"Monthly Dose" Employment Law: 04/2024

The fourth 2024 edition of our Monthly Dose Employment Law on current case law explains the judgments

(1) of the German Federal Labour Court (Bundesarbeitsgericht, BAG) dated 17
August 2023 (6 AZR 56/23) on the requirements for the “planned” operational
change within the meaning of Section 125 (1) sentence 1 Insolvency Code (Insolvenzordnung, InsO) in a reconciliation of interests with a list of names to justify the presumptive effect of the urgent operational requirements of the termination,

(2) of the BAG dated 13 December 2023 (5 AZR 137/23) on shaking the evidentiary value of certificates of incapacity for work after ordinary termination of the employment relationship by the employer,

(3) of the BAG dated 14 December 2023 (6 AZR 157/22) and dated 1 February 2024 (2 AS 22/23 (A)) on the effectiveness of terminations in the event of incorrect or omitted notification of mass layoffs under Section 17 of the German Dismissal Protection Act (Kündigungsschutzgesetz, KSchG),

(4) of the German Regional Labour Court (Landesarbeitsgericht, LAG) Hamm dated 24 August 2023 (15 Sa 1033/22) on continued payment of wages in the event of officially ordered of COVID 19-quarantine despite failure to vaccinate,

(5) of the LAG Baden-Württemberg dated 11 January 2024 (3 Sa 4/23) on the permissibility of a unilateral conversion of previously granted annual special payments to early, monthly partial payments and their offsetting towards the statutory minimum wage,

(6) of the German Regional Social Court (Landessozialgericht, LSG) Lower Saxony-Bremen dated 27 September 2023 (L 2 BA 59/22) on the effects of a minority shareholding by a third-party managing director in the parent company on the social security status of the subsidiary and

(7) of the Court of Justice of the European Union (ECJ) dated 14 December 2023 (C-206/22) on the entitlement to the transfer of annual leave in the event of an officially ordered COVID 19-quarantine for periods before 16 September 2022.

1. Requirements for the "planned" operational change within the meaning of Section 125 (1) sentence 1 of German Insolvency Code (Insolvenzordnung, InsO) in a reconciliation of interests with a list of names to justify the presumption of urgent operational requirements for the dismissal (BAG judgement of 17 August 2023, 6 AZR 56/23)

In its judgement of 17 August 2023 (6 AZR 56/23), the BAG had the opportunity to further develop its case law on the requirements for the status of a "planned" operational change within the meaning of Section 125 (1) sentence 1 InsO to establish the presumption of urgent operational requirements for a termination of the employment relationship on the basis of a reconciliation of interests with a list of names for a planned operational change in accordance with Section 125 (1) sentence 1 no. 1 InsO.

In the case on which the decision was based, the parties disputed the validity of two ordinary dismissals for operational reasons. The plaintiff employee had been employed by the insolvency debtor since December 2011, which operated a company for the production and distribution of special profiles made of steel and steel products with the rolling mill, drawing mill and technical centre divisions. 

On 1 March 2020, insolvency proceedings were opened over the assets of the insolvency debtor and the defendant was appointed as the insolvency administrator. During the insolvency proceedings, the defendant initially continued the insolvency debtor's operations - with losses - and concluded a reconciliation of interests with the works council on 27 March 2020, which included a reduction in personnel with the termination of the employment contracts of 61 employees (first reconciliation of interests). The plaintiff was not included in this. 

The defendant subsequently conducted negotiations with individual interested parties regarding the sale of the insolvency debtor's business operations. In view of the unchanged loss-making continuation of the business operations, he negotiated in parallel with the works council the conclusion of a further reconciliation of interests (second reconciliation of interests), which provided for an orderly closure of the business with production being discontinued by 31 May 2021. The second reconciliation of interests was negotiated on 28 May 2020; it was not yet signed by the parties on that day, as the creditors' committee decided at its meeting on 28 May 2020 to continue negotiations on the sale of the business operations. As the negotiations were also unsuccessful until the next meeting of the creditors' committee on 24 June 2020, the committee approved the second reconciliation of interests on 24 June 2020. The parties signed the second reconciliation of interests on the same day, the defendant submitted the relevant mass redundancy notice and subsequently terminated the employment relationships of the employees still employed by the insolvency debtor at that time. 

The defendant terminated the employment relationship with the plaintiff on 29 June 2020, observing the relevant ordinary notice period, with effect to 31 May 2021 (first termination). After receiving the first notice of termination, the plaintiff invoked the special protection against dismissal as a severely disabled person and the defendant applied to the competent authority for approval of a new notice of termination, which the authority granted on 19 August 2020, stating that the plaintiff could not claim the status of severely disabled person. The defendant then declared a further termination of the employment relationship as of 31 May 2021 (second termination) on 20 August 2020 as a precautionary measure. 

At the same time, on 1 July 2020, a further investor expressed interest to the defendant in acquiring the business operations of the insolvency debtor, carried out due diligence following a confidentiality agreement signed on 7 August 2020 and signed an asset purchase agreement on 22 February 2021 for the acquisition of part of the business, the rolling mill.

With his claim, the plaintiff sought a declaration that the employment relationship had not been terminated by the first dismissal and the second dismissal. The Hamm Regional Labour Court upheld the action and stated with regard to the second reconciliation of interests that this did not have the presumption effect pursuant to Section 125 (1) sentence 1 InsO, as the defendant had not proven that it had already seriously and definitively planned and initiated the closure of the entire business at the time the reconciliation of interests was concluded. 

The BAG dismissed the action. It recognized the second dismissal as effective (and recognized the action in relation to the first dismissal as inadmissible for this reason, as both dismissals were directed to the same termination date of 31 May 2021). The defendant could apply the presumption effects of Section 125 (1) InsO for the termination by sufficiently demonstrating the requirements of Section 125 (1) sentence 1 InsO. The term "planned" requires that (1) the insolvency administrator is seriously determined to implement the operational change within the meaning of Section 111 sentence 3 of the German Works Constitution Act (Betriebsverfassungsgesetz, BetrVG), (2) the operational change is still in the planning stage at the time the reconciliation of interests is concluded and must not already be in the irreversible implementation stage, and (3) the requirements for the operational change within the meaning of Section 111 sentence 3 BetrVG are still fulfilled when the reconciliation of interests is concluded. 

The BAG also clarifies that (1) for the presumption effect of Section 125 (1) sentence 1 no. 1 InsO, it is not decisive whether the closure of operations had already been initiated or had already taken on tangible forms at the time of receipt of the relevant notice of termination, and (2) the presumption effect pursuant to Section 125 (1) sentence 1 no. 1 InsO only ceases to apply if the situation has changed significantly after the reconciliation of interests has been reached (Section 125 (1) sentence 2 InsO), for example if the basis for the reconciliation of interests has ceased to exist. This would be the case if the parties had no longer concluded a reconciliation of interests with the same content at the time of the termination - and this had not been demonstrated by the plaintiff, who had the burden of proof in this regard. The due diligence carried out by the other interested party prior to the sale of the rolling mill was not sufficient evidence of a change in the situation. The final sale only took place in February 2021 and thus after the notice of termination was issued. The mere possibility of a sale had not yet led to a change in the situation. 

Consequences for practice

The decision clarifies and demonstrates that, in the event of restructuring in insolvency, careful planning and implementation of the reconciliation of interests negotiations is an essential prerequisite for the utilization of the presumption effect of Section 125 (1) sentence 1 InsO. From the perspective of insolvency labour law, it is particularly helpful in cases in which the insolvency administrator finds a company in the insolvency opening proceedings that is not covering its costs and for which he also sees a reliable opportunity to sell the (business) operation or part of it to one or more investors. If the acquisition process proves difficult after the opening of insolvency proceedings and the insolvency administrator is running out of time in view of the fact that the business operations are not covering costs, he can and must prepare a restructuring parallel to the sales efforts, including an organized phase-out/shutdown of the business operations, and conduct negotiations with the works council on a corresponding reconciliation of interests. If the relevant restructuring fulfils the requirements for the planned status of the operational change within the meaning of Section 125 (1) sentence 1 InsO at the time the reconciliation of interests is concluded, the presumption effects of Section 125 (1) sentence 1 InsO apply to the relevant terminations - with the corresponding clearly promising legal position for the insolvency administrator or, in the case of the sale of the restructured business, for the purchaser of the business.

2. Undermining the probative value of medical certificates of incapacity for work following ordinary termination of the employment relationship (BAG judgement of 13 December 2023, 5 AZR 137/23)

In its judgement of 13 December 2023 (5 AZR 137/23), the BAG had the opportunity to continue its case law on the evidential value of medical certificates of incapacity for work following an ordinary termination of employment. 

In the case underlying the decision, the parties were in dispute over continued payment of remuneration due to incapacity for work caused by illness. The plaintiff employee had submitted an initial certificate of incapacity for work to the defendant employer on 2 May 2022 for the period from 2 May 2022 to 6 May 2022. The defendant terminated the employment relationship with effect from 31 May 2022 by letter dated 2 May 2022, which was received by the plaintiff on 3 May 2022. The plaintiff subsequently submitted two follow-up certificates of incapacity for work up to and including 31 May 2022 (a Tuesday) - and took up a new employment relationship with another employer on 1 June 2022.

The defendant refused to continue to pay the plaintiff's salary due to the reported incapacity to work, pointing out that, in view of the coincidence between the notice period and the incapacity to work certified by the medical follow-up certificates up to the time of the termination of the employment relationship on 31 May 2022 due to the notice of termination, there were serious reasonable doubts as to whether the plaintiff would be able to continue to work. 2022 and therefore the probative value of the certificates of incapacity for work was shaken, as the period of certified incapacity for work corresponded exactly to the notice period and the plaintiff had become fit for work again immediately after the termination of the employment relationship and had taken up new employment, and the plaintiff had not provided any other evidence of his alleged incapacity for work. 

The plaintiff then filed an action for continued payment of remuneration for the period from 2 May 2022 to 31 May 2022, which was upheld by both courts of first instance. The BAG only upheld the claim for the period of the first medical certificate of incapacity for work from 2 May 2022 to 6 May 2022 and referred the remainder of the legal dispute back to the second instance for renegotiation and a further submission by the parties regarding the incapacity for work claimed by the plaintiff for the period from 7 May 2022 to 31 May 2022.

The plaintiff was entitled to continued remuneration under Section 3 (1) sentence 1 of the German Continued Payment of Wages Act (Entgeltfortzahlungsgesetz, EFZG) for the period from 2 May 2022 to 6 May 2022; the medical certificate of incapacity for work submitted by the plaintiff for this period could claim the generally high evidential value for incapacity for work granted to it by the BAG; the evidential value was not shaken by the defendant's notice of termination of 2 May 2022, as the plaintiff had submitted the certificate of incapacity for work to the defendant before receiving the notice of termination.

However, the probative value of the subsequent certificates of incapacity for work was shaken. In this regard, the BAG states that, as a starting point, the shattering effect occurs regardless of whether (1) the termination is declared as an ordinary termination by the employer or by the employee, and (2) one or more certificates of incapacity for work are submitted for the duration of the notice period. It is necessary and sufficient that the overall circumstances of the individual case to be assessed show indications that cast doubt on the existence of the incapacity to work. This may be indicated by a coincidence in time between the notice period and the duration of the certified incapacity for work. Serious doubts exist in particular if the employee takes sick leave at a time when it is certain that the employment relationship will end and the employee has an incapacity for work certified by the end of the notice period; this is particularly the case if the last day of the incapacity for work is the last day of the calendar month on a weekday before Friday. 

Consequences for practice

With its judgement, the BAG clarifies that the evidentiary value of a medical certificate of incapacity for work submitted to the employer after an ordinary termination of the employment relationship can be assumed to be shaken regardless of whether the termination of the employment relationship is declared by the employer or the employee. In this case, employees must provide full proof of their stated incapacity for work - and in practice will regularly (only) achieve this by releasing the treating doctor from his duty of confidentiality and offering to provide evidence by questioning him as a witness.

3. Violation of § 17 German Dismissal Protection Act (Kündigungsschutzgesetz, KSchG) does not (no longer) invalidate a dismissal? (BAG decision of 14 December 2023, 6 AZR 157/22 and 1 February 2024 (2 AS 22/23 (A))

In a decision dated 14 December 2023 (6 AZR 157/22), the Sixth Senate of the BAG expressed doubts about the previous case law on the legal consequence of the nullity of a dismissal for operational reasons due to errors in the procedure for mass dismissal notification pursuant to Section 17 (1) and (3) KSchG - after the ECJ ruled on 13 July 2023 (C-134/22) that these should not grant the employee any individual protection. In proceedings pursuant to Section 45 (3) sentence 1 of the German Labor Court Act (Arbeitsgerichtsgesetz, ArbGG), the Sixth Senate called on the Second Senate of the BAG to comment on its previous, contrary legal opinion in a decision dated 14 December 2023, which then referred the legal question of whether the proper implementation of the collective redundancy notification procedure constitutes a prerequisite for the validity of the dismissal to the ECJ in a decision dated 1 February 2024 (2 AS 22/23 (A)).

The subject matter of the original decision of the Sixth Senate of the BAG was a staff reduction measure for which the defendant employer assumed that this did not exceed the thresholds for the submission of a collective redundancy notification in accordance with Section 17 KSchG and therefore did not submit a collective redundancy notification to the competent employment agency. In a dismissal dispute brought by an employee affected by an operational termination of his employment relationship due to the staff reduction measure, the Sixth Senate of the BAG recognized that the thresholds of Section 17 KSchG had been reached in the staff reduction measure and that it would therefore have been necessary to carry out the mass dismissal notification procedure in accordance with Section 17 KSchG before the relevant dismissals were announced. He referred the question of the relevant sanction for a breach of Section 17 KSchG to the ECJ, which stated in its decision of 17 May 2023 that Section 17 KSchG is not of an individual protection nature. 

Following this decision of the ECJ, the Sixth Senate recognized in its decision of 14 December 2023 that the mere violation of Section 17 (1) and (3) KSchG could not in itself justify the invalidity of the relevant termination, as Section 17 KSchG in particular does not include a prohibition law within the meaning of Section 134 BGB. A prohibitive character in relation to the specific legal provision within the meaning of Section 134 BGB only exists if the success of the specific legal transaction is to be prevented. However, the purpose of Section 17 (1) and (3) KSchG is not to prevent the effectiveness of the termination per se, but to act as a purely regulatory function, the purpose of which is to regulate labour market policy effects and to react in good time in the event of mass redundancies. The provision would therefore have no effect on the effectiveness of a dismissal per se. The consequence of nullity in the event of a failure to notify a mass redundancy is contrary to the principle of proportionality, as it significantly interferes with the entrepreneurial freedom of decision and is not a suitable sanction for an incorrect mass redundancy notification. German dismissal protection law only sanctions offences that could have prevented the dismissal as such. This was not the case with the mass dismissal notification. 

In its decision of 1 February 2024, the Second Senate of the BAG agreed with the considerations of the Sixth Senate and referred the above-mentioned legal question to the ECJ. In its starting point, it agreed with the Sixth Senate to the effect that nullity pursuant to Section 134 BGB could include a disproportionate consequence of a breach of Section 17 (1) and (3) KSchG. It is also of the opinion that it is not compatible with Union law if a breach of Section 17 (1) and (3) KSchG has no legal influence on the termination of an employment relationship. A differentiated approach is required, according to which a distinction is made as to whether a notification was completely omitted or was made incorrectly. The purpose of Section 17 (1) and (3) KSchG to initiate placement efforts for the dismissed employees was not achieved in the case of a complete failure to give notice of collective redundancies. Therefore, the effect of a dismissal should only take effect once a corresponding notification has been made and the period of the dismissal ban under § 18 KSchG has been observed. The question to be answered here is whether it is even possible to make up for the collective redundancy notification in accordance with the Collective Redundancies Directive. In this respect, impossibility would be tantamount to invalidity of the dismissal. In this case, the Second Senate would adhere to its case law. 

Furthermore, in the opinion of the Second Senate, it is not possible to terminate the employment relationship before the expiry of the dismissal ban in Section 18 (1) and (2) KSchG. This provision is to be seen as a sanction for failing to give notice of mass redundancies or giving incorrect notice. In any case, the employment agency has sufficient time to react to the collective redundancy. The ban on dismissal can only start and expire once a collective redundancy notification that meets the legal requirements and complies with the requirements of the Collective Redundancies Directive has been submitted in full. It is not necessary for a dismissal to be irrevocably void if a collective redundancy notification is omitted or incorrect; the time of dismissal would only be postponed to the time after a corresponding notification and the expiry of the redundancy ban. In this respect, the employment agency must check after receipt of a mass redundancy notification whether it is necessary to work towards completing it and can determine the duration of the ban on dismissal. The decision is binding for both the employee and the labour courts.

In their respective decisions, the senates unanimously point out that a breach of Section 17 (2) KSchG still leads to the nullity of a dismissal in accordance with Section 134 BGB, as this is a prohibition law. The provision is intended to enable the works council to make constructive proposals to safeguard jobs in order to avoid dismissals

Consequences for practice

The decision of the ECJ - and the subsequent final position of the Second Senate of the BAG - remains to be seen. From a practical point of view, it would be desirable to implement the Sixth Senate's considerations for the implementation of the collective redundancy notification procedure - and at the same time, employers will continue to take due care in preparing and implementing the collective redundancy notification procedure in the event of relevant staff reduction measures in order to avoid relevant discussions in subsequent dismissal disputes in every relevant respect.

4. Continued payment of remuneration in the event of officially ordered quarantine despite failure to vaccinate (LAG Hamm judgement dated 24 August 2023, 15 Sa 1033/22 (confirmed by BAG judgment dated 20 March 2024, 5 AZR 234/23 (press release), LAG Hesse judgement of 18 August 2023, 10 Sa 1361/22)

In its judgement of 24 August 2023 (15 Sa 1033/22), the Hamm Regional Labour Court (LAG Hamm) and in its judgement of 18 August 2023 (10 Sa 1361/22), the Hesse Regional Labour Court (LAG Hesse) had the opportunity to decide on the continued entitlement to remuneration of an employee who had not been vaccinated against COVID-19 for a period in which he was in officially ordered quarantine due to an infection with the coronavirus.

In the facts underlying the judgement of the LAG Hamm of 24 August 2023 (case 1), the unvaccinated employee had tested positive for the coronavirus in a PCR test on 26 December 2021, whereupon the responsible municipality ordered the plaintiff to quarantine for at least 14 days until 12 January 2022 by order dated 29 December 2021. Between 27 December 2021 and 31 December 2021, the plaintiff was issued a medical certificate of incapacity for work. For the period from 3 January 2022 to 12 January 2022, the plaintiff did not receive any further certificates of incapacity for work from his doctor, as the doctor was of the opinion that the positive test result and the isolation order were sufficient to prove incapacity for work. The defendant reduced the plaintiff's gross monthly salary for the period in question. The judgement of the LAG Hesse (case 2) was based on similar facts: The unvaccinated employee was unfit for work from 22 December 2021 to 17 January 2022 and submitted a corresponding certificate of incapacity for work. In the period from 23 December 2021 to 11 January 2022, a home quarantine was ordered for the plaintiff by the authorities after COVID-19 was detected in her case. Her gross monthly salary was also reduced by the period in question. In both cases, it was undisputed that it was not possible to work from home.

Both regional labour courts upheld the respective claim for continued remuneration in accordance with Sections 3 (1), 4 (1) EFZG for the respective period of COVID-19 illness. An employee suffering from COVID-19 was objectively prevented from working due to illness and could no longer work due to the illness if he had to go into quarantine. The illness makes it legally impossible for the employee to perform the work owed, unless the illness is asymptomatic, and the employer can demand that the employee work from home. The claim for continued payment of remuneration arises in this respect if the COVID-19 illness is the sole cause of the inability to work (monocausality). The quarantine ordered by the authorities does not exclude monocausality; from a labour law perspective, it is (only) a consequence of the illness and the associated inability to work. 

Both courts also state that the failure to vaccinate against COVID-19 does not constitute fault on the part of the respective employee relevant to the inability to work within the meaning of Section 3 (1) sentence 1 EFZG. With regard to the failure to vaccinate, the LAG Hesse already denied that the employee's behaviour was subjectively reproachable, as even the manufacturers of the vaccines had not claimed that their vaccines were suitable for preventing any type of illness and the resulting incapacity to work. The LAG Hamm affirms subjectively reproachable behaviour and at the same time denies the causality for the incapacity to work required for Section 3 (1) sentence 1 EFZG; this with the consideration that at the time of the employee's illness, even fully vaccinated persons should have expected vaccination breakthroughs and symptomatic corona infections, so that it cannot be assumed that the use of the recommended vaccination would have prevented the plaintiff's corona infection with a high degree of probability.

Consequences for practice

The decisions close another legal issue in connection with the handling of employment relationships in the COVID-19 context. An employee who is ill with COVID-19 and is in officially ordered quarantine is objectively prevented from performing his or her work, unless the employer can demand that the employee work from home in the event of an asymptomatic illness. There is no causal fault on the part of the employee against himself as a result of failing to receive the recommended vaccination if and since vaccination breakthroughs and a symptomatic illness of fully vaccinated persons are to be expected at the time of the illness. 

The decision of the LAG Hamm has since also been confirmed by the BAG (judgement of 20 March 2024, 5 AZR 234/23). Based on the press release available to date, the BAG bases its decision on identical legal principles.

5. Unilateral conversion of annual special payments to early, monthly instalments and offsetting these against the statutory minimum wage is inadmissible (LAG Baden-Württemberg judgement of 11 January 2024, 3 Sa 4/23)

In its judgement of 11 January 2024 (3 Sa 4/23), the LAG Baden-Württemberg had to decide on the question of whether the employer can unilaterally switch annual special payments to monthly partial payments in order to be able to offset these against the statutory minimum wage in accordance with the German Minimum Wage Act (Mindestlohngesetz, MiLoG). 

In the case on which the decision was based, the parties disputed whether the statutory minimum wage claim can be fulfilled by the monthly partial payment of annual special payments (in this case holiday pay and Christmas bonus). The plaintiff employee is seeking payment of basic remuneration in the amount of the statutory minimum wage from the defendant employer in addition to payment of holiday and Christmas bonuses.

The plaintiff has been employed by the defendant since 24 August 2000 with an average monthly working time of 171 hours, according to which her monthly fixed salary is also calculated. In addition, the plaintiff is entitled to a contractual holiday and Christmas bonus amounting to 50% of a monthly salary. The holiday and Christmas bonus was paid in the months of June and November until 2021. In December 2021, the defendant announced in writing that it would henceforth make the payments in monthly instalments and offset them against the statutory minimum wage. The plaintiff subsequently received the Christmas and holiday bonuses on a pro rata basis under the designation "13th salary ongoing". In a letter in April 2022, the defendant pointed out that additional bonuses would no longer be paid, but that the payments constituted remuneration for a contractual consideration in exchange and that the due date of the payments was brought forward in accordance with Section 271 (2) BGB.

The plaintiff is of the opinion that the defendant would thus circumvent the provisions of the MiLoG and should have obtained consent to the changed payment modalities, which the plaintiff refused in its letter dated 5 January 2022. The defendant argues that the fulfilment of the minimum wage only depends on whether it is actually fulfilled by payment. In accordance with the statutory provision in Section 271 (2) BGB, it was entitled to make payment before the payment was actually due.

The LAG Baden-Württemberg partially upheld the claim and ordered the defendant to pay the difference between the hourly wage paid up to the amount of the statutory minimum hourly wage in addition to the special payments. The plaintiff was entitled to remuneration in the amount of the statutory minimum wage for the respective hours worked and was also entitled to payment of the contractually agreed holiday and Christmas bonuses. It is inadmissible to unilaterally convert the special benefits in the form of Christmas or holiday pay into monthly payments and to offset these against the minimum wage. In principle, any benefit that is in synallagma with the service provided by the employee can be offset against the minimum wage. However, such payments, which are made without regard to the actual work performed by the plaintiff, or which have a special purpose, have no fulfilment effect. In accordance with Section 614 BGB, the parties would have agreed on a payment date by making the recurring special payments in June and November. The payment of the benefits in June and November would have an indicative effect, as these are payments that are typically intended to compensate for higher expenses - for holidays and Christmas. There would therefore be a time provision in accordance with Section 271 (1) BGB. The defendant could not invoke Section 271 (2) BGB, according to which the debtor may pay if a service is not yet due but can already be fulfilled. This provision only applies if nothing to the contrary is stipulated by law or agreement. The plaintiff's interest in a payment that is not premature is to be seen here in the fact that it cannot be offset against the minimum wage if the payment is not made in advance. A change to the payment would therefore only be permissible if the plaintiff had agreed to the change. Due to the refusal of consent, the ongoing payment of the special payments is inadmissible and offsetting against the statutory minimum wage is excluded in this specific case. The LAG Baden-Württemberg left open the question of whether the Christmas bonus and holiday pay constitute synallagmatic benefits.

Consequences for practice

The decision clearly demonstrates the necessary stratification of the - subsequent - offsetting of individual remuneration components granted against the minimum wage in accordance with the Minimum Wage Act: A special payment that is paid in monthly instalments can be offset against the statutory minimum wage if it is synallagmatic to the service provided by the employee. In addition, changes to agreed payment modalities, such as the conversion of special payments to be made annually into payments to be made in advance and pro rata monthly, require the employee's consent.

6. A minority shareholding in the parent company does not affect the social security status of an external managing director at the subsidiary (LSG Lower Saxony-Bremen decision of 27 September 2023, L 2 BA 59/22)

In its decision of 27 September 2023 (L 2 BA 59/22), the LSG Lower Saxony-Bremen had the opportunity to discuss the legal question of the extent to which a participation as a minority shareholder in the parent company has an impact on the social security status as a GmbH managing director at the subsidiary.

Following a tax audit by the German Federal Pension Insurance (DRV), the plaintiff subsidiary objected to its managing director being required to pay social security contributions by the defendant DRV Bund, which was of the opinion that the plaintiff employed the managing director as part of a dependent employment relationship and therefore subject to social security contributions. 

The defendant managing director had been working for the plaintiff since 1990 on the basis of an employment contract. The defendant worked as an external managing director without participating in the plaintiff's share capital until the end of 2015, most recently with an annual gross salary of approximately EUR 70,000.00. Until 2013, the sole shareholder of the plaintiff was the parent company, a GmbH & Co KG. The general partner was initially IK GmbH, whose managing director was the daughter of the defendant. The daughter was also the sole shareholder of IK GmbH. In accordance with the provisions of the parent company's articles of association, the general partner is authorized and obliged to manage and represent the company. The general partner has no voting rights in the shareholders' meeting. Until June 2012, the limited partners of the KG were the defendant with a limited partner's contribution of EUR 34,800 and his daughter and son with a limited partner's contribution of EUR 100 each. In addition, the defendant concluded a voting agreement under the law of obligations with his children in 2012 with regard to the respective shareholdings to be recorded. In October 2013, the parent company founded IO GmbH as the sole shareholder; the managing director of this GmbH was also the daughter of the defendant. According to the articles of association, company resolutions are passed with a simple majority.

The plaintiff is of the opinion that the managing director did not carry out any activities subject to social security contributions. Taking into account the voting agreement, it can be assumed that the managing director was acting without being bound by instructions, which was also secured under company law.

The LSG Lower Saxony-Bremen dismissed the action and affirmed an employment relationship subject to social security contributions between the plaintiff and the co-invitee. In continuation of the case law of the Federal Social Court, a managing director can only exercise his activity independently if he has a share in the company capital. If the shareholding is less than 50 % of the shares in the share capital, the managing director must have the legal power to determine "the fate of the company" by exerting influence on the shareholders' meeting. This is possible if the articles of association of the parent company grant the managing director holding a stake in the parent company the possibility of directly influencing resolutions of the shareholders' meeting of the subsidiary and thus at the same time preventing instructions that are not favourable to him (so-called blocking minority). However, this presupposes that the articles of association of the parent company provide for a deviating responsibility for measures of ordinary management, in particular in the form of the participation of the shareholders' meeting of the parent company in shareholder resolutions at the level of the subsidiary. Alternatively, there must be a requirement for the approval of the shareholders' meeting of the parent company for corresponding measures of ordinary management, in particular in the form of participation in shareholder resolutions at the level of the subsidiary.

These principles could be transferred to the present case with a parent company in the legal form of a limited partnership due to a similar situation of interests.

In the opinion of the LSG Niedersachsen-Bremen, the necessary legal authority required for the managing director to act as an independent managing director must be rejected. In the present case, the defendant had not been granted any possibilities under company law to issue instructions to his daughter as managing director of the subsidiary and IO GmbH. The articles of association of the parent company did not provide for a requirement of approval by the shareholders' meeting for measures of ordinary management, nor did the articles of association contain a provision on participation in shareholder resolutions at the level of the subsidiary. This was the responsibility of the subsidiary as managing director of the parent companies. Furthermore, since 2012, the defendant has only had a minor shareholding in the parent company of 5%. The freedom to issue instructions required for the independent activity of the managing director does not arise from the voting rights agreement either. In particular, this was not anchored in the articles of association. The predictability of status-related decisions required under social law presupposes a regulation under company law.

Consequences for practice

The judgement of the LSG Lower Saxony-Bremen is in line with the recent case law of the German Federal Social Court (Bundessozialgericht, BSG, most recently, for example, judgement of 23 February 2021, B 12 R 18/18 R), according to which an employment relationship of the managing director of a GmbH subject to social security contributions could only (still) be denied if the managing director has the legal power to prevent instructions that are not acceptable to him. This depends either on the shareholding or corresponding provisions in the articles of association. Voting commitments agreed with other shareholders must also be anchored in the articles of association; mere agreements under the law of obligations should not be sufficient for this.

7. No entitlement to transfer of annual leave in the event of ordered quarantine for periods up to 16 September 2022 (ECJ judgement of 14 December 2023, C-206/22)

On 14 December 2023, the European Court of Justice (ECJ) ruled in its judgement (C-206/22) that a coincidence of an officially ordered quarantine due to contact with a person infected with the SARS-CoV-2 virus with annual leave already granted during this period nevertheless fulfils the leave entitlement and there is no entitlement to transfer the annual leave. However, with the entry into force of Section 59 (21) of the German Infection Protection Act (Infektionsschutzgesetz, IfSG), days of officially ordered isolation - i.e. those in official quarantine - have not been counted towards annual leave since 17 December 2022.

In the case underlying the decision, the employer granted the plaintiff employee his annual leave for the period from 3 November 2020 to 11 December 2020. On 2 December 2020, the employee was ordered to quarantine by the competent administrative authority in accordance with Section 28 IfSG, as he had been in contact with a person infected with the COVID 19 virus. The employee then applied to the employer to transfer the days of leave that coincided with the ordered quarantine. The employer rejected the request. 

In the legal dispute subsequently initiated by the employee, the Ludwigshafen Labour Court referred the legal question to the ECJ as to whether an employee who has been granted paid annual leave and who is placed under official quarantine during this period due to a COVID-19 illness is entitled to transfer his leave days for the quarantine period. 

In its ruling, the ECJ recognized that the quarantine ordered by the authorities did not give rise to any entitlement to additional leave or a transfer of the leave already granted to relevant subsequent periods, as the purpose of annual leave is to recover from professional activity and to have a period of relaxation and leisure. This distinguishes the purpose of annual leave from the purpose of sick leave, which is not conducive to recovery due to physical or psychological complaints. A period of quarantine is not contrary to the purpose of annual leave, unlike illness. 

A national regulation or practice that prohibits the transfer of paid annual leave during quarantine is therefore not contrary to EU law. This also applies if the right to paid annual leave is a fundamental social right of the European Union (EU), which is expressly enshrined in Art. 31 para. 2 CFR and the Member States may not interpret the granting of annual leave restrictively. By way of further explanation, the judges of the ECJ stated in the grounds of the judgement that during annual leave, employees should not be subject to any obligation that could prevent them from enjoying their time off. However, an officially ordered quarantine does not lead to a restriction in this regard. The quarantine ordered by the authorities only serves the purpose of preventing the spread of an illness. The employee is released from obligations to the employer during annual leave and should be able to freely dispose of their free time. However, it is within the employee's sphere of risk if certain events disrupt the holiday taken.

Consequences for practice

The ECJ thus confirmed the case law of most labour and regional labour courts, which did not grant employees any entitlement to the crediting of leave days in cases of quarantine (e.g. LAG Schleswig-Holstein judgement of 15 February 2022). 

The decision is only of practical significance for cases in which the holiday and quarantine period was before 16 September 2022, as Section 59 (1) IfSG, which was created in the course of the SARS-CoV-2 pandemic and came into force on 17 September 2022, prohibits the days of isolation from being counted towards annual leave and employees - contrary to the case law of the ECJ - are entitled to postpone their annual leave for periods from 17 September 2022. However, the ECJ's ruling on the special case of quarantine also stated that the employer does not owe a subjective holiday entitlement, as the objective purpose of the EU law entitlement to paid annual leave is also achieved if the granted period of relaxation and free time is overlaid by private obligations or inconveniences, This legal principle can also be generalized to other situations in which the employee is provided with externally determined instructions or other binding instructions during their holiday period.

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10 April 2024 | Deloitte Legal Webcast #6/2024