German labor and employment news (third quarter 2013)

THIRD QUARTER 2013
GERMAN LABOR AND EMPLOYMENT NEWS
TRANSFER TO ANOTHER POSITION–NOW WITH SOCIAL
SELECTION?
by Georg Mikes
Frankfurt
Rechtsanwalt / German Attorney at Law
Fachanwalt für Arbeitsrecht / Certified Labor and Employment Lawyer
[email protected]
++49.69.9726.3939
Regular readers of German Labor & Employment News know that under German
law, termination of employment for operational reasons requires employees to
be grouped according to social criteria, such as age, seniority, and number of
dependents, so that the employer can identify those most in need of protection
from dismissal. However, a new judgment of the German Federal Labor Court
(Bundesarbeitsgericht; BAG) clarifies that such considerations might be appropriate
in the case of transfers within the company as well. The judgment also offers the
opportunity to analyze current case law on such transfers in general.
n THE NATURE OF TRANSFER
Not every detail pertaining to an employee’s work performance can be stipulated in
his or her employment contract. For this reason, employers have the right to issue
instructions to their employees, pursuant to Section 106 of the German Industrial
Code (Gewerbeordnung; GewO). This section provides that, subject to other provisions
in the employment contract, collective bargaining agreements, or shop
agreements, employers may determine the content, place, and time of the work
CONTENTS
Transfer to Another Position–
Now With Social Selection? 1
Employment Relationship
With Cross-Border Implications:
Particularities in Dismissal
Protection 4
Capital Investment Companies:
New Duties to Inform the Works
Council–Implementation of
the AIFM Directive Into
German Law 6
“Unlimited” is Not “Temporary” 7
Refusal of the Company Pension
Adjustment–Requirements and
Consequences 9
2
common as well; a contract might state that the work is “also
to be performed at another place within Germany.” Provisions
of this kind are regarded partly as a clarification of the right
to issue instructions and partly as a limitation of the employer’s
scope of discretion in doing so.
Determining what the employer may order within the scope
of reasonable discretion is often of considerable practical
importance, because anything that is not covered by reasonable
discretion must be mutually agreed upon by the
employer and employee or, as the case may be, enforced
by the employer by means of a “change termination”
(Änderungskündigung)—a dismissal that offers the employee
the option of remaining employed under other conditions.
Neither a mutually agreed-upon change nor a change termination
will be an application of the employer’s right to give
instructions. But because the right to issue instructions may
not apply in a given case, the change termination, employed
as a precautionary measure, is usually more favorable to the
employer, unless an agreement can be reached between
performance at their reasonable discretion. This also forms
the legal basis for employee transfers to new positions or
locations. In other words, a transfer may be considered an
application of the right to give instructions. A legal definition
of “transfer” is provided by Section 95 of the German
Works Council Constitution Act (Betriebsverfassungsgesetz;
BetrVG), which holds it to be the assignment of another work
area that is expected to exceed the term of one month or
involves a considerable change in the circumstances under
which the work is to be performed.
n TRANSFER AS PART OF THE EMPLOYMENT
According to the foregoing, transfers may be assigned even if
the employment contracts lack provisions pertaining to them.
However, such provisions are quite common. For instance,
with respect to the content of the work to be performed, contracts
often stipulate that, in addition to the work originally or
mainly agreed upon, “other work corresponding to the knowledge
and qualifications of the employee” may be assigned.
Provisions regarding the place of the work performed are
3
the parties. In many cases, the employee accepts the
altered employment circumstances offered by the change
termination while filing an action against the validity of the
changes. If the employee wins, his or her initial employment
circumstances are retained; if the employee loses, he or she
at least retains employment under the less favorable conditions.
If the court finds that mere instruction would have
been possible, the legal concept of the “dispensable change
termination” will apply, which was last addressed by the BAG
in its judgment of July 19, 2012 (2 AZR 25 / 11). Earlier, the BAG
dismissed as unfounded the action taken by an employee
against a change in the employment contract (BAG, judgment
dated January 16, 2012, 2 AZR 102 / 11).
In this judgment, the plaintiff’s employment contract provided
that the employee could be relocated “within Germany.”
However, the employer effected a change termination in
order to relocate the employee. The BAG concluded that
the more general the contract terms are that stipulate the
employee’s work location, the broader the employer’s right
is to unilaterally assign the employee to a different work site.
It held that a change termination was not required in this
particular case, since “the contractual conditions allegedly
yet to be brought about have already been applicable.” The
employee’s action was therefore unfounded.
In view of transfer clauses, the employer must use reasonable
discretion, but there are further limitations to be taken
into account. Transfer clauses are regularly to be regarded
as clauses constituting general terms and conditions. Thus,
they are subject to the provisions of Sections 305 et seq. of
the German Civil Code (Bürgerliches Gesetzbuch; BGB). In
principle, this allows for an examination for reasonableness
(Section 307 Para. 1 Sentence 1 BGB) and an examination for
transparency (Section 307 Para. 1 Sentence 2 BGB) by the
court. However, stipulating a certain place of work is simply
considered a determination of the employee’s main duty
and is not subject to an examination for reasonableness.
The same is true if a place of work is specified and a transfer
clause also exists, since the clause provides for nothing
more than what would apply under Section 106 GewO
anyway regarding the right to issue instructions. In such a
case, the employer reserved the right to specify only the
contractually agreed content of the work, not a change of
the contents of the contract.
Therefore, what is required is not an examination for reasonableness,
but an examination for transparency as to whether
the chosen provision is comprehensible. The examination for
reasonableness is necessary only if the interpretation of the
clause shows that the employer reserved the right to change
the contract (BAG, judgment dated January 16, 2012, 2 AZR
102 / 11). If the result reached in this context holds the transfer
clause to be invalid—for instance, if it was far too broad—the
court will not reduce it to the reasonable degree, but will
leave it out of consideration and apply Section 106 GewO
instead. With respect to the place of work originally agreed
upon, however, this would specifically mean that a transfer to
another place was no longer possible.
n SELECTION DECISION IN CASE OF TRANSFERS
The transfer legislation was last amended with regard to
the reasonableness decision by the BAG judgment dated
July 10, 2013 (10 AZR 915 / 12; Press Release No. 45 / 13). The
judgment was based on a case in which the plaintiff was initially
employed by the German Federal Employment Agency
on the basis of a fixed-term contract. Due to a change in
the case law, the Federal Employment Agency extended the
employment contracts of the plaintiff and other temporary
employees for an indefinite period of time (i.e., acknowledged
them as contracts of unlimited duration). This, however,
resulted in a local surplus of personnel, a situation the
agency tried to resolve by transferring some of the formerly
temporary employees to other locations. The plaintiff considered
the transfer unreasonable “on the basis of her personal
circumstances” and also deemed the selection decision to
be wrong. She disputed the policy of transferring only persons
who had previously had fixed-term contracts, while
employees who had been employed from the outset in permanent
positions were not included. According to the BAG,
this practice was indeed contrary to reasonable discretion,
so the transfer of the plaintiff was held to be invalid.
This decision means that employers must use their reasonable
discretion to consider not only the employees to be
transferred, but also their relation to the other employees.
Employers are therefore advised to form selection groups
of employees, comprising not just the employees directly
affected by the conditions mandating the transfer, but their
coworkers as well. This practice of forming “correct” selection
groups is strongly reminiscent of the legal mandate to
create social-selection groups in the case of dismissals for
4
operational reasons—admittedly a difficult task, but one that
may prevent questions later. It is also a step the Federal
Employment Agency failed to take.
In this particular case, the agency certainly could not be
accused of arbitrariness, since the surplus of personnel
resulted from a change in the case law, and the attempt
was made to reduce the surplus where it arose, i.e., among
the persons for whom there had actually not been permanent
positions. However, according to the BAG decision, the
necessity of a transfer should have an impact not just on
the persons affected by the pertinent cause, but on their
coworkers as well, who presumably do not want to be transferred
either. The precise demarcation, however, remains
unclear. Therefore, the present decision must definitely be
viewed critically. The BAG’s approach, which resembles a
social selection, will in any event render it even more difficult
in the future to make a legally certain prior assessment of an
employer’s reasonable discretion.
EMPLOYMENT RELATIONSHIP WITH
CROSS-BORDER IMPLICATIONS:
PARTICULARITIES IN DISMISSAL PROTECTION
by Julia Zange
Frankfurt
Rechtsanwältin / German Attorney at Law, Maître en droit
Fachanwältin für Arbeitsrecht / Certified Labor and Employment Lawyer
++49.69.9726.3939
The effects of globalization are increasingly being felt in
our professional lives. In employment relationships under
German law, dismissals at companies that have foreign subsidiaries
may raise specific legal questions in terms of dismissal
protection.
This typically applies in the following cases:
• A company with a registered office abroad employs several
thousand employees worldwide; in Germany, this
company maintains only a small sales office with fewer
than 10 employees. Does the German Protection Against
Dismissal Act (Kündigungsschutzgesetz; KSchG) apply?
• A company resident in Germany relocates its production
to a bordering country and maintains an establishment
with vacant positions in Germany. The employees in
Germany are dismissed for operational reasons because
there are no options to employ them in Germany. Is the
employer obligated to offer the employees—as a “milder
instrument”—continued employment in an establishment
abroad or, preferably, to give notice of a change termination
(Änderungskündigung) with the option of reemployment
in such place?
n INTERNAL APPLICATION OF THE PROTECTION
AGAINST DISMISSAL ACT: OPERATIONS IN GERMANY
According to Section 23 KSchG, the provisions of the general
protection against dismissal apply only to companies
that regularly employ more than 10 employees. The
German Federal Labor Court (Bundesarbeitsgericht; BAG)
holds that if cross-border implications are involved, only
the employees employed in Germany are to be considered.
(In this respect, see the BAG judgment dated January 17,
2008, 2 AZR 902 / 06.) The case in question related to a
company located in Belgium that employed 25 employees
there and three sales representatives in Germany; for the
employees in Germany, the application of German (labor)
law had been expressly agreed upon. The company terminated
the employment relationships of the three sales reps
for operational reasons. The KSchG was not applied, since
the threshold value of 10 employees had not been reached,
and the employees in Belgium were not to be included. The
geographic scope of the KSchG is thus limited to the territory
of the Federal Republic of Germany, and the employee’s
constitutional complaint against the BAG’s judgment was not
accepted for decision by the German Federal Constitutional
Court (Bundesverfassungsgericht ) (decision dated March 12,
2009, 1 BvR 1250 / 08).
An exception to the mandate to count only employees within
Germany for purposes of Section 23 KSchG arises in the
case of employees working outside Germany who had been
posted abroad by the German establishment on a temporary
basis.
n SIX-MONTH WAITING PERIOD IN EMPLOYMENT
CONTRACTS ACCORDING TO FOREIGN LAW?
The general protection against dismissal applies only if the
employment relationship has existed in the same establishment
or company without interruption for more than six
months (Section 1 KSchG). If, within that six-month period,
several employment relationships were maintained with the
employer that followed one another without interruption, an
“uninterrupted” employment relationship is then typically to
5
be assumed. This applies also if the previous contractual
relationship was maintained with the same employer abroad
and was governed not by German employment contract
laws, but by foreign ones. The BAG judgment of July 7, 2011
(2 AZR 12 / 10) dealt with such a case.
This case involved the P Bank, a member of the P Group (a
financial services provider) and one of the major banks in the
Baltic countries, with a registered office in the Latvian capital
of Riga. The bank opened one branch office in Berlin and
one in Munich. At first, the employee in question concluded
an employment contract drawn up in Latvia under Latvian
law. After a one-month induction in Latvia, he was deployed
in Germany, and the parties concluded a new employment
contract under German law. When the bank later terminated
the employment relationship, the parties disputed whether
the employment periods of the two employment relationships
should be added up so that the waiting period for the
application of the KSchG would be fulfilled. The BAG held
that the employment period covered by the employment
contract concluded under Latvian law should be considered
despite the contractual changes effected in the meantime.
n EXAMINATION OF POSSIBLE CONTINUED EMPLOYMENT
IN AN ESTABLISHMENT ABROAD
In the event of a termination for operational reasons, the
employer is not supposed to be obligated to offer possible
continued employment in an establishment abroad or, preferably,
to give notice of a change termination with the option
of reemployment in such place.
This was decided by the BAG in a decision dated August 29,
2013 (2 AZR 809 / 12—currently available only as a press
release) after diverging decisions had been passed by the
courts of lower instance (decisions of the Appellate Labor
Court of Hamburg dated March 22, 2011, vs. the Appellate
Labor Court of Düsseldorf dated July 5, 2012, and the
Appellate Labor Court of Berlin dated May 5, 2011).
The plaintiff was employed in a company that operates one
establishment in Germany and one in the Czech Republic.
The company management made the entrepreneurial decision
to close down the German plant and to produce only in
the Czech Republic in the future. The employee was given
notice of termination for operational reasons; the company
did not offer her a position in its Czech plant.
Even the lower-instance court (the Appellate Labor Court
of Düsseldorf) held the view that the termination was effective;
the employer did not have to offer the employee a
vacant position in the Czech Republic. Only an organizational
unit or part of a company that is located in Germany
can be regarded as an establishment or company within
the meaning of the KSchG, under which vacant positions
must be offered—a milder instrument than a termination of
employment.
6
leave the scope of application of German law as a result of
the change termination. In the case described previously, if
the BAG had recognized a need for a change termination,
the employee would have continued to work under Czech
labor and social law in the future, and the change termination
would need to be examined for reasonableness by a
German court pursuant to Section 2 KSchG. The affected
employee would be obligated after the expiration of the
change-termination period to work abroad until a final decision
was made regarding the changed working conditions. It
would also mean that the employee would be forced, at least
temporarily, to leave the German social security system and
join the foreign one.
The Appellate Labor Court of Hamburg had previously
assessed this question differently, deciding that vacant jobs
in an establishment abroad exclude the employer’s argument
that the termination of employment for operational
reasons is justified within the meaning of Section 1 KSchG.
The BAG’s current decision is of major relevance to the practice,
since plants are increasingly operated across borders,
and continued employment is no longer restricted to the
geographic scope of the KSchG. The continued employment
of an employee that ought to be enforced by the
employer by way of a change termination would have farreaching
legal consequences, since the employee would
CAPITAL INVESTMENT COMPANIES: NEW
DUTIES TO INFORM THE WORKS COUNCIL–
IMPLEMENTATION OF THE AIFM DIRECTIVE
INTO GERMAN LAW
by Julia Zange
Frankfurt
Rechtsanwältin / German Attorney at Law, Maître en droit
Fachanwältin für Arbeitsrecht / Certified Labor and Employment Lawyer
++49.69.9726.3939
Directive 2011 / 61 / EU of the European Parliament and of
the Council of 8 June 2011 on Alternative Investment Fund
Managers (the “AIFM Directive”) had to be implemented into
national law by July 22, 2013. The goal of the directive was to
set common requirements for the admission and supervision
of alternative investment funds (“AIFs”) in order to limit risks
for investors and markets within the European Union (“EU”).
“Alternative investment fund” is defined as “any collective
investment undertaking, including investment compartments
thereof, which collects capital from a group of investors in
order to invest it according to a determined investment strategy
for the benefit of the investors concerned.” The group to
be controlled comprises alternative investment fund managers
(“AIFMs”): legal persons whose task is to manage alternative
investment funds.
With the Act on the Implementation of the AIFM Directive,
which took effect on July 22, 2013 (AIFM-Umsetzungsgesetz ),
Germany created several new regulations intended to provide
small investors with greater protection against risky
7
investments: all funds are now subject to the supervision of
the Federal Financial Supervisory Authority (Bundesanstalt
für Finanzdienstleistungsaufsicht; BaFin), and private investors
can no longer acquire shares in hedge funds. In addition,
Article 1 of the AIFM Implementation Act established the
Investment Code (Kapitalanlagegesetzbuch, KAGB), which
contains, inter alia, special information duties of AIFM.
n INFORMATION DUTIES UNDER THE KAGB IN THE CASE
OF COMPANY ACQUISITIONS
In Sections 287 – 292, the KAGB contains special provisions
pertaining to company acquisitions by AIFs, i.e., for AIFs that
take control of nonlisted companies and issuers. AIFMs are
obligated to ensure transparency and to notify the shareholders
as well as the employees of the companies of the
acquisitions in due time. Corresponding rules apply to the
taking of control with respect to issuers.
n IN DETAIL
If an AIF (solely or jointly with another AIF) takes control of
a nonlisted company, the AIFM must inform the company,
the shareholders, and the BaFin about the acquisition of
control and must ask the board of the company to inform
the employee representatives (i.e., the works council) or, if
there are no employee representatives, the employees themselves,
using its best efforts to ensure that this information is
provided (Section 289 KAGB).
Section 290 KAGB determines the content of what is to be
disclosed when taking control. According to this section, the
AIFM is obligated to provide the following information:
• The identity of the AIFM;
• The principles established for the avoidance and management
of conflicts of interest, particularly among the
AIFM, the AIF, and the company, including information on
safety measures which have been taken to ensure that
agreements between the AIFM / AIF and the company
are concluded as between business partners which are
independent from each other;
• The principles for external and internal communication
with respect to the company, particularly with the
employees;
• The intentions of the AIF regarding future business development;
and
• The expected impact on employment, including material
changes in working conditions.
Section 291 KAGB contains special provisions regarding the
information in annual financial statements and the management
report in the case of a change in control. The AIFM is
obligated to use its best efforts to ensure that the annual
financial statements are prepared and provided to the
employee representatives within the statutory period. The
report has to contain the following information:
• Events of special relevance that have occurred after the
end of the business year;
• Expected developments in relation to the company; and
• Information on the acquisition of the company’s own
shares.
n SANCTIONS
An administrative offense is committed by: (i) any person
who, in breach of Section 289 KAGB, does not effect, or does
not correctly, completely, or in due time effect, a notification,
provision of information, or communication pertaining
to such an acquisition; or (ii) any person who, in breach of
Section 290 KAGB, does not present, or does not correctly,
completely, or in due time present, any information or detail
pertaining to the acquisition. The offense may be punished
by a fine of up to €100,000.
“UNLIMITED” IS NOT “TEMPORARY”
by Dr. Markus Kappenhagen
Düsseldorf
Rechtsanwalt / German Attorney at Law
Fachanwalt für Arbeitsrecht / Certified Labor and Employment Lawyer
[email protected]
++49.211.5406.5500
Since the German Act on Temporary Employment (Arbeitnehmerüberlassungsgesetz;
AÜG) was revised at the end of
2011, employers may deploy leased employees on a “temporary”
basis only. However, the legislation did not clarify
what this specifically means. Now, the German Federal Labor
Court (Bundesarbeitsgericht ; BAG) has held that the term
covers more than just a declared goal without any consequences
for companies that fail to observe it. Nevertheless,
companies will find other ways to avoid offering permanent
employment: for instance, by means of outsourcing and by
issuing contracts for work and services.
The BAG did not decide how long “temporary” actually is.
However, the judges pointed out that more than just a basic
8
meaning is attached to the temporary character of employee
leasing under the AÜG. The case dealt with the hiring of
leased employees pursuant to Section 1 Para. 1 Sentence 2
AÜG, which itself may be only “temporary,” since a revised
version of the law has been applicable since December 1,
2011, and explicitly provided for the requirement of a temporary
character.
On July 10, 2013, the BAG decided that the deployment of
leased employees without any time limitation is inadmissible.
Therefore, if the employer declares the planned employment
to be permanent, the works council is entitled to withhold
its consent to the hiring of a temporary worker pursuant
to Section 99 of the German Works Council Constitution
Act (Betriebsverfassungsgesetz; BetrVG) (judgment dated
July 10, 2013, 7 ABR 91 / 11).
The judgment will probably inconvenience many employers
that intended to draw on a personnel reserve of temporary
employees in response to uncertain staffing needs.
n “TEMPORARY” MEANS “LIMITED IN TIME”
The definition of the term “temporary” introduced by the legislation
at the end of 2011 was controversial. Some people
considered it just a declared goal, since legal consequences
for failing to comply with the recommendations for leased
employees had deliberately been omitted. Others considered
the criterion to be satisfied only if a factual reason for
a time limitation approved by the German Act on Part-Time
Work and Fixed-Term Employment could be affirmed.
In the present case, the employer had expressly stated that it
intended to deploy the temporary employee without any time
limit instead of a permanent employee. This allowed the BAG
to take the easy way out: declaring the hiring to be invalid on
the basis that an employment relationship unlimited in time
cannot be “temporary.” According to the BAG, the criterion
serves to protect temporary workers and is intended to prevent
the hirer’s staff from being divided into permanent and
leased employees.
In practice, however, there is still no indication as to how
long “temporary” can be. It is clear only that there must be
a limitation in time.
n NEW WAYS: TIME LIMITS, OUTSOURCING, CONTRACTS
FOR WORK AND SERVICES
After this judgment, employers will presumably no longer
make the mistake of referring to the leased position to be
filled as a “permanent” job. It is simply not allowed to deploy
a leased employee for an unlimited period in a certain job.
Sometimes companies get by with the hiring of temporary
workers on a quarterly basis or by extending their contracts.
If the works council refuses its consent, employers may
apply to the labor court for a decision in lieu of the works
council’s consent pursuant to Sections 99 and 100 BetrVG.
Employers substantiate these applications by stating that the
employment is “urgently required for factual reasons,” e.g.,
due to a temporary boom in orders. As soon as the application
has been filed with the court, temporary workers can be
hired, i.e., even prior to the court decision. Depending on the
court’s workload, the quarter may end before the court hears
the case, enabling the employer to withdraw the application
for a decision in lieu of consent before the court makes
the decision. Time is therefore on the employer’s side in this
context. While it is possible that the works councils and labor
courts will attempt to prevent this practice, a clear tendency
to apply the provisions of the AÜG restrictively may be identified
among the courts.
Given the strict employment protection in Germany, companies
will presumably look for alternatives to employment
assignments unlimited in duration. Among the possibilities
9
are fixed-term employment assignments, which are allowed
for up to two years without requiring factual reasons; the outsourcing
of entire production steps; or the much-disputed
“service contracts,” which differ from employment agreements
in that they are aimed at defined achievements rather
than just work.
REFUSAL OF THE COMPANY PENSION
ADJUSTMENT–REQUIREMENTS AND
CONSEQUENCES
by Franka Thomas
Düsseldorf
Rechtsanwältin / German Attorney at Law
++49.211.5406.5500
Pursuant to Section 16 of the German Company Pension
Act (Gesetz zur Verbesserung der betrieblichen Altersversorgung;
BetrAVG), employers must examine the possibility
of adjusting the benefits provided by the company pension
scheme every three years and must then decide on an
adjustment at their reasonable discretion. Within the scope
of the examination, the interests of the pension recipient and
the financial situation of the employer are among the most
important factors to take into account. However, few paragraphs
of the BetrAVG have imposed more imponderable
financial burdens on employers and have led to more legal
uncertainty than this one, as the legislation, having provided
only abstract wording, did not establish specific criteria
for
the examination of the employer’s financial situation. The provision
of details and the establishment of principles guiding
the employers’ responsibilities have been left to the case law.
The following article discusses the conditions under which
an employer may refuse to grant an adjustment of company
pensions in whole or in part.
n REFUSAL TO ADJUST BENEFITS (NONADJUSTMENT)
DUE TO THE EMPLOYER’S FINANCIAL SITUATION
First of all, the employer must examine whether an adjustment
is required. If so, the employer is legally justified in
refusing to adjust benefits only if it can prove and document
that the company’s financial situation is at risk.
The risk that the company could collapse is not the only legal
justification for refusing an adjustment. An adjustment obligation
may not be imposed in the expectation that the company
will be able to use its assets to cover the anticipated
10
additional costs; a company obligated to pay pension benefits
should not be weakened for the long term in such a
manner that it will be exhausted or that jobs will be put at risk
due to the adjustment burden. A pension adjustment should
be provided only if it is possible to finance the costs thereof
with the proceeds of the company and its increase in value.
The German Federal Labor Court (Bundesarbeitsgericht;
BAG) has always viewed an adjustment of company pension
obligations as the rule, permitting nonadjustments only
in exceptional cases. If an employer invokes a nonadjustment
due to the company’s financial situation, it must base
its arguments primarily on the need to maintain company
operations and jobs. Because the company must have a
sound financial base, the employer is required to increase
company pensions only if the adjustment is secured for the
long term with future proceeds and an increase in the value
of the company.
The basis for this is a reasonable interest on equity capital,
which is assumed by the BAG if the interest on equity
capital corresponds, at a minimum, to the interest rate for
long-term yield on public-sector bonds plus a risk markup
of 2 percent. If the equity is exhausted or if this minimum
equity return is not generated, an adjustment does not have
to be made. However, it is not sufficient to simply refer to
insufficient interest on equity capital. Instead, a retrospective
assessment for the past three years and a forecast for the
next three must be made. The BAG does not deem a shorter
assessment period to be representative of the company’s
financial situation.
To determine whether a company has met the aforementioned
criteria, the BAG requires a complete, uninterrupted
history of the company’s financial situation, provided by commercial
annual financial statements such as balance sheets,
income statements, and management reports; isolated statements
on the development of the company’s order situation,
profitability, investment requirements, or commercial profit
and / or tax balance-sheet profit are not sufficient. Moreover,
the employer has the full burden of proving the company’s
financial situation. (However, because court hearings are
generally public in Germany, the court might exclude the
public from such a hearing if there is a chance the proceedings
will expose the company’s proprietary secrets to competitors.)
Thus, the company has comprehensive explanation
and disclosure obligations which affirm the basic opinion of
the BAG that the refusal to adjust pension benefits is supposed
to be an exception.
n SPECIAL CASE: LIABILITY WITHIN THE COMPANY
GROUP
If the company’s financial situation is bad, the pension recipient
might attempt to point out the more favorable situation
of a wealthy parent company. In such cases, a new question
arises: Within the scope of an adjustment decision, to
what extent may the pension recipient resort to the parent
company?
A. Principle: The Financial Situation of the Individual Group
Company Is Decisive
At first, the principle applies that the adjustment obligation is
generally incumbent on the company that made the pension
commitment or acquired it by way of legal succession. The
employer’s integration into a group does not allow for deviation
from this principle, since the employer is regularly the
company with which the employee concluded an employment
contract, not the parent company. The group relation
does not change anything about the independence of the
legal persons involved or the separation of their respective
assets. Accordingly, reference cannot be made to the group
in general, although in rare cases, the financial situation of
the parent company may be taken into consideration.
B. Exception: Recourse to the Parent Company
Recourse to the parent company when assessing the financial
situation (Berechnungsdurchgriff ) of the pension debtor
requires a synchronism of attribution, on the one hand, and
internal liability, on the other, in the sense of an obligation
to meet the claims / liability of the other group company visà-
vis the pension debtor. If the claim for an adjustment of
company pensions is asserted against the pension debtor
because the parent company’s favorable financial situation
is attributed to it, it must be legally possible for the pension
debtor to transfer this burden to the parent company, i.e.,
refinance itself at the parent company.
Such a close financial relation between the parent company
and the pension debtor regularly exists if a control agreement
was concluded between the companies. The BAG
has not yet decided whether this also applies with respect
to a profit-and-loss transfer agreement. Under older case
law, the close financial relation was also deemed to exist
if de facto consolidated companies (qualifiziert faktischer
11
Konzern ) were concerned. This was assumed if the controlling
company had permanently and comprehensively managed
the business of the controlled company. However, a
close financial relation alone is not reason enough to resort
to the capacity of the parent company. A company’s financial
capacity can be significantly determined by developments
of the group to which it belongs; if a pension debtor lacks
financial capacity because its parent company exercised its
managing power without due regard for the pension debtor’s
interests, it is possible, according to the BAG, for the pension
debtor to have recourse to the parent company so that the
financial situation of the parent company is decisive.
n NOTIFICATION OF EMPLOYEES IN THE EVENT OF A
NONADJUSTMENT
To the extent that, according to the foregoing, an employer
is justified in its decision not to provide an adjustment in
pension benefits, the employer must, comprehensively and
truthfully, describe the financial situation of the company to
the pension recipient in a notification letter.
If the employer presented the financial situation in writing
to the pension recipient in such manner and also pointed
out the possibility of an objection to the nonadjustment, as
well as the consequences of a delayed objection, and if the
pension recipient consequently failed to object in writing
within three calendar months of his or her receipt of the notification,
the adjustment is deemed to have been justifiably
not effected (Section 16 Para. 4 Sentence 2 BetrAVG). The
pension debtor is thereby released from the “subsequent
adjustment” previously affirmed by the BAG; i.e., the pension
debtor will not have to catch up with an adjustment even if
the financial situation improves at a later date. If the pension
recipient exercises his or her right to raise an objection, the
court will determine whether the nonadjustment was justified.
Therefore, employers are advised to carefully document the
adjustment examination and its results (providing an appropriate
expert opinion, if necessary) in order to be able to
provide the court with proof of the company’s bad financial
situation.
The content of this newsletter is intended to convey general information about changes in German labor law. It should not be relied
upon as legal advice. It is not an offer to represent you, nor is it intended to create an attorney-client relationship.
© 2014 Jones Day. All rights reserved. Printed in the U.S.A.
LAWYER CONTACTS
JONES DAY GLOBAL LOCATIONS
ALKHOBAR
AMSTERDAM
ATLANTA
BEIJING
BOSTON
BRUSSELS
CHICAGO
CLEVELAND
COLUMBUS
DALLAS
DUBAI
DÜSSELDORF
FRANKFURT
HONG KONG
HOUSTON
INDIA
IRVINE
JEDDAH
LONDON
LOS ANGELES
MADRID
MEXICO CITY
MIAMI
MILAN
MOSCOW
MUNICH
NEW YORK
PARIS
PITTSBURGH
RIYADH
SAN DIEGO
SAN FRANCISCO
SÃO PAULO
SHANGHAI
SILICON VALLEY
SINGAPORE
SYDNEY
TAIPEI
TOKYO
WASHINGTON
FRANKFURT
NEXTOWER
Thurn-und-Taxis-Platz 6
60313 Frankfurt am Main
Germany
Tel.: +49.69.9726.3939
Fax: +49.69.9726.3993
Georg Mikes
German Attorney at Law;
Certified Labor and
Employment Lawyer
[email protected]
DÜSSELDORF
Neuer Stahlhof
Breite Straße 69
40213 Düsseldorf
Germany
Tel: +49.211.5406.5500
Fax: +49.211.5406.5501
Dr. Markus Kappenhagen
German Attorney at Law;
Certified Labor and
Employment Lawyer
[email protected]
MUNICH
Prinzregentenstr. 11
80538 Munich
Germany
Tel.: +49.89.20.60.42.200
Fax: +49.89.20.60.42.293
Friederike Göbbels
German Attorney at Law;
Certified Labor and
Employment Lawyer
[email protected]