"Monthly Dose" Employment Law: 02/2024

1. Compatibility of Section 26 (4) of the German Data Protection Act with GDPR? - Status quo of ECJ order of reference of German Federal Labour Court (order of 22 September 2022, 8 AZR 209/21; C-65/23)

In its order for reference dated 22 September 2022 (8 AZR 209/21), the German Federal Labour Court (Bundesarbeitsgericht, BAG) referred a question to the European Court of Justice (ECJ) for a preliminary ruling on the interpretation of Art. 88 (1) and 82 (1) of the General Data Protection Regulation (GDPR). In particular, it should be clarified whether Section 26 (4) of the German Federal Data Protection Act (Bundesdatenschutzgesetz, BDSG) only permits collective agreements (in particular as a works agreement) on data processing subject to compliance with further data protection requirements and whether the collective partners can be granted a margin of appreciation that can only be reviewed by the courts to a limited extent when assessing the necessity. The question was also raised as to whether, when claiming damages in accordance with the principles of the GDPR, it is also necessary to demonstrate that the damage suffered is of some significance or whether a breach of the provisions of the GDPR is sufficient. The ECJ has clarified the second question in the Austrian Post decision of 4 May 2023 (C-300/21, discussed in our Monthly Dose 11/2023.

The first question remains to be decided, so that the order for reference will be discussed again here in view of its highly practical relevance:

In the case on which the decision is based, the parties most recently disputed non-material damages due to a breach of data protection provisions. The plaintiff was employed by the defendant employer, a dental technology company, as an organisational programmer. The defendant was a group company of a group with its parent company based in Washington D.C. In 2017, the group intended to introduce the cloud-based personnel information system Workday and, among other things, conducted a test phase in which the defendant also participated. As part of the test phase, the defendant uploaded in May 2017 various personal data of the individual employees (name, salary information, private residential address, date of birth, marital status, national insurance number, tax ID number) to a Sharepoint page of the parent company with a server location in the USA. Subsequently, in July 2017, the defendant concluded a toleration works agreement with its elected works council on the introduction of Workday, which only permitted the testing of Workday and stipulated that Workday may not be used for standard HR processes (including recruitment, performance reviews, remuneration, etc.). In addition, the works agreement specified an exhaustive catalogue of personal data that the defendant was allowed to upload to Workday on the server in the USA, which did not include the national insurance number and tax ID number from the above-mentioned data.

The plaintiff considered the processing of his personal data in Workday to be a breach of the data protection provisions of the GDPR, in particular with regard to the processing of his national insurance number and tax ID number, which was not included in the catalogue of the tolerated works agreement. This had caused him non-material damage.

The two courts of first instance did not uphold the claim: The requirements for a claim for damages were not met with the use of Workday. The data processing carried out by the defendant was only partially covered by the tolerated works agreement and the "excessive" processing was carried out without a legal basis. The processing was also not necessary within the meaning of Section 26 (1) BDSG and Art. 6 (1f) GDPR, as the defendant could have resorted to the processing of fictitious data as a milder means. However, the plaintiff could not claim damages as he had not shown that he had suffered any specific damage as a result of the breach. Mere fears that damage could occur would not constitute compensable damage.

The BAG suspended the proceedings in the appeal instance and referred the questions mentioned at the beginning to the ECJ. The BAG took the view that Art. 88 (1) GDPR only authorises the member states to adopt "specific provisions" and that the general data protection requirements of Art. 5, 6 (1) and 9 (1) and (2) GDPR must also be observed in this respect. Furthermore, the BAG has concerns as to whether the collective partners can be granted a margin of judgement that can only be reviewed by the courts to a limited extent when assessing necessity: This is because if the works agreement were already sufficient as a legal basis, no further explanations on the necessity of data processing would be required in the proceedings. If the statutory minimum requirement of necessity also had to be used as a standard for data processing on the basis of a collective agreement, the burden of proof for the necessity of the processing would be on the employer in case of doubt.

Irrespective of the question of the burden of presentation and proof of necessity, in the opinion of the BAG, the data subject would have to demonstrate that their rights have been violated as a result of a breach of the GDPR requirements.

Status quo, also for practice

The request for a preliminary ruling is still pending (C-65/23). However, the ECJ's decision will still be of great importance for the future practice of the parties involved. It remains to be seen whether the BAG's previous view that a collective agreement authorisation cannot replace the necessity test of Art. 6 (1) GDPR will be confirmed. In this case, a collective agreement would not create an (independent) authorisation. This is likely to be largely in line with the prevailing view to date, according to which works agreements are subject to legal review pursuant to Section 75 of the German Works Constitution Act (Betriebsverfassungsgesetz, BetrVG9 and must fulfil the requirements of Art. 88 (2) GDPR, among others.

In practice, company-initiated data processing operations are largely covered by a statutory authorisation. The works agreements therefore only serve the purpose of concretisation. However, the ECJ and BAG will hopefully soon clarify how far this "concretisation" may go in detail.

2. On call work: Implied determination of a working time volume of 20 hours per week and deviations require objective evidence (BAG judgement of 18 October 2023, 5 AZR 22/23)

In its judgement of 18 October 2023 (5 AZR 22/23), the BAG had to decide whether an employer's on-call behaviour can lead to an impliedly agreed volume of working hours of more than 20 hours per week if work on call is agreed without expressly specifying the specific duration of the weekly working hours.

In the facts underlying the decision, the parties disputed, among other things, the regular working hours applicable to the employment from 2020. The plaintiff employee had been employed by the legal predecessor of the defendant employer since July 2009 on a call-off basis in accordance with Section 12 of the German Part-Time and Fixed-Term Employment Act (Teilzeit- und Befristungsgesetz, TzBfG). The employment was transferred to the defendant on 1 January 2014, where the employee also worked on Saturdays until the end of 2019. Work on Saturdays was generally voluntary and was not part of the regular weekly working hours. Between January 2017 and December 2019, the defendant called on the plaintiff to work an average of 103.2 hours per month as required. After Saturday work was cancelled in January 2020, the extent to which the plaintiff's work was called in decreased. In her complaint, the plaintiff claimed that she should also be employed with a regular monthly working time of 103.2 working hours from January 2020. The defendant objected to the plaintiff's claim that, in the absence of an agreement to the contrary pursuant to Section 12 (1) sentence 3 TzBfG, a weekly working time of 20 hours was deemed to have been agreed. In view of the statutory fiction, a supplementary interpretation of the contract was ruled out. The reference to the average working time values in the years 2017 to 2019 was arbitrary and voluntary Saturday work should not be taken into account when calculating average working hours.

The BAG dismissed the claim. This was essentially on the grounds that a weekly working time must generally be specified for work on call (Section 12 (1) sentence 2 TzBfG) and that the plaintiff's employment contract did not contain any provision in this regard. An implied agreement would also be conceivable; however, there was no evidence of this in the plaintiff's factual submission. The BAG makes it clear that a lack of agreement on weekly working hours does not lead to the invalidity of the agreement to work on call. Rather, according to the wording of the law in Section 12 (1) sentence 3 TzBfG, a weekly working time of 20 hours is deemed to have been agreed. A duration of the weekly working time that exceeds the statutory fiction does not arise in the case in dispute. There is already a lack of an unintended regulatory gap for a supplementary interpretation of the contract, as this can be appropriately closed by using the dispositive legal text. There are no objective grounds for a subsequent, explicit or implied (amendment) agreement of a different weekly working time. The mere additional employment by the employer beyond the duration of 20 weekly working hours does not constitute an increase in weekly working hours - because such behaviour does not have the value of a legal declaration to the effect that the employer wishes to be bound to a higher duration of weekly working hours deviating from Section 12 (1) sentence 3 TzBfG for the future. Similarly, the employee's willingness to work more than owed in a certain period of time does not justify the assumption that he wishes to permanently commit himself to a longer period of time than provided for by law.

Consequences for practice

In its decision, the BAG clarifies that in the absence of a working time agreement in an employment relationship with work on call, the statutory fiction of Section 12 (1) sentence 3 TzBfG generally applies and a weekly working time of 20 hours is deemed to have been agreed. At the same time, employers should carefully determine the expected regular work requirement when concluding the employment contract when agreeing to work on call and, in the case of a regular work requirement of - materially - less than 20 weekly working hours, conclude a specific working time agreement in the employment contract.

3. Necessity of written form for the execution of "turbo clauses" (LAG Mecklenburg-Vorpommern judgement of 9 May 2023, 2 Sa 146/22)

In its judgement of 9 May 2023, the Mecklenburg-Vorpommern Regional Labour Court (LAG) had the opportunity to deal with the written form requirement for so-called "turbo clauses" in court settlements in termination disputes and ruled that an agreement that includes an employee's right to terminate the employment prematurely is a termination right to which the written form requirement of Section 623 of the German Civil Code (Bürgerliches Gesetzbuch, BGB) applies.

In the case underlying the decision, the parties were in dispute over a severance payment regarding the date of (formal) termination of their employment. Following extraordinary, and alternatively ordinary, termination by the defendant employer, the plaintiff employee filed an action for unfair dismissal. In the dismissal dispute, the parties agreed on a settlement which, among other things, stipulated: (1) termination of the employment on 30 November 2021, and (2) the employee's right to terminate the employment prematurely by giving one week's written notice to the defendant. In this case, the settlement provided for the payment of the gross monthly remuneration otherwise to be granted until 30 November 2021 as a severance payment within the meaning of Sections 9 and 10 of the German Dismissal Protection Act (Kündigungsschutzgesetz, KSchG).

In a letter dated 20 July 2021, the plaintiff's legal representative informed the defendant's legal representative in the name of and on behalf of his client that the latter was terminating the employment prematurely on 31 July 2021. He provided this letter with a qualified signature and sent it to the defendant's representative via the special electronic lawyer's mailbox (beA). In a letter dated 30 January 2022, the plaintiff requested the defendant to pay the settlement, setting a deadline and referring to the "turbo clause" contained in the court settlement. As the request for payment was unsuccessful, the plaintiff filed an action.

The plaintiff took the view that the employment had been terminated prematurely on 31 July 2021 as a result of the declaration submitted by his legal representative. He was therefore entitled to the gross remuneration to be recorded for the period from 1 August 2021 to 30 November 2021 as further severance pay. The declaration was also validly submitted in electronic form with a qualified signature (Sections 127, 126a BGB). The defendant countered that the employment had not been terminated prematurely by the declaration of the plaintiff's legal representative due to the lack of compliance with the written form requirement. The mandatory written form requirement pursuant to Section 623 BGB had to be observed for premature termination.

After the Stralsund Labour Court (ArbG) upheld the claim, the defendant's appeal to the LAG Mecklenburg-Vorpommern was successful and led to a decision dismissing the claim. The LAG Mecklenburg-Vorpommern stated that the plaintiff's early termination right agreed in the court settlement in the termination dispute with the "turbo clause" was a special termination right comparable to Section 12 sentence 1 KSchG, which was subject to the formal requirement of Section 623 BGB. Like a settlement agreement, the court settlement contains further provisions on the modalities of termination, but no other termination facts. In order to effect an early termination, it was agreed that the plaintiff should make a declaration. This was a termination, even if not expressly designated as such, because the termination of the employment was to take place at the instigation of the plaintiff at an early date before 30 November 2021 and replace the termination event in the form of the employer's termination at the end of 30 November 2021. This termination was subject to the written form requirement, as the granting of a right to leave the employment prematurely with a certain notice period constitutes a special right of termination comparable to Section 12 sentence 1 KSchG. The constitutive written form requirement of Section 623 BGB cannot be waived by contractual or collectively agreed provisions and cannot be replaced by electronic form, as this is excluded by law for notices of termination (Section 623 BGB). According to the LAG Mecklenburg-Vorpommern, there was also no need for a teleological reduction as the notice of termination was sent via the beA. The formal requirements of civil law must be strictly distinguished from those of procedural law and cannot be applied directly or accordingly to procedural acts due to the independence of procedural law. The possibility of using the beA serves to speed up court proceedings and thus pursues a different objective and purpose than Section 623 BGB (warning function, identity function, verification function).

As the employment was not terminated at the end of 31 July 2021 due to the lack of formal notice of termination (Section 125 sentence 1 BGB), there was therefore no entitlement to payment of the further severance payment.

Consequences for the practice

The judgement of the LAG Mecklenburg-Vorpommern clarifies that the right contained in "turbo clauses" to terminate the employment prematurely ultimately constitutes a termination to which the mandatory written form requirement under Section 623 BGB applies. With this ruling, the LAG Mecklenburg-Vorpommern follows the case law of the BAG on the mandatory written form requirement when exercising the contractual right to prematurely terminate employment (see only BAG judgement of 17 December 2015, 6 AZR 709/14). Against this background, employers should ensure in individual cases that premature terminations by employees are made in a formally effective manner, as otherwise the social security contributions saved as part of a severance payment could be claimed back from the employee.

4. Agreed cut-off date for the conclusion of a target agreement for variable remuneration must be complied with (LAG Schleswig-Holstein judgement of 11 July 2023, 2 Sa 150/22)

In its decision of 11 July 2023 (2 Sa 150/22), the LAG Schleswig-Holstein had the opportunity to decide whether non-compliance with a cut-off date contained in an agreement for the conclusion of a target agreement for variable remuneration leads to a claim for damages by the employee in the amount of the target value.

In the case underlying the decision, the employment contract agreed between the parties stipulated that the employee was entitled to a performance-related bonus in accordance with a separate bonus agreement. The bonus agreement provided for a target value of EUR 70,000 gross in the event of 100% target achievement and contained the following provision on the implementation of the bonus regulation: "The criteria for the bonus shall be newly agreed by the parties by 1 March of a calendar year for the calendar year [...] at the latest. If an agreement pursuant to sentence 1 is not reached or not reached in due time, the criteria shall be determined by the employer at its reasonable discretion."

On 9 March 2021, the defendant sent a concrete proposal for the criteria of the bonus agreement with regard to the bonus for the calendar year 2021, which the plaintiff rejected. The defendant left the counter-proposal submitted by the plaintiff on 22 April 2021 unanswered. The defendant finally paid a bonus of EUR 7,000 gross for the 2021 calendar year. In his lawsuit, the plaintiff claimed the difference to the target amount for the calendar year 2021 and essentially based his lawsuit on the defendant's failure to conclude the target agreement.

The LAG Schleswig-Holstein upheld the claim, according to which the plaintiff was entitled to (compensation for) this amount under Section 280 (1), (3) in conjunction with Sections 283, 252 BGB. In its reasoning, the LAG referred to the case law of the BAG on the employee's claim for damages in the event of failure to agree targets for performance-related variable remuneration and also extended this to the circumstances of target agreement discussions initiated by the employer after the contractual deadline and therefore too late. In this case, too, it was impossible to set the relevant targets after the expiry of the agreed deadline for setting targets within the meaning of Section 275 (1) BGB, as this deadline was decisive for the incentive function of the target agreement. In accordance with the performance and motivation concept of an employee's bonus entitlement, the incentive function can only be fulfilled if the employee is already aware of the objectives to be pursued by him when performing the job and knows which personal or company-related objectives the employer attaches particular importance to achieving. In view of the bonus target proposal only submitted on 19 March 2021, the defendant also bears the burden of fault, as it did not submit a bonus proposal in good time. Furthermore, the defendant could not invoke its unilateral right to determine the bonus, also arising from the agreement, as such a right only exists in accordance with the provision if an agreement is not reached or not reached on time. However, this would require discussions, the reconciliation of different positions or rapprochement in advance. The defendant had not presented these negotiation parameters.

The amount of damages was based on the expected profit, as the defendant did not present any special circumstances as to why such a profit was not to be expected. It should generally be assumed that an employee would have achieved agreed targets unless special circumstances preclude this assumption.

Consequences for practice

This decision once again demonstrates that employers should strictly adhere to the deadlines set out in the legal basis for variable remuneration in the case of performance-related variable remuneration with time-bound targets. It is therefore advisable for employers to enter the target agreement process as early as possible. It is also advisable to document negotiation meetings and the exchange of target proposals accordingly so that, in the event of a disagreement, the target parameters can be determined within the scope of reasonable discretion and there are no subsequent difficulties in providing evidence.

5. Social security obligation of the sole shareholder-managing director of a one-person partnership in the case of work for a client of the company bound by instructions (BSG judgement of 20 July 2023, B 12 BA 1/23 R, B 12 R 15/21 R, B 12 BA 4/22 R)

In its judgements of 20 July 2023 (B 12 BA 1/23 R, B 12 R 15/21 R, B 12 BA 4/22 R), the German Federal Social Court (Bundessozialgericht, BSG) ruled that a sole shareholder and managing director of a corporation is subject to social security contributions when working for a client of the company if the activity as a whole constitutes dependent employment with the client.

In all three proceedings before the BSG, the plaintiffs were sole shareholders and managing directors of corporations in the legal form of a GmbH or UG (haftungsbeschränkt). The companies concluded contracts with their respective clients for the provision of services, which in two proceedings comprised care services in the inpatient area of a hospital, and in another case consultancy services. In all cases, the managing directors provided the services personally and exclusively, as the companies did not employ any other suitably qualified staff.

The German Pension Insurance authority (Deutsche Rentenversicherung Bund) determined that the sole managing directors were subject to social security contributions as part of the status check, which the managing directors contested with their complaints.

In each of the cases, the BSG found that the claimants were liable to pay social security contributions due to a dependent employment relationship with the respective client. The overall assessment of all circumstances led in each case to an integration into the business organisation of the client and to a commitment to instructions. This was not precluded by the fact that the clients had concluded the contracts with the companies. The actual circumstances and the implementation of the contractual relationships were decisive.

The assignment of a person to perform work owed by the companies established a triangular relationship between the clients and the respective plaintiff, which was comparable to the assignment of an employee. In fact, however, the question of whether there was an unauthorised hiring out of employees could be left open, as social security law does not look at the contractual arrangement, but only at the aspect of integration into the company organisation.  

Due to the theory of integration prevailing in social security law, the activities of each plaintiff were deemed to be dependent employment.

Even the fundamental separation between legal entities and their executive bodies as natural persons does not change the dependent employment of the managing directors with the respective client. In this context, the BSG refers to the fiction provision of Section 2 sentence 1 no. 9 b) Hs. 2 SGB VI, according to which the clients of the company are deemed to be the clients of the shareholders. According to the BSG, this means that the actual circumstances in terms of social security law override the fundamental separation between legal entities and their executive bodies as natural persons.

The remuneration agreement between the respective client and the respective company does not preclude the paid employment of the managing director by the client, as the fiction rule from Section 2 sentence 1 no. 9 b) half-sentence 2 SGB VI also applies to the remuneration relationship.

Consequences for practice

With its decisions of 20 July 2023, the BSG continues its recent case law on the consistent application of the integration theory, according to which the social security status of the specific activity of the relevant person for the respective client must be largely assessed according to the actual circumstances and emphasises in the decisions that, in particular, the organ-related status of the relevant person with the client's contractual partner would not play a material role in the assessment under social security law. Even if the reasoning is not entirely convincing from a social security law perspective (in that the BSG does not take into account individual legislative judgements on the social security status of shareholder-managing directors in the manner indicated), it is to be expected that the BSG will consistently continue this case law.

Companies are therefore required to check exactly who is actually providing the service before it is provided by their business partners. This also applies to the option of concluding a specific service/work contract with a legal entity as the contractual partner and the provision of the contractually agreed services by the managing director of the contractual partner, which has often been chosen in practice to date. This structuring option should only be possible in individual cases if the contractual partner provides the contractual services through other persons in addition to the shareholder-managing director. If this is not feasible, legally secure employment on the basis of a fixed-term employment contract or within the framework of an authorised temporary employment contract should be considered in individual cases - also taking into account their commercial implications.

6. ECJ confirms: Collective bargaining regulations that only provide for overtime pay once a total number of hours that applies equally to part-time and full-time pilots has been exceeded include unlawful discrimination against part-time employees (ECJ judgement of 19 October 2023, C-660/20 (Lufthansa CityLine))

Following a referral from the BAG, the ECJ had to decide in its judgement of 19 October 2023 (C-660/20) with regard to a part-time pilot whether part-time employees are unreasonably disadvantaged by the formal equal treatment of full-time and part-time employees in collective bargaining standards. 

In the case on which the decision was based, the part-time pilot (0.9 FTE) sued for payment of additional remuneration for overtime worked. According to the collective agreements applicable to the employment with the defendant employer, pilots receive additional flight duty pay (hereinafter "additional pay") in addition to their basic remuneration if they have worked a certain number of flight duty hours per month and have thus exceeded certain thresholds ("trigger limits"). These are additional remuneration components. The threshold values for the relevant number of flight service hours apply equally to part-time and full-time employees in accordance with the collective agreement.

The plaintiff considered the uniform threshold value to be an unlawful discrimination against employees in a part-time employment. He was of the opinion that the number of flight hours required to trigger the additional remuneration should be set at a lower level for part-time employees in proportion to their working hours and claimed the difference between the remuneration already paid and the increased remuneration for the additional flight time worked by him based on the correspondingly reduced trigger thresholds.

The BAG had doubts as to whether the defendant employer's refusal to reduce the trigger limits in proportion to the working hours of part-time employees was compatible with the provisions of the framework agreement on part-time work in the Annex to Directive 97/81/EC on the prohibition of discrimination and had referred the matter to the ECJ for a preliminary ruling.

In its decision, the ECJ stated that the collective agreement provision meant that part-time airline pilots were significantly less likely than full-time employees to be entitled to additional remuneration under these conditions due to the identical trigger limits. It can therefore be assumed that part-time pilots are treated differently to comparable full-time pilots, which is prohibited under the framework agreement unless there is an objective reason for doing so within the meaning of the provision.

A corresponding objective reason can only be affirmed if there is an actual need for unequal treatment due to specific circumstances. The BAG must conclusively examine this in the specific case. In this regard, the ECJ adds that insofar as the defendant employer states that the threshold values serve to avoid a particular workload and the associated health risks as well as to prevent excessive utilisation of the pilots, there is no scientific evidence as to the threshold value of flight duty hours above which there is a higher workload and health risk in contrast to working fewer hours. Furthermore, the ECJ doubts whether the establishment of standardised thresholds is more suitable than other measures to protect against excessive workload, especially as flight-specific constraints and the individual effects of the workload on the respective pilot are not taken into account. In particular, the reasons that characterise part-time work, such as non-occupational stress, would not be taken into account.

Consequences for practice

After the BAG had already ruled in its judgement of 19 December 2018 (case no. 10 AZR 231/18) that a collective agreement violates Section 4 (1) TzBfG if it only establishes claims to overtime bonuses if the number of hours relevant for full-time work is exceeded, the ECJ has now also confirmed this legal opinion. Insofar as collective agreements provide for formally equal thresholds for additional remuneration for overtime for full-time and part-time employees, these are generally contrary to European law, as they violate the prohibition of discrimination and are therefore incompatible with the provisions of the framework agreement on part-time work annexed to Directive 97/81/EC. Employers should, if necessary, check whether existing regulations are inadmissible in light of this decision and need to be adapted. Should any justifying circumstances for unequal treatment come into question, it is advisable to set these down and describe them specifically. They should also be suitable, necessary and appropriate for achieving the objective pursued.