Monthly Dose Employment Law: 10/2024

In its judgment on 20 June 2024, the German Federal Labour Court (Bundesarbeitsgericht, BAG) ruled that if a letter of termination is sent by registered mail, there is prima facie evidence that the letter was delivered during the usual postal delivery times.

Facts of the case

• The defendant employer had terminated the employment relationship with the plaintiff employee with effect from 31 December 2021.
• The letter of termination sent by registered mail on 28 September 2021 was posted in the plaintiff's letterbox by an employee of Deutsche Post AG on 30 September 2021.
• The plaintiff disputed that the letter was posted during normal postal delivery times and argued that it was not removed until 1 October 2021, which would result in a notice period until 31 March 2022 (a notice period of 3 months to the end of the quarter had been agreed in the employment contract). She therefore sought a declaration in her unfair dismissal claim that the employment relationship between the parties had (only) ended on 31 March 2022 as a result of the termination.
• The defendant referred to the local postal delivery times, which are characterised by the employees of Deutsche Post AG. There would be no indications of delivery outside of these local postal delivery times.
  
  

Reasons for the judgement

The BAG dismissed the lawsuit and confirmed the termination of the employment relationship as of 31 December 2021.

• The receipt of the notice of termination on 30 September 2021 is assessed on the basis of the general legal principles for the receipt of declarations of intent, which occurs when the declaration of intent comes into the actual power of disposition of the recipient and the recipient is able to take note of it under ordinary circumstances.
• When a letter of termination is delivered by Deutsche Post AG, there is prima facie evidence that the delivery was made within the usual postal delivery times.
• In this respect, the receipt of a termination does not depend on individual circumstances, but on a generalised consideration.
• The plaintiff cannot refute the prima facie evidence because she did not present any atypical circumstances of the individual case and thus did not present any credible reasons why the delivery should have taken place outside of the usual times. It is not sufficient to merely invoke ignorance in order to refute the prima facie evidence. 
  

Implications for practice

The decision, which is helpful in practice, clearly shows that registered delivery remains an appropriate method of delivery for a letter of termination. Employers can use the delivery receipt as prima facie evidence for delivery of the letter of termination during the usual delivery times and, with this approach, will generally be able to prove receipt at the relevant point in time in labour court proceedings (if and to the extent that the employee bringing the action is unable to refute the prima facie evidence by presenting atypical sequences of events).

In its rulings of 24 April 2024 and 26 April 2024, the Higher Labour Court (Landesarbeitsgericht, LAG) Nuremberg ruled that an employer can be liable to pay damages to its employees if it sets the targets for a performance-related variable remuneration too late, contrary to the contractual agreement.

Facts of the case

• The employees were able to receive annual performance-related variable remuneration (bonus) based on an agreement in their employment contracts.
• The bonus consisted of two components: a company-related bonus, the amount of which was based on the achievement of company targets to be determined unilaterally by the employer at the beginning of the financial year, and an individual bonus, the amount of which was based on the achievement of individual targets that the employer and the respective employee had to agree in a target agreement discussion at the beginning of the financial year.
• For the 2021 financial year, the individual targets were agreed between the parties at the beginning of 2021, but the company targets were not set by the employer until 26 October 2021. These company targets were not achieved in the 2021 financial year and the employer therefore did not pay any company-related bonus.
• The employees each asserted that the company-related bonus was set too late in October 2021 and that they therefore each had a claim for damages in the amount of the company-related bonus with a target achievement level of 100%.

Reasons for the judgement

The LAG Nuremberg allowed the claims in each case and recognised a claim for damages in the amount of the company-related bonus with a target achievement level of 100%.

• The company targets set unilaterally by the employer include fixed targets that are subject to the equity review of Section 315 of the German Civil Code (Bürgerliches Gesetzbuch, BGB).
• The purpose of a performance-related bonus is to promote employee motivation. The associated incentive to achieve objectives can only be given if the employee is aware of the specific objectives in the performance of his or her duties during the reference period.
• When a target is set late in the financial year that the incentive function can no longer be fulfilled, it is to be treated as if it had not been set. Such a late point in time is to be assumed in any case if 75% of the financial year has already elapsed at the time the target is set. 

Implications for practice

The decision of the LAG Nuremberg is in line with the more recent case law of the BAG on the employee's claim for damages in the event of a delay in concluding or the failure to conclude a target agreement for a performance-related variable remuneration. Employers should therefore implement binding processes to ensure that the respective targets are set, communicated and documented in a timely manner.

The defendant employer has lodged an appeal against both rulings with the BAG Court (10 AZR 114/24 and 10 AZR 125/24), which are still pending.

On 21 May 2024, the LAG Düsseldorf ruled that an employee's refusal to wear red work trousers, which are prescribed for safety reasons, in order to perform his work is not lawful and that a dismissal based on this for conduct-related reasons can be effective in accordance with Section 1 of the German Unfair Dismissals Protection Act (Kündigungsschutzgesetz, KSchG).

Facts of the case

• The employee had been working for the employer in the metal processing company in production since 2014. The employer's corporate design is completely in red writing/red colour.
• The employer provides its employees in production with work clothes as functional clothing with work trousers in red. The choice of colour is based on the corporate design on the one hand and on visibility in the production area on the other hand.
• The employee wore the red work trousers for the first 9 years of his employment with the employer and on 04.10.2023 ‘from yesterday to today’ refused to wear the red work trousers and appeared at his workplace wearing privately procured black work trousers. He justified this by stating that the employer's right of direction could not apply to the choice of colour of the work clothes and that his black work trousers could also meet the requirements for safe work clothes.
• After the employee did not change his behaviour even after two written warnings issued by the employer after repeated unsuccessful requests to wear the red work trousers provided to him, the employer terminated the employment relationship on 27 November 2023 with due notice for conduct-related reasons.

Reasons for the judgement

The LAG Düsseldorf dismissed the lawsuit and ruled that the termination was effective.

• The employer is authorised, within the scope of its right to issue instructions in accordance with Section 106 of the German Industrial Code (Gewerbeordnung, GewO), to order uniform work clothing, in particular if this is done for reasons of corporate identity and occupational safety.
• The employee’s general right of personality is only slightly affected by this instruction, since it only affects the employee in his social sphere and has no impact on his private sphere. For the same reason, aesthetic objections to the wearing of red work trousers, which were not cited by the employee, could not be taken into account in substantive terms.

Implications for practice

The decision of the LAG Düsseldorf is in line with the employer's right to issue instructions regarding the workplace and work equipment. When exercising the right to issue instructions regarding the wearing of certain work clothes, employers must take into account the balancing of interests generally specified in Section 106 GewO for the right to issue instructions and, in this context, the specific extent to which the employee's right of personality is affected by the instruction. For this purpose, it is advisable in practice to keep general records of the relevant grounds for the balancing of interests, as employers can often cite legitimate interests, such as a unified corporate image (corporate identity) and security considerations, as in the present case.

On 22 August 2024, the Higher Social Court (Landessozialgericht, LSG) Munich ruled (L 7 BA 114/23) that the activity of the spouse of the (shareholder of the) employer (specifically: management activity in the spouse's company with general power of attorney) is typically to be regarded as a non-self-employed activity from a social security perspective within the meaning of Section 7 of the German Social Security Code (Sozialgesetzbuch, SGB) IV and that a certain social security status of self-employment of the activity in a status determination procedure pursuant to Section 7a SGB IV before a transfer of an undertaking in accordance with Section 613a BGB with the then employer cannot continue to apply after the transfer of the undertaking and the continuation of the employment relationship with the spouse as the new sole proprietor.

Facts of the case

• The claimant runs a restaurant with an attached butchery and an attached hotel. He had run the hotel with his father in the legal form of a civil-law partnership (Gesellschaft bürgerlichen Rechts, GbR) until 31 December 2014 and continued to run it as a sole trader after his father left on 1 January 2015.
• The claimant's wife had already worked in a management capacity in the GbR (as Manager of the hotel and restaurant) and continued in this role after her father left. She carried out the management role together with the claimant. She performed this role for a gross monthly salary of EUR 2,500, on which the claimant paid income tax and recorded the remuneration as operating expenses in his company's accounts. The wife granted the claimant a loan of EUR 10,000 for investments in the hotel business; she did not receive any remuneration for periods of sick leave.
• In 2011, the wife's health insurance authority (BKK24) had determined that the wife was not subject to social security contributions because there was no dependent employment relationship, but that the work was characterised by ‘family considerations’.
• The defendant DRV Nord came in a tax audit carried out for the financial years 2017 to 2020 to the conclusion that the wife's work in the claimant's company included work subject to social security contributions within the meaning of Section 7 SGB IV and that social security contributions of EUR 49,811.45 were due for the audit period. This by stating that the comprehensive audit required for Section 7 SGB IV led to the conclusion that the predominant characteristics spoke in favour of an activity subject to social security contributions and that the family ties between the plaintiff and the wife were not relevant for the assessment under social security law. The plaintiff objected to the corresponding contribution notice, inter alia, with reference to the 2011 decision of BKK24. The Social Court (Sozialgericht, SG) Munich upheld the action on the grounds, inter alia, that the decision of BKK24 continued to have legal effect after the transfer of the business from the GbR to the plaintiff as a sole proprietor in accordance with Section 613a BGB.

Reasons for the judgement

• The LSG Munich dismissed the complaint and ruled that the wife was in an employment relationship with the plaintiff, subject to social contributions.
• In the context of the overall assessment to be made for the purpose of determining the social security status under Section 7 SGB IV, the overwhelming reasons speak in favour of the assumption of dependent employment. The decisive factor here is that the wife had no legal power under company law in her employment to defend herself against instructions from the plaintiff that she did not approve of. The general power of attorney granted to her by the plaintiff was not suitable for this purpose, as it could be revoked by the plaintiff at any time. The family law bond existing through marriage also plays no role in view of the lack of legal power under company law.
• The decision of BKK24 from 2011 only concerned the previous activity in the GbR and was not transferable to the plaintiff's sole proprietorship. Furthermore, the DRV Nord is not bound by the decision of BKK24 as another social insurance agency in its social security assessment. Finally, a status determined by a social insurance agency is not covered by the legal consequences of Section 613a BGB.

Implications for practice

The judgment of the LSG Munich is in line with the case law of the German Federal Social Court (Bundessozialgericht, BSG) on the social security liability of family members working in family businesses with or without a (mere) minority shareholding in the company. If, according to the common understanding of the family, family members are not to perform such activities in an employment relationship subject to social security contributions, this can generally only be avoided by a corresponding simultaneous shareholder position. The ruling also clearly shows that a decision made in the past by a social security institution regarding the determination of a status not subject to social security contributions in the case of a company takeover as a sole proprietor after the other shareholders have left the GbR/OHG cannot have any further legal effect. Considerations regarding Section 613a BGB are out of place in this context.

In its judgment of 11 July 2024 (C-196/23), the European Court of Justice (ECJ) ruled that the termination of employment relationships due to a company's closure as a result of the retirement of the owner a mass redundancy within the meaning of Directive 98/59/EC and that the mass redundancy procedure (= consultation of employee representatives and notification of the mass redundancy to the competent labour authority) is therefore required and that a termination declared without a mass redundancy procedure is invalid.

The facts of the case

• The employer, who operated as a sole proprietor, retired on 1 August 2020 and terminated the employment relationships of his last 54 employees on 17 July 2020.
• 8 of the employees affected brought actions against the dismissals, arguing that the employer had not carried out the collective redundancy procedure in accordance with Directive 98/59/EC.
• The statutory regulation implementing Directive 98/59/EC into the national law applicable to the case (Spain) stipulates that no collective redundancy procedure is required in the event of the employer's retirement. The labour court dealing with the dismissal disputes referred the question of law to the ECJ as to whether such national legislation is compatible with Directive 98/59/EC.

Reasons for the judgement

• The ECJ ruled that the termination of employment contracts due to the retirement of the employer includes a ‘collective redundancy’ within the meaning of Directive 98/59/EC and that, therefore, the collective redundancy procedure must also be carried out in this case before the relevant terminations of employment contracts are announced.
• National regulations that exclude retirement from this are not compatible with Directive 98/59/EC.
• However, in view of the fact that the dismissal dispute is being conducted between two private legal persons, Directive 98/59/EC is not directly applicable and therefore the national court dealing with such a dispute is not obliged to disapply national legislation if it is incompatible with Directive 98/59/EC..

Implications for practice

The ECJ ruling is in line with the ECJ's case law on the comprehensive scope of Directive 98/59/EC on dismissals for operational reasons in an employment relationship to such an extent that these are to be regarded as mass dismissals. Section 17 KSchG, which implements Directive 98/59/EC into German law, also applies to such mass dismissals. The ECJ's confirmation of the legal principle that Directive 98/59/EC is not directly applicable to an employment relationship between two private legal entities is also useful in practice. In this respect, it is incumbent on the national legislator to properly transpose the directive into national law.