Photo of Dr. Sandra Urban-Crell

Dr. Sandra Urban-Crell has vast experience across the spectrum of labor and employment law, having handled everything from day-to-day practical advice tailored to her national and international clients’ operational and commercial needs, to complex multi-jurisdictional transactions from strategic planning through post-merger integration. She regularly advises on co-determination matters on the company and board levels, and on outsourcing and restructurings, including negotiations with employee representatives. Sandra is an experienced litigator and has particular knowledge of international assignments, service agreements for board members, managing directors and executive employees (including separation processes), and bonus and benefit plans. Read Dr. Sandra Urban-Crell's full bio.

On November 6, 2018 the European Court of Justice (ECJ) passed judgment on two German cases (Max-Planck-Gesellschaft zur Förderung der Wissenschaften eV v Shimizu [C-684/16] and Kreuziger v Land Berlin [C-619/16]) concerning untaken paid annual leave entitlement. The ECJ ruled that accrued annual leave entitlements cannot be automatically forfeited if the worker does not place a request for holiday, and also applies to compensation claims at the termination of employment. These entitlements only cease if the employer has given workers ample opportunity to take the leave in question on time.

Access the full article in German here.

The Higher Labour Court in Düsseldorf ruled on October 14, 2015, that even after the statutory one-month objection period in Section 613a(6) of the German Civil Code has expired, employees may object to the transfer of their employment based on an incomplete or inaccurate mandatory notification letter if it was reasonable for them to assume that they would have long-term employment with the acquiring entity (case number: 1 Sa 733/15).

Legal Background

If a business or part of a business transfers to another owner through a legal transaction, the new owner automatically assumes all rights and duties under the employment relationships existing at the time of transfer and thereby becomes the new employer (in accordance with Transfer of Undertakings (Protection of Employment) Regulations 2006, or “TUPE”). The previous employer, the new employer or both must inform employees affected by a transfer in writing prior to the transfer about the planned date of transfer; the reason for the transfer; the legal, economic and social consequences for employees; and the employees’ right of objection.

Employees may object in writing to the transfer of employment within one month after being notified of the transfer. A misleading, incomplete or incorrect notification does not trigger this objection period. In the case of a misleading, incomplete or incorrect notification, employees have an unlimited objection period. Complete and comprehensive notification provides employees with sufficient knowledge to decide whether to continue employment with the old or new employer (i.e., whether to object to the transfer of employment).

When employees object, their employment does not transfer to the acquiring entity, but remains with the previous employer. If the previous employer does not have any job openings, or if the business has been completely closed, the objecting employees will most likely face a dismissal for operational reasons.

Decision of the Higher Labour Court in Düsseldorf

In the present case, the plaintiff worked for a catering company in a concert hall. On September 12, 2014, she was informed that her employment was transferred to the acquiring entity and would continue unchanged. In addition, she was informed about her right to object, pursuant to Section 613a(6) of the German Civil Code. The plaintiff did not object within the one-month period and continued working for the acquiring entity. In spring 2015, the acquiring entity terminated her employment. The acquiring entity had taken over a temporary lease from the former employer, which subsequently expired. Consequently, the acquiring entity shut down the business. It was only after this shut-down that the plaintiff objected to the transfer of her employment to the acquiring entity. As a consequence, her former employer terminated her employment contract. The court considered whether the plaintiff could still object efficiently to the transfer of employment, in order to determine whether employment still existed with the former employer and, as a consequence, whether the former employer could terminate such employment. In the court’s opinion, the plaintiff effectively objected to the transfer of her employment because she was informed about an “unchanged continuation of the business.” Based on that information, the plaintiff could reasonably assume that the acquiring entity would employ her for the long term. The court held that for the acquiring entity’s notification letter to be comprehensive and trigger the one-month objection period, it should have clearly pointed out the future uncertainty of the business, such as whether the lease was on a fixed term.

This is yet another opinion that clearly demonstrates the near impossibility of meeting the requirements courts have established for comprehensive and complete employee notification after a business transfer. Thus, when drafting such notification letters it is of the utmost importance to be as detailed and accurate as possible. Unfortunately, this often leads to long notification letters with deep legal evaluations that may be difficult to understand for employees without legal education.

In its decision on October 6, 2015 (file-no. C-362/14), the European Court of Justice (ECJ) stated that the commonly used Safe Harbor Principles, which were previously deemed to be a safe way to legally transfer data to the United States, are non-binding for national data protection authorities. Thus, after this judgment, the harbor is not “safe” anymore. The court’s decision causes great difficulties for a wide range of internationally operating companies that regularly transfer personal data to their U.S. parents.

The Facebook Case

In this case, the ECJ had to decide whether the national Irish data protection authority could independently investigate and assess a complaint from an Austrian citizen who claimed that the Irish subsidiary of Facebook illegally transferred his personal data to the United States and illegally saved them on a U.S. server. The Irish data protection authority rejected the complaint on the grounds that Facebook submitted itself to abide by the Safe Harbor Principles. Based on a decision of the European Commission on July 26, 2000, data transfer to a company that submitted itself to the Safe Harbor Principles, on which the U.S. Department of Commerce elaborated, was considered under European law to be “safe” (i.e., an adequate level of data protection was guaranteed). As Facebook met these standards, the transfer to Facebook’s U.S. server should have been considered absolutely safe and thus legal, given the European Commission’s decision.

Reasoning of the Decision

This held true until October 6, when the ECJ clearly rejected the widely used and regarded as secure Safe Harbor practice, despite the European Commission’s decision in 2000. The judges criticized several aspects of the Commission’s decision.

First, the ECJ found that the European Commission lacked the authority to make a binding decision on behalf of the national data protection authorities about whether companies that submitted themselves to abide by the Safe Harbor Principles met the required standard for a legal transfer. In addition, the ECJ emphasized that the European Commission failed to properly consider in its decision that in case of a conflict of laws, U.S. law supersedes the Safe Harbor Principles. Last but not least, the European Commission did not consider the key fact that U.S. state authorities are basically granted un-restricted access to any data transferred to the United States (as has been proven by the National Security Agency (NSA) scandals that Edward Snowden exposed). The ECJ complained that state authorities were not covered, and even more importantly not bound, by the Safe Harbor Principles. Also, the court noted that the individuals concerned had no administrative or judicial means of getting informed about their saved data or enforcing the saved data to be deleted.

What Does This Ruling Mean – in the Facebook Case and in General?

For the reasons above, the ECJ required the Irish state authority to examine the Facebook complaint with due diligence and, at the conclusion of its investigations, to decide irrespective of the Safe Harbor Principles whether the transfer of the data of European Facebook users to the United States should be suspended on the grounds that the United States does not afford an adequate level of protection of personal data. This equally applied to all other EU member states and was not limited to the data transfer of Facebook. European citizens may request the national state authority for data protection to investigate whether the transfer of specific personal data to the United States complies with European standards.

General Standard Clauses

Another previously safe way to legally transfer data to third-party countries was the use of so-called general standard clauses that were enacted by the European Commission and guaranteed an adequate level of protection of personal data. However, the court’s reasons that justified the invalidity of the Safe Harbor Principles suggest that the general standard clauses would most likely share the same destiny. The general standard clauses were negotiated and enacted by the European Commission, which lacked the authority to do so. Also, the general standard clauses are risky, because the European Commission has not properly assessed that U.S. state agencies would have un-restricted and comprehensive access to any transferred data. However, the general standard clauses will enjoy a grace period until the ECJ declares them non-binding.

The ECJ’s recent decision will certainly increase the already-existing legal insecurities relative to data transfer from Europe to the United States. The newly negotiated agreement between Brussels and Washington on the transatlantic transfer of personal data will most likely have little impact on this legal un-certainty, as the judges expressly doubted the European Commission’s authority to enact binding rules for member states’ data protection authorities.

On 6 March 2015, the German Bundestag passes a law (the Frauenquote) that aims to ensure the equal participation of women and men in the management of business and public office. The Frauenquote entered into force on 1 May 2015. The new regulation, although commonly referred to as a “women’s quota” is legally constructed to ensure that both genders are represented by as many individuals as necessary to meet the mandatory statutory minimum quota.

For more about the mandatory quota including the main effects, obligations and sanctions for infringements, read the full article in International News: Focus on Private Equity.

In a February 16, 2015, decision from the Regional Court of Frankfurt a. M. (ref.: 3-16 O 1/14), the court determined that employees working outside of Germany have to be taken into account when determining whether or not the statutory thresholds that trigger corporate co-determination in Germany are met.

In this case, a new shareholder of Deutsche Börse AG initiated a proceeding against Deutsche Börse AG, arguing that its supervisory board was not staffed correctly due to its failure to count employees located outside of Germany when applying German statutory requirements regarding co-determination.

There are two main statutes in Germany based on which employees’ co-determination in a supervisory board can become mandatory. One statute states that, in companies with more than 500 employees, one-third of the supervisory board members shall be employees.  Another statute states that, in companies with more than 2,000 employees, the supervisory board needs to be staffed with half of its representatives from the employees’ side.

The court found that neither statute contained any indication that only employees working within Germany count when determining if the above mentioned thresholds are met. Thus, according to Frankfurt’s Regional Court, employees working outside Germany have to be counted when determining the 500-employee or the 2,000-employee thresholds. In the specific case, when considering employees working in Germany and working outside of Germany, Deutsche Börse AG would have had to staff its supervisory board with half of its representative from the employees’ side.

The decision contradicted prevailing opinion regarding the employees counted when determining the statutory thresholds.  Most companies assumed that requirements under German labor laws would not be extended to workers located outside of Germany. For this reason, employees not working in Germany have not historically been counted for the purpose of co-determination statutes.

The decision is not legally binding yet. Certainly, the defendants are going to appeal until the German Federal Supreme Court renders its final judgement. The decision is of particular relevance for many mid-sized companies because taking into consideration employees working abroad may, in many cases, result in exceeding the applicable thresholds, and thus in being obliged to establish a co-determined supervisory board.  In addition, the occurrence of a cross-border transaction could result in an employee headcount that exceeds the co-determination statutory thresholds.

McDermott will continue to monitor the law in this area.

On March 6, 2015, the German Bundestag passed a law, the so-called “women’s quota” (Frauenquote), which ensures the equal participation of women and men in the management of businesses as well as of public offices.

The Political Context

According to the German government, women are still heavily underrepresented in leading positions. There is no socio-political explanation for the fact that even though more than half of the German population and more than half of the Germans who graduate from college/university are female, this ratio does not even come close to the gender ratio in top management positions. The proportion of women in German supervisory boards currently amounts to only 19 percent; in management boards to an even poorer 6 percent. However, scientific research has proven that mixed-gender teams achieve better work results than same-gender teams.

The Quota System

Even if the new regulation is commonly referred to as “women’s quota”, (as in the medium-term it will likely counteract the underrepresentation of women) the law is legally constructed to ensure that each gender is represented by as many representatives as is necessary to meet the mandatory statutory minimum quota.  In a nutshell, the enactment of the “women’s quota” has the following effects:

As of January 1, 2016, the share of women and men in supervisory boards of listed companies that are subject to co-determination in accordance with the German Co-Determination Act (Mitbestimmungsgesetz), the Coal, Iron and Steel Co-Determination Act (Montan-Mitbestimmungsgesetz) or the German Supplementary Co-Determination Act (Mitbestimmungsergänzungsgesetz), needs to reach each at least 30 percent.

In addition, the board of directors of companies that are listed or are subject to co-determination have to determine a target figure of the share of women in the two management levels directly below the board of directors. The companies have to try to reach these self-determined quotas in a certain period of time that must not be greater than five years, and the first period has to end on June 30, 2017 at the latest. The quota has to be determined by September 30, 2015 and must not be lower than the actual share of women in the moment of determination (if it is below 30 percent). The companies have to report and disclose their determined target figures, the period of time during which the target figures shall be achieved, and after that period has expired, whether the target figures have been achieved.

Sanctions in Case of Infringements

If the positions in supervisory boards of listed companies that are subject to co-determination are not awarded as per the statutory 30 percent quota, the election of supervisory board members will be void.

If the self-determined target figure in the remainder of companies is not reached, no direct sanctions will be triggered.

Start of a Cultural Change?

It remains to be seen, if the much invoked cultural change in German companies will indeed occur based on the new law, as only 100 companies in Germany will be affected by the new mandatory 30 percent.  Moreover, the new law only regulates the gender parity in supervisory boards. Furthermore, it is still doubtful whether or not the new law is in compliance with the constitution because, for example, there are no exceptions for cases of hardship. Around 3,500 companies will be required to self-determine a target figure of the share of women in the two management levels below the board of directors. However, it is very likely that the target figures will hardly – if at all – overtop the current status quo.

The Regional Labour Court of Cologne (Regional Court) stated in a decision in late November 2013 that a German employer has the obligation to allocate break times of employees in an orderly manner, and presented the possible consequences of non-compliance with such obligation.

In the case under review, the German employer (a nursing home) had set up a work schedule for the night shift which, in total, included a one-hour break from work per shift per employee. However, the German employer did not allocate a certain timeframe (e.g., from 4 to 5 am) for the break times. Instead, the employees were supposed to arrange among themselves who, when and in what time intervals to take the one-hour break per shift.

The Regional Court stated in its decision that such practice does not fulfil the legal requirements of “breaks” that do not have to be compensated by the employer.  Under German law, only breaks from work within the meaning of § 4 German Working Hours Act (Arbeitszeitgesetz) do not need to be compensated. Importantly, to be covered by such statute, the breaks must be determined in advance. The German employer does not meet his statutory obligation to determine the breaks if it is up to the employees to freely arrange their breaks among themselves. The reasoning behind this ruling is the risk that the employees actually might not take a break at all because they lack the employer’s consent.

In summary, even though the German employer in this case took into account a one-hour break per employee and shift, it did not determine the organization or timing of such breaks. Therefore, the breaks did not fulfill the requirements of § 4 German Working Hours Act.  As a consequence, the German employer had to pay remuneration for the whole night shift (not taking into account any kind of break).

German employers should keep this decision in mind when scheduling breaks. The best option is to determine the conditions and the timing of breaks in the employment contract, or, if a works council exists, in a collective works council agreement binding upon all employees of the operation. Additionally, the German employers should control and monitor compliance with such determined break times in order to avoid unnecessary claims for remuneration.

The German Federal Labor Court made a very clear ruling regarding job applicants in Germany who are not offered the position for which such applicants applied.  In the Federal Labor Court’s view, a rejected applicant has no right to know whether another applicant was offered or accepted the position.  (Federal Labor Court, verdict dated April 25, 2013, case number 8 AZR 287/08)

This case concerned a plaintiff who was born in the former Soviet Union in 1961.  She applied for a position that was advertised by a German company, the defendant in this case.  Even though the plaintiff fulfilled all required qualifications, she was rejected and did not receive a job offer.  The plaintiff presumed that this decision was based on discrimination for her gender, age and origin.  The Federal Labor Court submitted the case to the European Court of Justice to determine whether the job applicant had a right to information regarding why she was not selected, or if another applicant was selected for the position.  The European Court of Justice rendered its verdict on April 19, 2012 (case number C415/10), and stated that rejected job applicants had no right to this information under European law.

The German Federal Labor Court dismissed the case because it could not detect any evidence of discrimination.  The mere refusal of the defendant to disclose any information related to the application process and/or the hiring could not establish the presumption of an inadmissible discrimination, according to Section 7 of the German General Equal Treatment Act.

However, this ruling has to be viewed with great caution.  The German decision is not in line with the aforementioned ruling in the same matter of the European Court of Justice.  The European judges, in contrast to the German Court, stressed that the complete refusal to give out any information regarding the hiring could actually be evaluated as a presumption of possible discrimination.  This remarkable difference in the two verdicts was not explained by the German judges and as long as their reasoning remains unclear, German employers should provide a short explanation to rejected applicants when they ask the reason why they have been rejected for an open position (e.g., the other candidate better satisfies the qualification profile, made a better impression at the job interview, seems to be a more motivated and energetic person, etc.).

If a German employee claims special payment for overtime he has performed, it is the employee who has the burden of proof regarding the following requirements:

  1. the fact that he actually worked overtime; and
  2. the fact that the employer explicitly ordered to work overtime or at least has approved or tolerated the performed overtime.

In situations where there is a dispute regarding the payment of overtime, the second requirement is very difficult for the employee to prove.  Nevertheless, in its decision dated 10 April 2013 – file number 5 AZR 122/12 – the German Federal Labor Court confirmed these legal principles, and strengthened the position of employers in disputed cases regarding employee overtime.

Where the disputed overtime was not expressly ordered by the employer, but was merely approved or tolerated by the employer, the German Federal Labor Court emphasized that the employee has to prove the employer’s knowledge of each single case of performed overtime and that the employer expressly or impliedly consented to it.

If the employee claims that the overtime order was given by way of implication, e.g., by assigning tasks that could not have been accomplished during regular working time, he has to prove that these tasks could not have been finished without working overtime.

Given these strict requirements and the modern working environment that generally does not have explicit or even written work orders, employees will likely have a very difficult time producing evidence to support a disputed overtime claim in Germany.