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If an employment relationship is to be terminated unilaterally, employers in Germany often find themselves between a rock and a hard place. The protection against Unfair Dismissal Act (Kündigungsschutzgesetz, KSchG), if applicable, sets high thresholds for validly terminating an employment relationship. Due to this, if a notice of termination is issued by the employer, employees in most cases file a claim for protection against unfair dismissal with German labour courts. As German labour courts can only decide whether an issued notice of termination is valid or invalid, a successful claim for protection against unfair dismissal means that the employee is reinstated into the employment relationship. In this case, the employee is generally entitled to backpay of the contractual compensation from the end of the notice period to the close of the court proceeding.

The financial risk for employers therefore increases with the length of the litigation. A typical proceeding in first instance takes between six to nine months and possibly longer. A subsequent proceeding in second instance can take additional six months or more. In some (luckily rare) instances legal proceedings can take several years. Depending on the salary of the employee in question, the financial exposure can easily reach six-figure amounts, not including the legal fees.Continue Reading Between a rock and a hard place – not so much anymore?

The principle of equal pay for equal work has been a keystone in German as well as European law for many years, and it is no secret that the reality in Germany, in particular with regards to the pay gap between men and women, is very different.

The Federal Statistical Office (Statistisches Bundesamt) has been tracking the difference in pay between women and men in Germany since 2006. For 2023, they report that the average gross hourly earnings of women (EUR 20.84) were EUR 4.46 lower than those of men (EUR 25.30), resulting in an average of 18% less earnings per hour (which is the so called “unadjusted gender pay gap”). The so called “adjusted pay gap” takes into account that women work more often than men in sectors, occupations and at job levels where pay is lower or often has more part-time roles. According to the adjusted pay gap, female employees earned on average 6% less per hour than men in 2022, even with comparable jobs, qualifications and employment histories. Over the entire observation period from 2006 to 2022, women earned significantly less per hour worked on average than men. Over the past 16 years, the gender pay gap has narrowed down from 23% in 2006 to 18% in 2022 (unadjusted).Continue Reading Equal pay – the end of individual salary negotiations in Germany?

The release of AI programs, like ChatGPT or DALL E, has sparked intense public debate about the use and limitations of AI. Despite this rather recent public development, in many companies, the use of AI is already well established. In the context of HR, common areas of application are seen in the search for candidates

At the end of 2022, the German Federal Labor Court (BAG) published a decision stating that employers are obliged to introduce a system for recording the total working hours of their employees (BAG, 1 ABR 22/21). Up to now, the Working Time Act (ArbZG) has not contained an explicit obligation to record the working hours of all employees, except for overtime. The BAG thus confirms the decision of the European Court of Justice (ECJ) from 2019, according to which all EU member states are obliged to require all employers to introduce an “objective, reliable and accessible system” documenting the work performance of their employees (ECJ, C-55/18). In its decision, the BAG bases the obligation to introduce a time recording system by the employer on the provision in Sec. 3 (2) No. 1 Occupational Health and Safety Act (ArbSchG), which states that the employer must enable “suitable organization” and provide the necessary resources for this.

Employers and the German legislator are expected to act in response to the BAG’s decision on the recording of working hours. The German Federal Ministry of Labor and Social Affairs (BMAS) has announced that it will present a proposal for including the obligation to record working hours in the Working Time Act in the first quarter of 2023. However, employers should start dealing with the new requirements now and not just wait for the legislator to pass a new law as the new case law on the obligation to record working hours is binding with immediate effect. Employers should therefore pay particular attention to the following:

  1. Employers should start to either work on implementing a working time recording system that records start, end, and total duration of daily working time as well as breaks or they should check their existing time recording system for compliance with the new requirements.
  2. Case law does not stipulate any requirements with regard to the type and form of recording of working hours. This means that employers are largely free to choose the type and form of the time recording system itself (e.g. whether electronic or not).
  3. Employers can delegate the recording of working hours as such to their employees. However, since the employer is responsible for setting up and operating a working time recording system, they must also encourage employees to use the system in practice. For this purpose, employers should sufficiently instruct their employees and inform them which times are to be recorded as working hours. The correct use of the time recording system should also be monitored regularly.
  4. Companies with a works council must involve them in the decisions around the arrangement (the “how”) of a working time recording system as the works council has participation rights in this respect.
  5. Employee data protection must also be taken into account when establishing a time recording system, as time records are considered personal data and must be treated in accordance with the essential data protection principles (e.g. data minimization, storage period, international data transfer).

With regard to flexible working models, such as trust-based working or working from home, no significant consequences are to be expected in the future: trust-based working time means that employees are responsible for planning their own working hours and must ensure that they comply with the amount of time agreed with the employer. Even before the new case law on time recording, the general conditions of the Working Time Act already applied here. The obligation to record working time means that in the future, the working time itself must be documented, but flexible working time arrangements remain generally feasible. This means that if employees have access to a working time recording system from home to record their working hours, the requirements of the new case law are still met.Continue Reading BAG decision on the obligation of German employers to record working hours

In advance of the holiday season, it is common practice in many companies for the employer to show gratitude and to reward employees for their performance over the year. Typically, this is done by granting a bonus or similar one-time payment. Even though the legal basis of such payments often is a contractual agreement, a collective bargaining agreement or a works agreement, in many instances payment is made on an informal, “voluntary” basis. In such cases, employers often assume that they can decide whether to grant a bonus on a year-to-year basis without creating an obligation towards employees.

While this assumption can be correct, often employers are surprised when confronted with the idea of having established a “company practice”. According to German law, such company practice creates a legal entitlement of employees towards their employer for the same bonus granted during the last years. A typical situation for a company practice to surface is an employer who paid a year-end bonus to all employees, for example, the amount of one monthly salary for the last several years. After a change of ownership, the new management decides not to pay the respective bonus, only to find that employees successfully claim the previously paid bonus in German labor courts.Continue Reading Year-end bonus and company practice in Germany

As of 1 August 2022, employers in Germany must provide employees with additional information on the terms and conditions of employment. In case of non-compliance, there is a risk of administrative fines of up to EUR 2,000 per violation.

In June 2022, the German government passed changes to the Notification Act that will enter into force on 1 August 2022 and will require action from employers in Germany. Background of the amendments to the already existing Notification Act is the implementation of the European Directive on Transparent and Predictable Working Conditions (EU 2019/1152) into national law.

Important Consequences for Employers

The changes mean that employees need to be provided with additional information on essential terms and conditions of employment. The German legislator decided to apply a written form requirement for this notification and thus decided against the possibility of digitalization. This means that the information on the essential conditions of employment must be wet signed by the employer.

Although the Notification Act is not new for employers, it has not been of great significance in practice to date, not only because of the lack of consequence so far, but also because of the comparatively low requirements that were typically met by standard employment contracts.Continue Reading Employers in Germany must take action following changes to the Notification Act

In general, the conclusion of a fixed-term employment contract is permissible if it is justified by a material reason (section 14(1) of the German Act on Part-time and Temporary Work (Teilzeit– und Befristungsgesetz – TzBfG)). Term limitations without a material reason are only permitted for a maximum period of two years (section 14(2)1 of the TzBfG). However, the conclusion of a fixed-term employment contract without material reason is prohibited if the individual concerned had previously been employed on a fixed-term or permanent basis by the same employer (section 14(2)2 of the TzBfG).

In its prior case law (from 2011 onwards) the German Federal Labour Court (Bundesarbeitsgericht) interpreted section 14(2)2 of the TzBfG to mean that a new fixed-term contract without material reason would only be prohibited under section 14(2)2 of the TzBfG if the employee had been employed within the last three years prior to the intended fixed term.Continue Reading 22 years is long enough – German Federal Labour Court rules that fixed-term employment contracts without material reason are permissible

The German Federal Leave Act (Bundesurlaubsgesetz) provides that employees forfeit the right to claim outstanding holiday entitlement at the end of the calendar year or at the end of a specific transfer period; in other words, all holiday must be granted and taken beforehand. Under previous case law, this did even apply in the event that the employer declined an employee’s holiday request even though the request was made in a timely manner.

The Court of Justice of the European Union, however, has taken a different approach. In its ruling of 6 November 2018, the court decided that the regulation according to which employees automatically lose annual leave if they have not submitted a holiday request is not in line with European law. Following this decision, the Federal Labour Court, the highest labour court in Germany, developed its current case law and stated in its ruling of 19 February 2019 that the employer is obliged “to ensure in a concrete and fully transparent manner that the employee is actually in a position to take their paid annual leave by formally requesting them – if necessary – to do so”.Continue Reading Loss of holiday entitlement – higher hurdles for employers if they want to ensure that employees lose the right to claim outstanding holiday entitlement at the end of the calendar year

Welcome to Reed Smith’s Monthly Global Employment Law blog post. This month’s post covers the legality of employee strikes in five key jurisdictions: France, Germany, Hong Kong, the UK and the United States.

France

According to the French Supreme Court, a lawful strike action is defined as a collective cessation of work, the purpose of which is to support professional claims. In the private sector, the right to strike, as a constitutional right, cannot be restricted or regulated by a collective agreement or by the employer itself. There is thus no obligation to comply with a specific notice period prior to going on strike. Employees, however, must inform the employer of their claims at the time they decide to stop working and go on strike.

Employment contracts are suspended during the strike (i.e., the employees do not perform their duties and the employer does not pay them). Employees on strike are protected against any disciplinary sanctions, including dismissals in the sense that any sanctions that may be imposed where there is lawful strike action are deemed to be null and void. This protection does not apply when the strike is unlawful (i.e., the action does not support professional claims or where the employees on strike prevent non-strikers from working).

The majority of strike actions are usually settled without having to commence legal action before the courts.

Germany

In Germany, a strike is the typical industrial action on the part of the employees and trade unions. To be legal, a strike must meet certain formal requirements and pursue a legitimate purpose. Formally, a strike must be (i) organised by a trade union; and (ii) called following a strike vote conducted according to democratic principles. Therefore, a so-called “wildcat” strike, which is not organised by a trade union, is illegal. Any strike must pursue a legal purpose, which can only be to change working conditions. Furthermore, a strike must be conducted in a reasonable and lawful manner. Therefore, the union may not occupy the premises, call on customers of the employer to boycott the product, or prevent employees willing to work from entering the premises and working.

Continue Reading The legality of employee strike action

This post was also written by Martin Gätzner.

France

Under French law, the employment contract of an employee who is on sick leave is suspended. The employee is expected to inform his or her employer and the relevant social security organisations of the sickness absence within 48 hours, and will be entitled to receive social security allowances while absent from work.

Depending on the provisions of the applicable collective bargaining agreement, employees may be entitled to receive their full salary for a limited period. In such cases it falls to the employer to pay the difference between usual salary and the allowances provided by the French social security organisations.Continue Reading Sickness absence management – employee rights, risks and recommendations