a better position than would be the case without his exemption from his work duties.
However, the plaintiff was successful with his demand for a higher target achievement bonus. In the opinion of the LAG Hamburg, the application of the level of target achievement of the comparison group was inadequate: a works council member who, prior to his exemption from work, had achieved a higher percentage of the targets compared to the comparison group relevant to him was entitled to the continuation of this "advantage"; the target achievement bonus therefore had to be calculated hypothetically by continuing the higher degree of target achievement relative to that of the comparison group.
The decision makes it clear that works council remuneration during the exemption from work duties cannot be calculated purely on the basis of mean values, but that an extrapolation of the hypothetical individual work performance is decisive. Due to the fundamental importance of the legal question, an appeal on points of law was permitted; this matter will soon be addressed by the BAG (docket No. 7 AZR 141/23).
Dr. Alexander Willemsen
1.11 Federal Social Court confirms social security obligation of sole shareholder-director
A contractual relationship between the client and a one-man corporation does not exclude an employment relationship subject to a social security obligation on the part of the sole shareholder-director from the very outset if, in the actual overall picture, the activity of the natural person is presented as dependent employment with the client. This was decided by the German Federal Social Court (Bundessozialgericht, "BSG") on 20 July 2023 in already three appeals on points of law (B 12 BA 1/23 et al.).
In the appeals on points of law, contracts existed between third parties and a trading concern with limited liability (Unternehmergesellschaft, "UG") and a limited liability company (Gesellschaft mit beschränkter Haftung, "GmbH") respectively, in two cases concerning the provision of care services for patients and in one case concerning a consulting activity. However, the actual services were provided exclusively by the respective sole managing shareholders who had signed the contract with the third party on behalf of their one-man corporation. In all cases, the German Pension Insurance Association (Deutsche Rentenversicherung Bund) determined that the sole managing shareholders were subject to a compulsory insurance obligation on the basis of an employment relationship subject to social security.
In its rulings of 20 July 2023, the BSG confirmed in all three appeal proceedings the opinion of the central organisations that, in a tripartite relationship, only the concrete actual circumstances of the activity of the sole shareholder-director are decisive for the existence of an employment relationship that is subject to a social security obligation. In contrast to the previous instances, the BSG ruled that the legal figure of the legal entity was not decisive for the existence of an employment relationship subject to social security on the part of the sole shareholder-director in the triangular relationship. Even in such cases, the delimitation between self-employment and dependent employment was based solely on the actual circumstances of the individual case, which were derived from the content of the business and the actual implementation of the contract.
The decisions of the BSG, which are currently only available in the form of reports, create both clarity and uncertainty. It has now been determined with certainty that the establishment of a one-man corporation cannot be used to avoid pseudo self-employment on the part of the sole shareholder-director. In the triangular relationship between the one-man corporation, its sole shareholder-director and third parties as clients, the previously common practice of providing freelance work via the legal figure of a legal entity is no longer a legally secure option for avoiding the sole shareholder-director's social security obligation. For clients, this case law creates uncertainty, as clients will now have to examine their existing service contracts with one-man corporations for the future. In this context, the more recent social court developments of the last few months must also be taken into consideration. Several regional social courts have already ruled independently of each other that "in line with developments in the world of work" freedom regarding the "place and scheduling of the work activities in the modern world of work do not necessarily speak in favour of self-employment" (e.g. Regional Social Court (Landessozialgericht, "LSB") of Berlin-Brandenburg, ruling of 26 January 2023 - L 4 KR 550/16). In all events, the performance of work from a home office is no longer a suitable delimitation criterion (according to the LSG Lower Saxony-Bremen in its ruling of 20 February 2023 - L 2/12 BA 17/20).
Cristina Scupra
2. Legal developments
2.1 Bureaucracy Relief Act
On 30 August 2023, the Federal Cabinet adopted the draft of the Fourth Bureaucracy Relief Act (Bürokratieentlastungsgesetz, "BEG IV"). On the same day, the Federal Ministry of Justice published the key points. There will also be changes to labour law.
2.1.1 No more written form requirement for the NachwG and letters of reference
The most important point of the amendment is the abolition of the written form requirement regulated only last year in the German Act on the Notification of Conditions in the Employment Relationship ("NachwG"). According to this, the obligation to provide written information on the essential terms and conditions of the contract can be waived if an employment contract has been concluded in an electronic form replacing the written form. The same shall apply to amendment contracts concluded in electronic form in case of amendments to essential contractual conditions. The economic sectors and branches of the economy under Sec. 2a (1) of the German Act to Combat Clandestine Employment (Schwarzarbeitsbekämpfungsgesetz, "SchwarzArbG") are to be excluded. According to the current status, the written form is also being retained for certain employment contracts, in particular for fixed-term contracts or temporary employment contracts.
This enables employers to conclude employment contracts in digitised form with the corresponding electronic form (with a qualified electronic signature according to Sec. 126a German Civil Code [Bürgerliches Gesetzbuch, "BGB"]) – as was also the case prior to the amendment of the NachwG.
In future, it will also be possible to sign letters of reference in electronic form. The written form requirement in Sec. 630 BGB is thus being adapted.
2.1.2 Display obligations
As things currently stand, the requirements for displaying the Working Hours Act (Arbeitszeitgesetz, "ArbZG") and the Youth Employment Protection Act (Jugendarbeitsschutzgesetz, "JArbSchG") are going to be adapted. In future, it should also be possible to post notices electronically (e.g. via the intranet). For many other laws that require posting, the legislator had already made it possible in the past for notices to be posted in a legally conform manner via standard company communication and information technology (cf. e.g. Sec. 15 (5) General Equal Treatment Act [Allgemeines Gleichbehandlungsgesetz, "AGG"]).
The legislator has so far lacked the courage to change what is perhaps the most important written form in labour law, namely that for the termination of employment relationships (Sec. 623 BGB). What may still seem understandable for dismissals is incomprehensible for agreements on the cancellation of a contract (Aufhebungsvertrag). Agreements on the accumulation of assets pursuant to Sec. 7b German Social Code Book IV (Sozialgesetzbuch IV, "SGB IV") also still have to be agreed in writing. Now that the written form is no longer required for employment contracts, it is not clear why this should continue to be the case for such agreements. Perhaps the legislator quite simply forgot to include this in the BEG IV.
If companies introduce electronic signature applications with a view to these amendments, they should not forget that this affects the works council's co-determination rights under Sec. 87 (1) No. 6 BetrVG.
However, companies can safely take their time here. According to the current announcements, the BEG IV is to be introduced in the Bundestag this year. Experience shows, however, that this does not mean that it will come into force shortly afterwards.
Jörn Kuhn
2.2 The new Further Education Act - strengthening tomorrow's work?
Due to the ongoing (digital) structural transition of the world of work, many companies and employees are facing great challenges. In order to train employees for the work of tomorrow in a targeted manner and to ensure that skilled workers stay abreast of changes and remain employable for companies, the legislator has introduced the so-called Further Education Act (Weiterbildungsgesetz). The aim is to make it easier for employees to access further education.
Due to new innovations and technologies and the accompanying changes in entire branches of industry, the world of work is undergoing lasting change. In order to make it easier for employees and companies to cope with the challenges this brings, the Bundestag and Bundesrat has passed the Act to Strengthen the Promotion of Training and Further Education (Gesetz zur Stärkung der Aus- und Weiterbildungsförderung) (so-called "Further Education Act"). It was promulgated on 20 July 2023.
The three pillars of the new Further Education Act include:
2.2.1 A qualification allowance
Qualification allowances supplement the existing support for the continued employment of employees. It is intended to support companies and employees in cases where structural change threatens the loss of jobs but companies could continue to employ their employees with the right further training. In these cases, employees can be released from work and receive a qualification allowance as a wage substitute of 60% or 67% of their last net salary during the further training, based on the unemployment benefit from the employment agency.
2.2.2 A training guarantee
The so-called training guarantee aims to provide access to preferably internal vocational training providing a full qualification for all young people without a vocational qualification. However, this does not imply a legal claim to such training. The training of the next generation of skilled workers remains the sole responsibility of the companies.
In addition, the employment agency has also introduced a mobility grant for trainees in cases where the training location cannot be reached from the trainee's existing place of residence in a reasonable time and a change of residence is required in order to start the training.
2.2.3 The promotion of further education
Until now, the existing regulations on the promotion of further education have not been particularly transparent, especially with regard to the existing funding rates (Sec. 82 SGB III). The Further Education Act has now remedied this by defining fixed funding rates depending on the size of the enterprise and fewer funding combinations. In addition, micro-enterprises no longer have to contribute to the costs of a further education course.
In case of further education during short-time work, the possibility has also been extended for companies to be reimbursed with half of the social security contributions borne by them during the short-time work and, in addition, depending on the size of the company, the full or at least partial reimbursement of the training course costs (Sec. 106a SGB III).
The reform of the further education funding as well as the qualification allowance and essential parts of the training guarantee will come into force on 01 April 2024.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
