Germany: Increased Protection Against Dismissal In Small Businesses

The protection of employees against dismissal, once restricted to those employed by large organizations, will soon be extended to those employed by small businesses, as a result of a judgment recently passed by the German Federal Labor Court.

The German Federal Labor Court (Bundesarbeitsgericht ; BAG) (judgment dated January 24, 2013, 2 AZR 140/12) has redefined the term "small business." Currently, unlike large corporations, businesses with 10 or fewer employees can almost always terminate their employees without stating a reason, pursuant to Section 23 Para. 1 S. 2 of the German Protection Against Dismissal Act (Kündigungsschutzgesetz ; KSchG). This is because in small businesses, the supervisor/ employee relationship is typically less adversarial, and the financial and administrative procedures tend to be less onerous. In the future, however, as a result of new methods of classifying temporary workers, small businesses too may be forced to provide reasons for terminations—and not only for the terminations of their "own" employees, but also for those of temporary workers brought in for longer periods.

The case in question involved a fruit seller who had a staff of 10 regular workers and was therefore exempt from the requirement to state the reasons for any terminations. However, the fruit seller had also hired a temporary worker. Surprisingly, the BAG included this temporary worker in the total number of "workers employed" at the business.

According to the BAG, what is relevant is not the actual number of workers who have an employment relationship with the employer, but the "regular personnel strength characterizing the business." It was further stated that no distinction ought to be made between a company's own employees and any temporary workers.

Are Freelancers Now Counted Toward the Workforce Total?

This judgment could have far-reaching consequences. According to studies of the union-oriented Hans Böckler Foundation, employee turnover is higher in small businesses, where notices of termination are given more frequently than in large businesses. This will be impeded by the new judgment, since the BAG has replaced the unequivocal legal term "employee" with the diffuse term regular "personnel strength." From now on, prior to giving notice, owners of small businesses must report both the number of employees deployed by the company and the number of temporary workers brought in for long-term assignments. The latter must now be considered part of the minimum number of "employees."

In view of the broad interpretation of the term "personnel strength," however, it must be asked whether commercial agents, software developers who have worked in the business for longer terms, and other freelancers will also be regarded as "personnel" in the future. The long-established entrepreneurial practice of keeping the number of personnel below the limit prescribed for protection against dismissal is being destroyed by this ruling.

Temporary Workers Are Increasingly Being Treated Like Permanent Staff

Thus, the judgment is definitely objectionable. Only a few years ago, the BAG stated in detail why temporary workers are not employees of the hiring company (judgment dated October 22, 2003, 7 ABR 3/03). The BAG explained that they were not to be included when determining the number of works council members to be elected, according to the German Works Constitution Act (Betriebsverfassungsgesetz ; BetrVG), or the number of works council members to be released from work (Sections 9 and 38 Para. 1 BetrVG). The regional labor courts did not include temporary workers within the scope of Section 23 of the KSchG, either.

Apparently, the BAG sees things di f ferent l y now. Nevertheless, the judgment is in line with a tendency observable in legislation and case law: the legal position of temporary workers is being approximated to that of permanent staff when longer-term assignments are involved. In 2001, the BetrVG was modified to the effect that temporary workers are entitled to vote for the works council in the hiring company if they have been employed within the company for more than three months (Section 7 S. 2 BetrVG). In a judgment of the BAG of October 18, 2011 (1 AZR 335/10), temporary workers deployed for longer terms were counted among the permanent staff to a further extent; since then, employers with fewer than 20 of their "own" employees, in addition to temporary workers on longterm assignments (i.e., lasting more than three months), have had to implement an often time-consuming conciliation of interests and social compensation plan in the event of operational changes at the facility. Amended in 2011, Section 1 Para. I of the German Temporary Employment Act (Arbeitnehmerüberlassungsgesetz ; AÜG), according to which workers are hired out on a "temporary basis," should have a similar impact.

Further Consequences?

One consequence of the current judgment is that termination of a small business's "own" employees now requires a reason for the termination if the temporary workers cause the headcount of 10 to be exceeded. It remains to be seen whether "former" small businesses, fearing actions against unlawful dismissal, will refrain from providing notice of termination.

However, the impact of the judgment can go even further: the inclusion of temporary workers may apply to other thresholds, such as the one established for lodging claims to reduce working hours. Pursuant to Section 8 Para. 7 of the German Act on Part-Time and Fixed-Term Employment (Teilzeit- und Befristungsgesetz ; TzBfG), a claim for a reduction in working hours may be filed if the employer employs more than 15 "workers." If, however, "regularly employed" temporary workers are to be counted toward that total, a larger number of small businesses may be affected. The ruling may also affect the statutes holding that companies with more than 20 employees must reserve 5 percent of their jobs for the severely disabled and that those with more than 21 employees must inform the employment agency in advance if they intend to dismiss more than five of them.

The judgment is leading the way to many labor disputes.

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