Labor and Employment Client Service Group

From Bryan Cave, Hamburg 15 June 2011

NEWS ALERT GERMAN LABOR LAW & HR

Subject
This News Alert deals with the following topics under German employment law: Length of service under the age of 25 has to be taken into account in the calculation of notice periods under German law German Agency work sector faces claims amounting to millions. Companies that borrowed employees also face liability risks Drafting and serving notice letters under German law How to do it right

I.

Calculation of notice periods under German law

Federal Labor Court: Length of service under the age of 25 years has to be taken into account
The statutory notice periods for employment relationships are covered by Section 622 German Civil Code (BGB). According to Section 622 para 2 BGB the notice periods provided for a termination by the employer are extended depending on the respective length of service. The maximum statutory notice period is seven months at the end of a calendar month after a length of service of 20 years or more. Pursuant to Section 622 para 2 BGB the length of service under the age of 25 years, however, shall not to be taken into account for the calculation of the respective length of service. The conformity of that provision with European law had been in disputed at least since the introduction of the General Anti-Discrimination Act (Allgemeines Gleichbehandlungsgesetzes - AGG) in the year 2001. With its judgment on January 19, 2010 (Rs. C-555/07 Rs. Kckdeveci) the European Court of Justice (EuGH) confirmed these doubts. The Court held that non-consideration of the length of service before the employee has reached the age of 25 years has to be regarded as discriminatory.

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The German Federal Labor Court (BAG) appropriated this position (BAG, Urt. v. 09.09.2010 2 AZR 714/08). The Court held that the provision of Section 622 para. 2 BGB is no longer applicable even though it is still part of the German Civil Code. As a result the provision may no longer be taken into consideration for the calculation of termination periods.

The practical impact: As a result of this judgment the length of service has to be considered from its very first day. Therefore the entire length of service is relevant for the calculation of the notice period. Compared with the previous legal situation, the judgment may result in an extension of the applicable notice periods, in particular for employees in the commercial sector that join a company at a very young age. In these cases the applicable notice periods might easily be extended for several months. Those employers who trust in the wording of the law and therefore calculate a notice period on an incorrect basis risk that the termination will be deemed ineffective due to incorrect calculation of the notice period. To avoid that risk, the wording of the notice letter should be prepared very carefully in the future. The notice letter should clearly stipulate the employers intention to terminate the employment relationship within the applicable (correct) notice period. Thus the following wording is recommended: Hereby we terminate your employment agreement with effect to the next possible end date in accordance with the ordinary notice period. According to our calculation, the end date is [date]. In case of uncertainty whether the termination period was calculated based on the applicable law, employment agreement, works council agreement or trade union agreement, it is advisable to make a clear reference thereupon in the notice letter. Such a wording could be as follows: Hereby we terminate your employment agreement with effect to the next possible end date in accordance with the ordinary notice period. Based on the works council agreement [name of the agreement] and according to our calculation the end date is [date].

II.

German agency work sector is facing claims amounting to millions

liability risks also for companies which borrowed employees

Particularly in recent years of the world economic crises, companies increasingly employed agency workers which are borrowed from temporary employment companies (not to be confused with temp work or interim staffing). The total number of agency workers in Germany amounts to approximately 800,000. The employment of so-called commercial agency workers is subject to the German Law on Temporary Employment (Arbeitnehmerberlassungsgesetz - AG). Section 9 No. 2 AG contains a socalled equal-pay-principle. Basically, according to such principle, substantially the same working conditions apply to agency workers as opposed to comparable employees at the respective com-

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pany. An exception to the equal-pay-principle however applies pursuant to Section 9 No. 2 AG, if the employment relationship with the agency worker is subject to a trade union agreement. For employees for which a trade union agreement is not applicable, the simple reference to a trade union agreement within the individual employment agreement is deemed sufficient. Originally intended to be an exception, such circumstances became a habit in recent years. Several trade union agreements for the agency work sector were concluded; among others, a tariff agreement by the Christian Union for Temporary Work and Personnel Service Agencies (Christliche Gewerkschaft fr Zeitarbeit und Personalserviceagenturen - CGZP). From the very beginning, the tariff agreements concluded by the CGZP were severely criticized. According to such criticism labor unions had no negotiation rights of salaries and wages (Tariffhigkeit) and were, therefore, not entitled to enter into valid trade union agreements. Due to this fact, the labor union was deemed to be merely a compliable instrument enabling the companies (borrowing company) to agree low wages. In its decision of December 14, 2010 (Az.: 1 ABR 19/10) the German Federal Labor Court (BAG) confirmed that the CGZP has no negotiation rights over salaries and wages (Tariffhigkeit). According to the court all trade agreements concluded by the CGZP are deemed invalid. This invalidity applies retroactively to all agreements as from the year 2003. The trade agreements by the CGZP were apparently applied for 200.000 to 300.000 temporary workers. The invalidity of the trade agreements concluded by the CGZP results in the application of the aforementioned equal-pay-principle instead of the working conditions provided by the provisions of the respective trade agreement. For employees whose employment relationships were subject to the trade union agreement by CGZP, the essential working conditions of the borrowing company shall be applied. The remuneration of comparable employees in the borrowing company will regularly be significantly higher than the standard wage according to the trade union agreement of the GCZP. The impact on practice: Agency workers whose working conditions were subject to the trade union agreement of the CGZP are entitled to demand from their employer the difference between the remuneration actually granted and the remuneration owed due to the equal-pay-principle. Such a claim can be raised until the end of the period of limitation (the ordinary period of limitation is 3 years). The resulting obligations may exceed the economic capacity of quite a few lending companies. In these cases the lending companies are furthermore not entitled to invoke a preclusion of claims provided by the trade union agreement which are applied for the borrowing company. This was recently confirmed by a judgment of the German Federal Labor Court on March, 23, 2011 (Az.: 5 AZR 7/19). In addition, the borrowing companies could be facing further claims by the social insurance authorities. These claims can be asserted retroactively based on the social security contributions calculated with respect to the remuneration owed in accordance with the equal-pay-principle. This was highlighted by the organizations of the social security in a statement on March 18, 2011. According to Section 25 para. 1 sentence 1 Social Insurance Code IV (SGB IV) these claims become time barred only 4 years after the end of the calendar year in which the social contribution becomes due. The liability to pay contributions does not even depend on a respective additional payment actually

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having been paid out to the agency worker. In contrast to the applicable Tax law the obligation to pay social security contributions does not depend on the payment of the wage but on the mere existence of a payment claim. The social security authorities are, therefore, entitled to assert their claims irrespective of actual payments to the agency workers. In a joint statement issued by the top organizations of social security it was announced that late payment fines will be issued as of June 1, 2011. The German Federal Pension Insurance furthermore emphasized that audits with respect to the reporting and contribution requirements will begin July 2011. The borrowing companies may also be facing a similar risk, as Section 28 para 2 SGB IV provides a secondary liability for the social security contributions in the capacity of a primary obligor. This secondary liability already applies once the borrowing company was reminded by the collecting authority and the notice period has expired. In practice, such liability can be relevant in particular if the distributor cannot afford to satisfy the additional claim by the social security authorities. Not only the lending company but also their customers (borrowing companies) should, therefore, immediately review this subject in order to recognize and to avoid potential financial risks.

III.

Drafting and serving notice letters under German law

How to do it right
It is not unusual for a termination of an employment relationship to fail due to formalities. This can result in significant financial burdens and legal disadvantages on the employers side. The most important cornerstones regarding the service of notice letters will be summarized in the following:

1.

Notice of termination (notice letter)

Pursuant to Section 623 BGB the termination of the employment relationship requires written form. The notice letter has to be served upon the employee in its original version. A fax, email, sms or a letter with a scanned signature is not sufficient. The original of the notice letter has to be signed by an authorized representative of the employer. In the event that the notice letter shall be signed by a proxy, a power of attorney has to be attached to the notice letter.

2.
a.

The delivery of the notice letter

Delivery and evidence of delivery concerning the notice letter

The delivery of a notice letter is an essential requirement for the effectiveness of a termination. In court proceedings against unfair dismissal the employer bears the burden of proof that the notice letter has actually been received by the employee. The employer furthermore has to proof the date of delivery. The delivery date plays an important role in light of the applicable notice period. A delay of a single day may result in the employment relationship first becoming terminable only several months later. This is particularly relevant in cases where a termination becomes effective merely towards the end of a quarter, the end of the half-year or at the end of a calendar year.

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b.

Methods of service notice

There are several possibilities available for serving a notice letter: aa) Personal delivery of the notice letter

The notice letter may be handed over by the employer to the employee in person in the presence of witnesses. Where the managing director of a company delivers a notice letter in person, the presence of a witness is essential. The managing director himself cannot be a witness called upon by the company for which he acts as representative. For the personal delivery by hand it is therefore recommended to consult a member of the HR-department or the superior of the employee concerned. In addition, the employee should be asked to confirm receipt of the notice letter and the date of delivery by hand-written signature on a copy of the notice letter. The fact that employees often refuse to sign such confirmation highlights the need for the presence of a witness. In order to attest the delivery of the notice letter to the employee in the presence of a witness, the witness should create a written record confirming that the notice letter has been handed over to the employee on a certain date in his presence. bb) Service of the notice letter by messenger

It is furthermore possible to deliver a notice letter to an employee by messenger, for example to his private address. It is important to note, however, that a mere handover to the post office is not sufficient to prove the delivery of the notice letter to the employee. A delivery by registered mail is likewise not recommended. In this respect it should be taken into consideration that certified mail (with or without return receipt) is not deemed to have been served with the insertion of a notification into a mailbox. Rather, the notice letter is deemed to have been served at the date when it is, in fact, handed over to the employee. Accordingly, there is a risk that an employee does not even collect the registered letter from the post office. In that case the notice has not been served at all. A registered letter delivered to the addressees letter-box (Einwurf-Einschreiben), on the other hand, is equally unsuitable to prove the service of the notice letter, as the record of delivery issued by the postal worker has no sufficient probative value before the court. When servicing a notice letter to the employees private address, personal delivery by a messenger is, therefore, advisable. The messenger can place the notice letter into the employees mailbox. The notice will then be deemed to have been served at the point in time where a mailbox is usually emptied. This means that the notice delivered during the night or at a time when a control of the mailbox can normally not be expected, the notice is deemed to have been served on the following day. The above should particularly be taken into consideration in the event that the notice has to be served at the last day of a month in order not to cause a postponement of the termination date. Even where the notice letter is delivered by a messenger, the messenger should, in written form and on site, record the date and the time of the delivery, sign the record and provide it to the employer for purpose of evidence.

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Practice Tips: Due to the variety of formal pitfalls in connection with serving a termination notice, the draft and the delivery of a notice letter should be carefully prepared. Furthermore, the delivery of notice letters under a severe pressure of time should be avoided. Time pressure may not only result in slips of the pen but a variety of other problems may arise where a person authorized to sign the notice letter is not available, a power of attorney is missing, the service to the employee cannot be executed in time or the required legal advise was not taken.

Should you have any questions concerning this news alert or other matters, please contact us at the following addresses: Bryan Cave LLP Dr. Steffen Grres, Attorney, Specialized attorney for Labor Law Hanseatic Trade CenterAm Sandtorkai 7720457 Hamburg Tel.: +49 (0)40 3033 16 0 on the Internet at http://www.bryancave.com as well as per email Steffen.Goerres@bryancave.com

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