An effective compliance system proves its value in real-life situations when it enables companies to impose specific, effective sanctions under employment law on employees who violate its rules. So if compliance is intended to ensure that a company, its executives, and its employees act within the law with regard to statutory and corporate "dos and don'ts", the system also has to be tough enough that its requirements for conduct can withstand judicial review.
Employment law instruments used to enforce compliance
Compliance provisions are often contained in codes of conduct, ethics guidelines, or workplace rules. In principle, employee violations of these internal conduct rules can be met on an individual basis with the typical tools of employment law, thus also contributing in general to enforcement of the rules. Measures that may be used range between an initial reprimand, a formal warning and a termination (for cause) of the employee involved.
If the conduct rules are formulated with sufficient clarity, in most cases it is relatively easy to establish the actual violation. In practice, however, not every seemingly clear breach of duty is subject to an effective sanction unless the "rules of the game" in employment law are followed with the greatest possible precision when compliance rules are introduced at the company.
Effective introduction of rules under industrial relations law
The Works Constitution Act requires compliance with the co-determination rights of existing employee representatives – such as works councils, if any – when codes of conduct, ethics guidelines, or similar sets of rules are first introduced. This first requires a detailed review of whether, and in what parts, a code of conduct is subject to co-determination; to the extent it is, it cannot be introduced at all without the approval of the employee representation.
More importantly, if the employer does not comply with the works council's extensive co-determination rights, which are always applicable for significant portions of the rules, it is impossible to introduce the rules correctly on the level of the individual employment relationship; in other words for the individual employee. In that case they are simply invalid, and employees need not obey them. There can be no sanctionable conduct violations.
As with the introduction of a set of compliance rules without any participation by the works council, (which often occurs under time pressure), subjecting codes of conduct or similar rules in their entirety to co-determination by the works council can also be disadvantageous. It is virtually never the case that co-determination is required for an entire set of rules and each of its individual provisions. For example, the important co-determination rights contained in the Works Constitution Act apply only where a statutory or collective provision is not already in place. This means that portions of the overall rules are almost always exempt from co-determination, so they should not be artificially made the subject of binding long-term works council agreements.
Effective introduction of rules under individual law
In addition to compliance with the rights of employee representation on the collective level, the provisions must also be effectively anchored in the individual employment relationship.
In this regard, one obvious possibility for the employer is simply to unilaterally exercise the right to issue instructions and to frame a sizeable portion of the rules as conduct requirements that are binding on the employee. In this case, the consent of the individual employee is not required.
However, if the rules cannot be unilaterally imposed by merely exercising the right to issue instructions – for example, in the case of far-reaching requirements with effects on the employee's conduct in personal life – the rules can of course be introduced into the employment relationship by mutual consent by contract amendment. However, this mechanism is often inadvisable. For one thing, in an ongoing employment relationship, the employee will only agree to the application of new, burdensome rules with concessions by the employer, if at all. More importantly, it provides very little flexibility if rules that undergo periodic changes are anchored in individual agreements; every change in requirements requires another approval by the employee.
However, in this case in particular, the employer can take advantage of co-determination. If the employer forms a works council agreement on the matters that are subject to co-determination under the Works Constitution Act, the rules included in it act effectively as laws in the individual employment relationship, without the need for additional approval by the individual employee. If the employer commits itself under collective law for at least the length of the notice period for termination and possibly arranges for the works council agreement to remain in effect until another one is formed, its rules can be introduced collectively to govern all employees. If applicable, the employer can then also replace them collectively with new provisions, as long as consensus with the works council is achieved or a conciliatory board's decision is substituted for the parties' consensus in individual cases. Even given the potential for difficulties in negotiations with the works council, this is still generally much simpler than obtaining the approval of each individual affected employee.
Therefore, in practice, careful separation of the subject matter of the rules can be used effectively to introduce a complete compliance system without having to rely on the individual consent of the employees, which is not very flexible and can be difficult to obtain.
Of course, one cannot completely ignore the case of employees who, perhaps as soon as they join the company, are notified in their employment agreements that general sets of rules are applicable, for example a code of conduct in its current version. In this case the rules are subject to special requirements, because they may, for example, be subject to the requirement of transparency and cannot be amended without limitation to the employee's disadvantage.
Invalidity of individual compliance rules due to violations of law
Even if the employer has done everything right in the introduction process, in the end a court will examine the individual rules again to determine whether they violated statutory requirements and may be invalid for that reason. In this case, effective sanctioning of violations of such rules may ultimately fail. Outcomes of this nature may seem far-fetched in the case of carefully reviewed, newly introduced rules. However, in the light of previous statutory provisions such as the General Equal Treatment Act or the present efforts toward reform of employee data protection, it becomes all too clear that even provisions believed to be safe can be devalued.
Often, compliance can be implemented effectively at companies only if employee violations of the underlying rules are met with sanctions, and the threat of the sanctions can at least be made seriously and on an effective basis. Companies cannot meet this requirement in practice without introducing the rules very carefully, in what is often also a time-consuming process, as well as complying with the requirements of employment law.