Germany: Newsletter Labour Law, II/2012

At the end of the first half of 2012, the balance of developments in employment law has turned out to be divided: employment legislation has remained hesitant and, for example, did not even manage to get the long-awaited employee data protection act off the ground before the summer break. Case law, in contrast, has continued to provide further stimuli: with its decision to award damage claims to an employer on grounds of unlawful warning strikes, the Federal Labour Court [Bundesarbeitsgericht, BAG] has evoked considerable criticism from the unions; and the relinquishment of the substitution theory will have a lasting impact on holiday entitlement legislation. These two decisions, as well as further decisions and developments, are explained in greater detail below.

False information an indication of discrimination against ethnic origin

By judgement of 21 June 2012 (docket no. 8 AZR 364/11), the Federal Labour Court (BAG) has ruled that false or contradictory information given by an employer regarding the reasons for a negative personnel decision can be an indication of a discrimination against the employee on grounds of ethnic origin.

The case for decision by the BAG was a complaint filed by a plaintiff born in Turkey whose fixed-term employment contract had not been prolonged, whereas a comparable employee of German origin had been offered an indefinite employment relationship by the employer. The employer based its decision against the plaintiff on performance deficiencies, despite having given her a reference in which it qualified her work as being "to our utmost satisfaction" ["zu unserer vollsten Zufriedenheit"].

In this connection the BAG states that the reasons underlying the employer's measure must be correct. An evidently false or contradictory reason could be considered an indication of a discrimination. Since the factual situation had not been conclusively clarified by the prior instance, the BAG referred the dispute back to the Regional Labour Court [Landesarbeitsgericht, LAG] of Rhineland-Palatinate.

With its decision on the presumption of a discrimination in case of a deficient justification of personnel decisions, the BAG concurs with a judgement of the European Court of Justice (ECJ) dated 19 April 2012 (docket no. C-415/10). This was to be expected, since the ECJ's decision in April 2012 was based on a comparable issue that is still pending before the BAG. The ECJ had decided that, although a rejected job applicant cannot fundamentally demand an inspection of the job application documentation of the hired candidate from the employer in order to prove his own (purported) discrimination on grounds of ethnic origin, the ECJ considered the withholding of any and all information about the hired job applicant and the reasons for the rejection to be factor which could be appraised as an indication of a discrimination within a comprehensive overall consideration of the matter.

However, once the presumption of a discrimination on grounds of ethnic origin or a characteristic that is frowned upon pursuant to the German General Non-Discrimination Act [Allgemeines Gleichbehandlungsgesetz, AGG] has been raised, experience has shown that it is difficult for the sued employer to successfully avert damage and/or compensation claims. For employers, the judgements of the ECJ and BAG will mean considerably more work and greater sensibility in their handling of personnel decisions. Firstly, it is no longer sufficient to reject a job applicant without giving a reason. Secondly, the reasons must be correct or at least in line with the employer's usual conduct.

The BAG decision is presently only available in the form of the press release; we will have to wait and see whether the grounds for the BAG's judgement stipulates further requirements as to the scope and content of an employer's justification of a negative personnel measure.

Kathrin Vossen

Claim to payment in lieu of holiday at the end of an employment relationship - relinquishment of the substitution theory

To date, an employee who still has residual holiday claims at the end of his employment relationship had to assert these claims during the ongoing calendar year. This is because, pursuant to previous BAG case law, the limitation of Sec. 7 para. 3 sentence 1 German Federal Holiday Entitlement Act [Bundesurlaubsgesetz, BUrlG], pursuant to which holiday must be granted and taken during the current calendar year, also applied to the claim to payment in lieu of the holiday because such claim to payment in lieu was understood to be a replacement (substitute) for the holiday entitlement which was no longer realisable as a result of the end of the employment relationship.

This substitution theory has now been relinquished by the BAG. For employees incapacitated from work beyond the period for carrying over the holiday claim they have been relinquished in any event pursuant to the more recent case law of the BAG, due to requirements of Union law. Through the BAG's decision dated19 June 2012 (docket no. 9 AZR 652/10), the relinquishment of the substitution theory has now also been confirmed for employees who are not incapacitated from work.

This is because, in the opinion of the BAG, the statutory claim to payment in lieu of holiday, as a pure monetary claim irrespective of the employee's capacity or incapacity to work does not fall under the regime of the time limits of the German Federal Holiday Entitlement Act. Accordingly, the BAG granted a claim to payment in lieu of holiday of an employee whose employment relationship had terminated on grounds of a legally binding judgement dated 31 July 2008 and who had first demanded payment in lieu of holiday for 16 days holiday from the defendant by letter of 6 January 2009.

Isabel Hexel

Company retirement pension after pre-retirement part-time employment

In a decision of the BAG dated 7 April 2012 (docket no. 3 AZR 280/10), the BAG addressed the question of the calculation of a company pension in case of reduced working hours in the run-up to retirement ("pre-retirement part-time employment", ["Altersteilzeit"]). The pertinent pension regulation did not provide for pre-retirement part-time employment before leaving the company upon reaching retirement age. Rather, the regulation merely contained a provision regarding the amount of the pension for part-time employees, stipulating an adjustment of the company pension to the worker's degree of employment over the last 120 months before leaving the company.

The BAG decided that the question of whether or not pre-retirement part-time employment should also be taken into account in the calculation of the company retirement pension depends upon the interpretation of the corresponding company pension regulation. A special provision on the calculation of the company pension agreed for part-time employees therefore is not applicable to employees who make use of the pre-retirement part-time employment option. These pre-retirement part-time employees should not be treated in the same way as other part-time employees. Consequently, the calculation of the company pension is based on the regulation that has been agreed for full-time employees; accordingly, the claimant's case was granted, as already in the previous instances.

Although the BAG's decision is based on the specific interpretation of an individual pension promise, which means that one cannot draw from the judgement the general conclusion that cuts in company pensions are generally impermissible for pre-retirement part-time workers; our attention nevertheless remains focused on the fact that, especially in restructuring cases, special forms of employment which are of relevance to the remuneration are frequently agreed, but can only be reflected in pension regulations without problems in just a few cases. Here, a careful examination is required so that any necessary adjustments can be agreed straight away.

Jörn Kuhn

BAG on the revocation of the right to use the company car during garden leave

By judgement dated 21 March 2012 (docket no. 5 AZR 651/10), the BAG classed as fundamentally permissible a clause contained in an employment contract entitling the employer to revoke the use of the company car without compensation in the event of the employee's garden leave. The BAG did, however, stipulate strict requirements for the execution of the right of revocation.

In the underlying factual situation, the employee was put on garden leave after having herself terminated her employment relationship. In reference to a revocation clause contained in the employment contract, the employer simultaneously demanded the return of the company car which the employee had previously also be permitted to use for private travel. The contractual provision stipulated that the provision of the company car could be revoked, inter alia in the event of the employee's paid release from employment duties during her termination notice period. The employee was of the opinion that the revocation invalid and filed a payment claim on grounds of the loss of use of the car until the expiry of the termination notice period. Ultimately, the employee's claim was granted by the BAG.

In established jurisprudence, the BAG subjects revocation clauses to a two-stage examination. During the first stage - the examination of the content - the BAG essentially checks whether the grounds for a revocation are stated in the clause and whether the revoked benefit constitutes no more than 25% of the regular earnings. The disputed clause withstood this examination. At the second stage - the examination of its execution - it subsequently checks whether the execution of the right of revocation in the specific individual case can be considered equitable. The BAG's weighting of the employer's interests in the immediate return of the company car and the employee's interests in the continued private use thereof fell in the employee's favour: for her, the company car was her only car. Furthermore, pursuant to Sec. 6 I no. 4 German Income Tax Act [Einkommenssteuergesetz, EStG] she was obliged to tax the private use at the full monthly flat rate, despite no longer being able to use the car for the remainder of the month after its return on 9 June 2009. This - along with the loss of use - led to a perceptible reduction of her net income and therewith to a prevailing interest in her continued use of the company car.

The judgement shows that, although revocation clauses concerning a company car provided to an employee can be valid in principle, the BAG nevertheless immediately restricts the employer's striven options for action by setting strict requirements for the execution of such right of revocation. Following the BAG's logic, a revocation during an ongoing month is always impermissible because the employee suffers a loss of use without being exempt from the (proportionate) tax burden of the private use. However, a revocation is also only possible to the end of a month if the employer can present cogent reasons. It does not suffice here just to generally indicate the preferential business-related use of the car. Rather, the employer will have to represent a definite need. In my opinion, this exists if the employer transfers the tasks of the employee put on garden leave - tasks which require the use of a company car (for example, field staff) - to another employee who does not have a company car.

Dr. Alexander Willemsen

Ver.di must pay damages caused through unlawful warning strikes

The law on industrial disputes is constantly in motion. Following the highly-publicised decisions of the BAG on the permissibility of collective social plans and support strikes, on 19 July 2012 (docket no. 1 AZR 775/10) the First Senate was called to decide upon damage claims of an enterprise which, despite having just changed its form of membership to membership without tariff commitment, was the target of strike measures.

The "last-minute" change to an association membership without tariff commitment (non-tariff membership) has for some time already been seen by enterprises as a tried and tested means of evading foreseeable tariff wage increases whilst still being able to enjoy the benefits of an employers' association. This was also the intention of the suing enterprise: When new a new round of collective bargaining on the collective wages and salaries agreement was in sight, it changed its membership of its previous employers' association to a non-tariff membership and acquired a new (full) membership of the employers' association for enterprises in the paper, card and synthetics processing industry [Arbeitgeberverband Papier, Pappe und Kunststoff verarbeitender Unternehmen, VPU]. By letter of the VPU and at a meeting between the management and ver.di representatives, notification was given of the change to non-tariff membership. Shortly thereafter, ver.di nevertheless invoked a warning strike; the enterprise subsequently sued the union for damages.

Other than in the previous instances, the BAG established that the warning strike was unlawful and that ver.di was obliged to pay damages. It therewith fundamentally confirmed the opinion that a change to non-tariff membership during ongoing collective bargaining talks certainly does make any subsequent industrial action on the conclusion of an association-level collective agreement impermissible, if the change in status was sufficiently transparent and thus valid pursuant to collective bargaining law for the union in question.

Critical commentaries - primarily from the unions - perceive the judgement to be a legitimisation of "last-minute resignations", permitting employers to avoid collective wage increases. However, this is only conditionally the case because, although an employer can use a last-minute resignation to avoid industrial action aimed at the conclusion of an association-level collective agreement, such a step is only conditionally suited to generally avoid collective wage increases, since strike measures are still a fundamental possibility with a view to the conclusion of a company-level collective agreement, irrespective of any last-minute resignation.

Dr. Alexander Willemsen

Intra-corporate transfers within Europe

On 13 July 2010 the European Commission presented a Proposal for a Directive of the European Parliament and of the Council on "Conditions of Entry and Residence of Third-Country Nationals in the framework of an intra-corporate transfer" (KOM(2010) 378). This has been discussed by the Council of Ministers since 7 October 2010.

The aim specified in the Directive is to make it easier for multinational enterprises to transfer skilled employees, executive officers and trainees from third countries within the group, namely from one part of the company in a third country outside of the European Union (EU) to another part of the company within the EU. The Directive regulates the entry, residence and employment conditions in such cases.

The Committee on Internal Affairs of the German Bundestag has now addressed this proposal in a public hearing held on 25 June 2012. At this hearing, the objections raised by the political opposition were heard in particular, since it is of the opinion that the draft Directive will open up the European Market for cheap labour.

The Federal Government has not yet commented hereon. However, in the course of the discussion on the lack of skilled employees in Germany, there are several voices in favour of the proposed Directive. Should this Directive be implemented, future group employees from third-countries will be able to work in European companies of the group without observance of the other provisions of residency law (in particular equal pay). All that is required is proof of the employment activity in the group.

Jörn Kuhn

New pilot collective agreement for the metal and electrical industry in Baden Württemberg

The employers' association and the metalworkers' union IG Metall agreed on 19 May 2012 on a new collective agreement for the metal and electrical industry in the pilot district of Baden-Württemberg. The wage agreement is to be assumed at a national level and provides in particular for a retroactive wage increase as per 1 May 2012 of 4.3% with a term of 13 months.

However, it is the provisions on temporary agency workers contained in the pilot wage agreement that are worthy of particular mention. Pursuant to the new collective agreement, temporary agency workers may only be employed at the same business for a period of 18 months without further limitation. After such time, the hiring company must examine the possibility of employing the temporary agency in an indefinite employment relationship. After 24 months, the hiring firm is even obliged to make an offer to take on the worker. The collective agreement itself does not stipulate the time as of which these periods regulated therein t are to be calculated, i.e. whether insofar they are to be calculated as of the time of first hiring the temporary agency worker at the business or as of the time of the wage agreement. Hence, this remains unclear.

Pursuant to the collective agreement, there shall only be an exception to the obligation to take on the temporary agency work if material reasons, e.g. project work or representation of absent employees - justify a lengthier term of employment at the hiring firm.

Companies can deviate from these basic rules without the consent of the parties to the collective agreement if they have the approval of their works council, i.e. in such case a voluntary shop agreement would suppress the collectively agreed provisions. Such voluntary shop agreement can regulate the following points concerning the use of temporary agency workers in the business: designated purposes of the use of temporary agency workers, areas in which they are to be used, volumes of temporary work, amount of remuneration of temporary agency workers, which shall be agreed in personnel leasing contracts, maximum hiring term and provisions on taking on temporary agency workers on a permanent employment basis.

If the hiring firm already has a shop agreement on the use of temporary workers prior to the conclusion of the collective agreement, this will continue to apply and have precedence over the new collective regulation. However, as in all other cases, the existing shop agreement can naturally also be terminated to the agreed date.

Although the aforementioned provisions initially only relate to a pilot wage agreement for the metal and electrical industry in the district of Baden Württemberg, since this is to be assumed nationally, however, hiring firms in this branch in other districts should as a precautionary measure examine their existing provisions on temporary agency work and, where necessary, take this opportunity to conclude a voluntary shop agreement on the subject of temporary agency work with their works council.

Isabel Hexel

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.

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