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Top bankers without termination protection?

January 31, 2019

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The Brexit Transition Act (“Brexit-StBG/Steuerbegleitgesetz” – The Act) will allow banks in Germany to terminate the employment of their high paid employees without following the usual strict requirements of German labor law. The Act is still under discussion within the German parliament. This blog provides an overview of the proposed simplification of termination protection.

A potential consequence of Brexit is that financial institutions currently based in London may look to relocate to other European financial centres. In Germany, this has led to a discussion around concerns that the German financial metropolis Frankfurt was facing a major disadvantage against competing cities such as Paris, Zürich and Barcelona.  German Employment protection laws were at the top of the list of concerns. In particular, the key issue was how employers would be able to terminate the employment of high paid (investment) bankers under strict German labor laws?

The solution proposed is not surprising: the Act shall provide banks with the right to file a motion to end employment without providing reasons (Sec. 9 para I 2 of the German Termination Protection Act/KSchG) thereby deviating from standard German termination protection proceedings. Under the new Act – if enacted – banks may benefit from the simplified termination proceedings provided the following prerequisites are met in order to trigger the respective motion to end employment by the banks:

– the employee is a so-called risk taker (”Risikoträger“) pursuant to Sec. 25a of the German Banking Act (Sec. 25a para 5a KWG);

– the annual fixed remuneration

Aufsichtsräte be aware!

November 27, 2018

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Aufsichtsräte be aware!

November 27, 2018

Authored by: Michael Magotsch

In a decision of 18 September 2018 the German Federal Supreme Court (Bundesgerichtshof/ BGH, Az: II ZR 152/17) confirmed a legacy decision (ARAG/Garmenbeck) of 1997 and tightened the liability of supervisory board members. Clients need to be aware of the increased liability for Supervisory Board members („Aufsichtsräte“).

Unlike in other jurisdictions (in the UK for example) Germany has a Two-Tier corporate management structure. Thus, in addition to the management board (i.e. Vorstand at AG or Geschäftsführung at GmbH) corporations may have a so-called Aufsichtsrat, a supervisory board. The supervisory board monitors the managing directors and has – as one of its key authorities – the right to appoint and withdraw members of the management board. The supervisory board is strictly separate from the management board of a company. Depending on the total headcount of the company, the supervisory board consists of representatives elected by the shareholders AND employee representatives elected by the staff (in most cases Works Council and Trade Union members), provided the company is subject to German co-determination laws.

In this remarkable decision the Supreme Court stressed the responsibility of the supervisory board, highlighting the increased risk for supervisory board members to be made liable by the company for damages caused by the management board if they have failed to bring damage claims before the Courts to ensure potential remedies on behalf of the company.

In the case at hand, the management board had violated its fiduciary duties vis-a-vis the company. Potential damages claims by the company against

German Dismissal Protection – Lies don´t travel far – or do they?

October 15, 2018

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The German Federal Labor Court (BAG) recently held, that employers are not prevented from using grounds which failed to justify a termination in order to file for a subsidiary motion to end employment.

Under German dismissal law, employees can only be dismissed on socially justified grounds. If an employee brings a claim relating to their dismissal and the Court finds that the employer cannot demonstrate a satisfactory socially justified reason, the dismissal will be invalid meaning the employer will have to re-employ them and they will be awarded back pay. However German dismissal law also provides for a remedy to allow employers to file a motion to end employment with employees during wrongful dismissal proceedings. Where the courts find that employment was not effectively terminated by the dismissal, but the employer cannot reasonably be expected to continue employing the plaintiff, the Court shall upon the employer’s motion dissolve the employment relationship. As a result the employer may be ordered by the court to make an appropriate severance payment (Sec. 9 KSchG/ Wrongful Dismissal Act).

Until now, German courts held that employers may only justify such a motion on grounds which were not already considered in the wrongful dismissal proceedings, for example the termination itself has irreparably damaged the relationship between the parties. Now the BAG held, that employees who have been dishonest in the wrongful dismissal proceedings are not entitled to this protection.

In the case in question, the employee was employed at a company manufacturing battery cells under extreme

Business Transfers in Germany – New Decisions by the Federal Labor Court with Potential Great Impact

Derived from EU Directive 2001/23/EG, the German law on Transfer of Business (“TUPE”) protects employees in a business transfer situation. As a starting point, TUPE transfers the employment of affected employees from one employer to another on their existing terms and conditions. However, a potential  impact of recent decisions by the German Federal Labor Court on TUPE is that, even many years after restructurings and – supposedly – concluded transfers of business transactions, employees may claim ongoing employment with their original employer (”transferor”) if it is held that no transfer of business actually occurred.

The case law in this area has continued to develop based on rulings by the Federal Labor Court/ (“BAG”). Recently the BAG rendered two decisions (BAGE 8 AZR 265/15 and BAGE 8 AZR 309/16) with far reaching consequences for companies doing business in Germany.

How long after a “transfer” will the Courts intervene?

In the most recent decision (BAGE 8 AZR 309/16), an employee filed suit with the local labor courts against his original employer four years after his employment was (allegedly) transferred from his old employer to a newly established sister company (“transferee”). The original employer transferor and the new sister company had informed the employee about his transfer of employment and the employee had never contested it. To the contrary the new sister company kept the employee on its pay role, paid his salary and contributed to German social security over all the four years. When insolvency was filed at the level of the

New developments on time restricted employment contracts – more “red tape” and further restrictions

The “Große Koalition” (the Grand Coalition) recently concluded a variety of legislative projects which will result in additional headaches, administrative hurdles, thresholds and new deadlines for HR professionals and employment experts. Traditionally, labor and employment laws in Germany have tended to be employee friendly. Now it appears that the few remaining employer-friendly laws enacted in the early 1980s to improve overall employment in Germany will also be reversed.

One area subject to challenge is time restricted employment. Until now, German employers could use time restricted employment even without substantive reasons for up to two years. This concept, known by the somewhat technical German term “sachgrundlose Befristung”, became extremely popular due to wide coverage which extended outside the legal press.

Federal Constitutional Court narrows use of time restricted employment contract

In June 2018, the Federal Constitutional Court in Germany (“Bundesverfassungsgericht”) overruled a 2011 judgment of the Federal Labor Court (“Bundesarbeitsgericht”). The Federal Labor Court had ruled that the employer could conclude unfounded time restricted employment contracts provided the employee had not been previously employed by the employer within a three year period. This ruling went beyond the law itself which does not provide for a concrete threshold period but rather prohibits an unfounded time restricted employment contract if the employee was “previously employed” with the same employer.

The Federal Constitutional Court has rejected this approach, holding that setting a three year threshold period is not the role of the judicative power but must be laid down by legislation. Therefore, the three

Post-Contractual Non-Competes – a never ending story

April 30, 2018

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There are few clauses in employment contracts more heavily debated than Non-Competition Clauses (post-contractual non-competes). While employers tend to include them rather easily in order to protect company secrets beyond the term of an employment, strict and mandatory provisions under German law differ from those found in most other jurisdictions. For post-contractual non-competes to be enforceable, an entire catalogue of requirements must be met, including a mandatory compensation payment of at least 50% of the employee`s total earnings for the maximum term of two years – to name just the two most prominent requirements. Because of the potential financial impact on employers, it is highly advisable to carefully consider whether post-contractual non-competes are necessary at all and, if so, whether they will be enforceable.

Two recent decisions in January 2018 by the Federal Labor Court/ BAG (10 AZR 392/179) and by the Appeals Court/ LAG Düsseldorf (Az: 7 Sa 185/17) are worth noting:

“Vorvertrag” – Keeping your options open

It is a common situation (and sometimes a true dilemma) for the employer to decide at the beginning of the employment relationship whether to agree on a post-contractual non-compete. While it is easy at that point to negotiate a non-compete, the employer might not be sure whether the circumstances and the unclear future developments justify the investment in a (potentially) costly non-compete. LAG Düsseldorf confirmed that it could be valid for an employer to agree on a post-contractual non-compete in the form of a preliminary contract (“Vorvertrag”) that grants the employer

Less than 90 days to go – are you GDPR compliant?

“GDPR – please not again …” In recent times there is hardly any other legal topic more often written and talked about than the new EU General Data Protection Regulation (“GDPR”).

In light of the severe penalties and with less than 100 days until the GDPR goes into full effect (on May 25th, 2018), it is time for U.S. companies to take steps to prepare. Below are some key points to consider and pragmatic to-dos to assist in assessing whether your organization is ready for GDPR compliance.

  • GDPR may apply to U.S.-based companies with zero employees and no offices within the boundaries of the EU territory

While the EU Data Protection Directive of 1995 did not apply to businesses outside the EU territory, this is no longer the case under GDPR.

Now any business may be subject to the new law if it processes personal data of an individual residing in the EU; not even a single transaction needs to occur. As long as your data processing relates to offering services or monitoring behavior on the EU market of EU data subjects – the GDPR may apply to your U.S.-based business. The location of a consumer is the key term to identify whether an individual is deemed a “data subject in the Unio.” While”location” does not necessarily relate to the consumer’s legal “citizenship” or “residenc,” lawyers often use the term “residency” as a short hand way of referring to those people to whom the direction of services might

Works Council Elections in Germany – Avoid mistakes and be aware of special termination protections! Final Part III

February 16, 2018

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March 2018 is getting closer and works council (re)elections will again be on the agenda in Germany. We started this three-part blog last November with an overview to this topic and the second part highlighting the election proceedings. See link to November 7, 2017 blog and link to January 11, 2018 blog. In this final Part III, we briefly address the potential risks of reruns of elections due to mistakes and provide you with an overview of the special termination protection resulting from works council elections.

Avoid mistakes – elections can be challenged or even be null and void!

German employers are well advised to closely monitor the election proceedings. In the event of substantial breaches of the election process, the elections can be null and void, i.e., if such serious mistakes occurred that no democratic process was granted, or in less obvious breaches, elections can be challenged in court within two weeks of the announcement of the election results.

Who can file the challenge – and what are the risks?

The employer, three employees, or a union having members at the operational site are entitled to file a respective application with the competent local labor courts. If the court holds that the election process was breached, then the works council elections must be repeated.

Court proceedings challenging the elections are time consuming and costly. Above all, they create uncertainty at the operational site. Questions may arise, for example, whether meanwhile concluded shop agreements are valid and binding.

Employee Representation in Germany – Part 2

January 11, 2018

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Part II of III: Works Council Elections in Germany – Who Does What and How Are Election Proceedings Run?

March 2018 is getting closer and works council (re)elections will again be on the agenda in Germany. We started this three-part blog last November with Jens Peters` introduction and overview to this topic.  See November 7, 2017 article. In this Part II, we briefly concentrate on the “Who does what” during the election proceedings and provide you with an overview of how election proceedings will run in an ordinary way.

Who does what?

The election committee (“Wahlvorstand”) is in the driver’s seat, with responsiblilities for leading and executing the election. Its main tasks are to inform the work force about the election and its proceedings (“Wahlausschreiben”) and to create the list of employees eligible to vote and to be voted (“Wählerliste”). If a works council already exists, the three-member election committee is appointed by the current works council; otherwise, the employees vote for the election committee in a staff meeting. The employer bears the costs of the election and is obliged to support the tasks of the election committee. In particular, the employer must provide the facilities, as well as all information requested to establish the voting lists. The current works council`s role during re-elections is limited to appointing the election committee, thereby initiating the works council elections.  It plays no further active role during the election proceedings. Last, but not least, the employees have the right to vote and to

Mass Dismissal Filings in Germany – Do Leased Employees (“Leiharbeitnehmer”) Count?

November 29, 2017

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Collective redundancies and the complex issue of relevant dismissal thresholds for notification of the German Federal Employment Agency (“Bundesanstalt für Arbeit” or “the Agency”) were already addressed in an earlier June post this year.

On November 16, 2017, the Federal Labor Court of Germany (“BAG” or “the Court”) submitted a case (BAG – 2 AZR 90/17) to the European Court of Justice(“ECJ”) which dealt with so-called leased employees. The question was whether, and under what requirements, leased employees or temporary workers need to be taken into account when applying the thresholds for mass dismissal filings in accordance with Sec. 17 I (1) Nr. 2 Kündigungsschutzgesetz/ KSchG (the German Act against Unfair Dismissal). Because this German Sec. 17 KSchG is based on the European Council Directive 98/95/EC, the Court had no choice but to submit this question to the ECJ. Until the ECJ has ruled – which may easily take up to two years – this important question will remain unanswered with serious and immediate practical consequences.

Ironically, in the specific case pending before the Court, the employer took the position that a number of leased employees, who were temporarily assigned to their companies, should be accounted for under the threshold. Under this calculation, less than the 10% threshold would have been affected and, consequently, no filing requirements with the Agency would have been due.

To complicate decisions for HR managers in Germany in crucial and difficult situations, the Court decided in other factual circumstances that regularly employed temporary workers

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