Introduction
Practical solution
Act on Protection against Unfair Dismissal
Avoidance of age discrimination
Protection from disputes in court
Comment


Introduction

If companies in a difficult economic situation have to reduce staff, the success of these measure depends mainly on high-performing staff remaining in the company. High performance depends not only on the knowledge and skills of individual employees, but often also on a balanced age structure. This does not mean keeping as many young employees as possible. From a business perspective, it is better when there are employees from all age groups. This can be a response to physical demands in the production division or the need for a transfer of know-how from older to younger employees.

In Germany, two major issues run counter to this objective. In principle, the General Equal Treatment Act, which is based on various EU directives, prohibit discrimination against employees because of age. Unequal treatment based on age is permissible only if there are legitimate reasons that are reasonable even when the interests of the disadvantaged age group are taken into account. This corresponds to Article 6 of EU Directive 2000/78/EC, which establishes the framework for all EU countries.

Irrespective of this, an employer is obliged under the Act on Protection Against Unfair Dismissal to perform a selection based on social criteria in the event of dismissals for operational reasons. The employer must consider length of employment, age, support obligations and any severe disability of the respective comparable employees – primarily, those employees who are dismissed should have the best chances of finding new jobs. Consequently, it is usually young employees who are dismissed, as they:

  • tend to have been with the employer for a shorter period;
  • are healthier; and
  • have fewer support obligations.

As a rule, average staff age increases greatly after a large number of employees have been dismissed. Measures to prevent this are permissible only if legitimate operational interests are taken into account.

It is important to clarify before such dismissals whether and, if applicable, under what circumstances it is possible to deliberately dismiss older employees so that the company has high-performing staff after the measure has taken effect.

Practical solution

In the event of dismissals for operational reasons, employees are typically selected by way of a points system that weights the social criteria of comparable employees. An example is set out in the following table.

Age

1 point per year

Length of employment

1 point per year
or 2 points per year from the 11th year

Support obligations

4 to 8 points per spouse, same-sex partner or child

Severe disability

5 to 10 points (depending on the degree of disability)


Experience demonstrates that a selection based on social criteria can quickly raise the average age of a group of comparable employees by five or six years. In this regard, dismissed employees are mainly under 35 years. If younger employees are to have stronger protection, selection based on social criteria must be carried out based on age groups. A reduction in personnel by, for instance, 20% would be as follows.

 

Employees before reorganisation

Employees after reorganisation

Up to 25 years

18 employees

14.4 employees

26 to 35 years

52 employees

41.6 employees

36 to 45 years

26 employees

20.8 employees

46 to 55 years

58 employees

46.4 employees

Over 55 years

46 employees

36.8 employees


When all age groups are taken into account equally in terms of percentage, younger and older employees are taken into account in the same way. Within the age groups, the decision on selection is then made by taking into account:

  • length of employment;
  • any possible support obligations; and
  • any severe disability.

Consequently, the average age remains nearly the same.

Act on Protection against Unfair Dismissal

Under the Act on Protection against Unfair Dismissal, employers are permitted to carry out the selection based on social criteria based on age groups if they can claim legitimate interests with respect to the employees in question. For example, such interests can mean that:

  • younger employees are more likely to be prepared for the physical demands of production;
  • younger employees with modified training with respect to modern technology must be integrated in the operational processes; or
  • knowledge and experience should be transferred from older to younger employees.

Further, when making a selection decision, it must be ensured that the criteria of length of employment, support obligations and severe disability are taken into reasonable account. This can be achieved through a variety of systems. What is decisive is that selection based on social criteria must not result in an improvement of the average age in the group of comparable employees. Such improvements are permissible only in an insolvency if a company is to survive. In this regard, and taking the interests of older employees into account, more substantial changes are permissible as exceptions in order to ensure future viability of staff. This was most recently seen in the Federal Labour Court decisions of October 24 2013 (6 AZR 854/11) and December 19 2013 (6 AZR 790/12).

Avoidance of age discrimination

The protection of younger employees relating to age groups for dismissals does not constitute discrimination against older employees based on age from a German perspective. The reason for this is that it:

  • is justified by a legitimate aim;
  • based on objective criteria; and
  • does not disadvantage older employees inappropriately.

The legitimate aim results from the fact that it is explicitly permitted under the Act on Protection against Unfair Dismissal to maintain or – in the case of insolvency – even improve previous performance or age structure by way of the selection of employees affected by dismissal. What is decisive is that the selection based on age groups ultimately ensures that older employees are not treated preferentially. This preferential treatment is promoted during normal selection based on social criteria, due to the fact that at least the criteria of age, length of employment and severe disability indirectly give more weight to older employees and protect them from dismissal. Selection by age groups, on the other hand, results in an equal distribution of the burden, because younger, middle-aged and older employees are dismissed in equal measure. In accordance with the European Court of Justice, this is necessary and appropriate in consideration of the business interests.

Protection from disputes in court

If an employer concludes an agreement with a trade union or works council that stipulates the model to select employees to be made redundant based on social criteria, the agreement can be reviewed by a labour court in the event of an action against termination of employment with respect only to whether it contains gross deficiencies. Where an employer and a works council specify the names of the employees who are supposed to be dismissed in an agreement concerning reorganisation (reconciliation of interests), an employee has little opportunity to successfully challenge the validity of a dismissal. This shows that in the event of redundancies, it is sensible to reach agreements with employee representatives on the implementation of the selection decision of employees to be made redundant.

Trade unions and works councils are not obliged to conclude such agreements. However, it is often possible to convince employee representatives to conclude these agreements by making balanced proposals for the payment of compensation for job losses to the dismissed employees. This is based on the fact that German labour law does not oblige employers to provide compensation payments to employees who are validly dismissed. Only in the event of mass dismissals can works councils force employers to promise to pay compensation for job losses in an agreement (social compensation plan).

Comment

Under German labour law, a number of obstacles must be overcome before notices of dismissal for operational reasons can be issued. One major obstacle is the requirement for the selection of employees to be dismissed based on social criteria, which potentially provides more protection against dismissal for older employees. In allowing for the selection of employees to be dismissed based on age groups in addition to social criteria, court rulings have now opened up a legal option that enables employers to maintain a balanced age and performance structure, or – in the event of insolvency – even to improve the existing structure. However, it is important to:

  • determine the required interests in due time;
  • establish individual age groups; and
  • conclude agreements with works councils or trade unions.

There is otherwise a risk that the dismissals will be deemed invalid by a court on grounds of violation of the Act on Protection against Unfair Dismissal or age discrimination.

For further information on this topic please contact Bjoern Gaul, Tobias Hahne or Bernd Roock at CMS Hasche Sigle by telephone (+49 221 7716 195), fax (+49 221 7716 252) or email (bjoern.gaul@cms-hs.com, tobias.hahne@cms-hs.com or bernd.roock@cms-hs.com). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.