In reorganisation scenarios, German employers must comply with a number of statutory regulations. If a reorganisation involves redundancies, and if certain thresholds are exceeded, special attention must be paid to the regulations aimed at preventing collective redundancies. Any notice of dismissal is invalid if it violates regulations contained in §§ 17 and 18 of the Act on Protection Against Unfair Dismissal.

If a business establishment has a works council, the employer must carry out a consultation procedure with it before implementing collective redundancies (§ 17 (2) of the Act on Protection Against Unfair Dismissal (KSchG). This provision is rooted in European law. The works council should be given the opportunity to make constructive suggestions to avoid or limit collective redundancies. In addition, the employer must report all collective redundancies to the local Agency for Employment.

What happens if the parties cannot agree?

Often no agreement on a planned reorganisation can be reached with the works council during the consultation procedure. This leads to great uncertainty for employers and raises the question: can the measure be implemented if negotiations fail? This question is highly pertinent because the employer can only report redundancies to the local Agency for Employment and give dismissal notices after the consultation procedure has been properly carried out.

The Federal Labour Court made it clear in a recent ruling (Federal Labour Court, 22 September 2016 - 2 AZR 276/16) that an employer may consider consultations completed even if the works council appears willing to continue negotiations. In this ruling, the Federal Labour Court referred to earlier decisions where the employer was not obligated to reach an agreement with the works council.

When entering negotiations with the works counsel, an employer must display a serious willingness to reach an agreement, and consider any calculations and suggestions the council may have. It is irrelevant whether the employer has imposed conditions for the limitation or prevention of redundancies.

According to the court ruling, the consultation procedure is deemed completed if the employer can assume through the conduct of the works council that there is no basis for continued constructive negotiations. The parties are not obligated to negotiate for a minimum period of time. According to the Federal Labour Court, the employer has the authority to decide when it has fulfilled the works council's entitlement to consultation.

Supplying appropriate details

This can only happen, however, if the works council has previously been supplied with all appropriate details regarding the circumstances leading to the redundancies. Only if this has been done will the works council be able to offer constructive suggestions. These details include informing the works council in writing, as required by law, about the reasons for the planned redundancies, the number employees and professional groups to be dismissed, the number of workers usually employed, the period when notices of dismissal are to be given, the criteria for selecting the employees to be dismissed, and the criteria for calculating severance payments.

Burden of demonstration and proof

Special attention should be given to ensure that the negotiations are sufficiently documented. The employer bears the burden of demonstration and proof that a serious attempt was made to consult with the works council.

Practical tips

The recent ruling demonstrates once again how important it is to prepare carefully for negotiations with employee representatives. A carefully planned reorganisation can be implemented even if employee representatives are unwilling to reach an agreement.

In addition to consultations to prevent collective redundancies discussed here, the regulations contained in the German Works Constitution Act (Betriebsverfassungsgesetz) must also be heeded when planning a reorganisation. These regulations provide for a duty to attempt to conclude an agreement on a reconciliation of interests and to establish a social compensation plan. Consultations carried out in the attempt to conclude a reconciliation of interests can also fulfil the employer's duty to consult the works council, but this attempt must be clearly recognisable to the council.