Monthly Dose Employment Law: 07/2024

1. Works council's right to training under works constitution law - refusal to bear the costs of classroom training if there is an alternative equivalent training course in the form of a webinar? (BAG decision of 7 February 2023, 7 ABR 8/23)

In its decision of 7 February 2024 (7 ABR 8/23), the Federal Labour Court (Bun-desarbeitsgericht, BAG) was called upon to determine whether an employer can reject covering the costs of an in-person training course for the works council, providing that a comparable training course, costing less, could be conducted as a webinar.

The staff representative body (PV Kabine) of the employer involved in the resolution proceedings intended to send the members newly elected in the 2021 works council election to the seminar "Works Constitution Law Part 1" in Binz on the island of Rügen. The employer didn't dispute the necessity of the training as such, but suggested that the PV Kabine attend a similar seminar near their headquarters in Düsseldorf or a webinar for cost-saving purposes, thus providing three specific alternatives. The PV Kabine chose to decline these options, preferring an in-person training in Potsdam; the costs accrued to EUR 1,818.32 for the seminar relevant fees, with an additional EUR 1,319.26 for accommodation and meals costs. According to PV Kabine, this seminar was approximately EUR 500.00 cheaper than the seminar in Binz. The employer refused to bear these costs, pointing to the less expensive alternatives suggested by them.

PV Kabine contended that they have no obligation to resort to a webinar or other settle for training locations suggested by the defendant. They argue that a webinar is not equivalent to classroom training due to a shorter net training period and lower learning success rate. Dialogue between the participants and speakers is also significantly less in a webinar as compared to a face-to-face event.

Calling attention to its financial struggles stemming from the pandemic, the employer asserted that the PV Kabine should have considered this and opted to send its new members to a closer location, negating the need for overnight accommodation.

The BAG sided with the PV Kabine and ordered the employer to reimburse the training participation and travel costs.

As stated in Section 40 (1) of the Works Constitution Act (Betriebsverfas-sungsgesetz, BetrVG), the employer is required to bear the costs arising from the activities of the works council, inclusive of the costs related to the works council member's participation in a training event (Section 37 (6) BetrVG), as long as the training imparts necessary knowledge for the works council's work. The employer is also responsible for bearing the related travel, accommodation and catering costs.

As the employer's obligation to bear the costs in accordance with Section 40 (1) BetrVG is subject to the requirement of trustful cooperation standardised in Section 2 (1) BetrVG, the works council may not base its decision to participate in training solely on its subjective needs. Rather, it is required to take into account the operational circumstances and the tasks facing it.

At the same time, the works council is obliged to only charge the employer with costs that it deems reasonable. It is to act diligently in keeping the expenses incurred by its activities to what is crucial. As part of the necessity assessment, the works council should factor in the operational scenario and the financial load the employer experiences in relation to the training event, ensuring that the intent of the training corresponds proportionally to the resources utilized for it. If there are several equivalent training courses being run at the same time, the employer's duty to cover the costs could potentially be restricted. Nevertheless, the works council is under no obligation to pinpoint the most favourable provider via an extensive market analysis and choose it, neglecting all other factors. Therefore, it doesn’t have to opt for the most cost-efficient training event if it deems another training course as superior. Besides the content of the training event, the works council's power of decision also pertains to the format and methods, and the way knowledge and skills are conveyed, and hence, this power also embraces the evaluation of the equivalence of different training propositions. If a provider offers identical training content in diverse training concepts and/or formats, it is generally the prerogative of the employee representatives to decide which training form they anticipate would yield the most success in each unique case.

The BAG held that the accommodation and catering costs in question were proportionate to the training costs and did not significantly exceed them. Therefore, PV Kabine was justified in deeming the assignment to Potsdam for its members' training reasonable.

Consequences for practice

The decision once again emphasises works council’s discretion in selecting ap-propriate training courses for its members while also reminding the employer to carefully examine specific training requests. Employers are encouraged to actively propose their own training suggestions and to urge the works council to conduct a comprehensive qualitative assessment of the relevant training format.

2. Increase in regular working hours and pro rata increase in a monthly above-tariff allowance granted (BAG judgement of 13 December 2023, 5 AZR 168/23)

In its judgement of 13 December 2023 (5 AZR 168/23), the BAG dealt with the question of whether the employer must also – proportionally – increase a monthly above-standard tariff allowance provided to a part-time employee if the regular working hours are extended. 

In the case underlying the decision, the employee was initially employed on a part-time basis for 50% of her regular working hours. The conditions of employment were subject to the federal collective agreement for church employees (BAT-KF). As part of the fixed monthly salary, the employer awarded the employee an above-tariff allowance of EUR 250 in addition to the collectively agreed remuneration under the BAT-KF; this was in order to fulfil the employee's demand for the fixed monthly remuneration made during the recruitment process; without this above-tariff allowance, the employee would not have taken up employment with the employer. In the salary statement, the bonus was recognised as a performance bonus.

The regular working hours were increased to full-time from 1 May 2022, based on a labour court ruling that followed a complaint from the employee under Section 9 Part-Time and Fixed-Term Employment Act (Teilzeit- und Befristung-sgesetz, TzBfG), after the employer had initially rejected an out-of-court claim by the plaintiff. No written agreement was reached on the further consequences of the increase in working hours (including the treatment of the bonus); the employer had offered the employee an agreement that didn't provide for an increase in the performance bonus, which the employee declined.

Following the increase in working hours, the employee also requested that the bonus be raised to EUR 500. The employer denied the increase, arguing that it was not a remuneration component connected to the employee's working hours, but a lump sum granted to incentivise the establishment of the employment relationship for recruitment purposes.

The BAG judged in favour of the claim. The plaintiff had earned a right to a pro-portionate increase in the bonus through the increase in her working hours.
The claim did not arise from Section 9 TzBfG. Section 9 TzBfG solely determines the employee's entitlement to an increase in working hours and does not contain any provisions on the fate of the consideration and, in particular, the employee's remuneration claims. The legislator had left this to the contracting parties.

Rather, the claim arises from a supplementary interpretation of the agreement on the performance bonus. The parties had agreed to grant the employee the performance bonus as fixed remuneration in addition to the collectively agreed remuneration in accordance with the BAT-KF. The amount of this bonus is based on the amount of time worked. With the increase in work performance to full-time work, the synallagma of employee’s main duty from the employment contract (= work performance) and employer’s main duty (= granting of (fixed) remuneration for work performance), which is tailored to part-time work, is out of balance. In principle, it is upon the contractual parties to establish a new corresponding contract. The employee had rejected the new contract offered by the employer because it did not provide for an increase in the bonus. Supplementary interpretation of the contract can establish the legal principle that honest contracting parties, when forming a contract, would have considered remuneration in line with working hours, following the typical view prevailing in work life. This means that remuneration will be adjusted pro rata temporis accordingly, even if the working hours are increased to full-time employment.

Consequences for practice

The BAG’s judgement highlights the need for employers to customise their ap-proach when fulfilling employees' claims for an increase in working hours in line with Section 9 TzBfG. In general, these should be regularly implemented via a supplementary agreement to the employment contract, which includes provisions on all relevant substantive working conditions that (may) change as a result of the alteration in working hours. If the employee — as in the present legal dispute —rejects the specific supplementary agreement offered, effective exclusion periods in the employment contract can still limit the commercial risk of increased bonuses in the future.

3. Extended requirements for the burden of presentation and proof of the employer's admission of the malicious omitted alternative earnings in cases of the employee’s claims to wages due to acceptance default. (LAG Rheinland-Pfalz judgement of 31 January 2024, 8 Sa 71/23)

In its judgement of 31 January 2024 (8 Sa 71/23), the Higher Labour Court (Landesarbeitsgericht, LAG) Rheinland-Pfalz had the opportunity to legally assess the extent of the employer's burden of presentation and proof concerning the employer's objection of maliciously omitted other earnings within the meaning of Section 11 No. 2 of the Dismissal Protection Act (Kündigungsschutzgesetz, KSchG) by the employee with regard to asserted claims for default of acceptance wages following termination of the employment relationship by the employer during an ongoing legal dispute.

In the case on which the decision was based, the litigants were disputing, among other factors, the legal validity of an extraordinary termination notice issued by the employer as well as wages due to acceptance default. The plaintiff was employed by the defendant as a commercial director. Immediately after the defendant gave notice of extraordinary dismissal, the plaintiff registered as unemployed with the Federal Employment Agency. In the dismissal dispute, the plaintiff claimed - after the defendant had asserted corresponding claims for information - that he had received three job offers from the Federal Employment Agency and had applied for them unsuccessfully. In addition, the plaintiff submitted several application letters and rejections in the legal dispute. The defendant disputed the application efforts submitted.

In the first instance, the labour court - while upholding the action against dis-missal - dismissed the claim for default of acceptance wages on the basis that the plaintiff had not adequately fulfilled his obligation to provide information about job offers. The LAG upheld the claim for default of acceptance - confirming that the dismissal was invalid.

According to the LAG, there was no malicious omission on the part of the plaintiff to earn money elsewhere during the period of default of acceptance. According to Section 11 no. 2 KSchG, if the employment relationship continues due to an invalid dismissal, the employee needs to have deducted from his remuneration the earnings he could have potentially accrued had he not maliciously neglected to accept reasonable work. The efforts to earn a living presented by the plaintiff were sufficient. The plaintiff had registered as unemployed within three days in accordance with Section 38 (1) SGB III and had made efforts to apply for a job. The defendant's blanket denial of the application efforts submitted by the plaintiff was insufficient. The crediting of hypothetical earnings is a defence, the requirements for which must be set out and proven by the employer. The employer must therefore demonstrate and, in the event of a dispute, prove that proposals from the employment agency and job offers from third parties were aimed at reasonable work, represented realisable employment opportunities and that the employee maliciously failed to make efforts. References by the defendant to fictitious application opportunities and to a favourable labour market were not sufficient in this respect.

Consequences for practice

The decision of the LAG Rheinland-Pfalz underscores that employers should pay greater attention to the application efforts of the dismissed employee after giving notice of dismissal in order to minimise the risk of default of acceptance in the event of potential defeat in dismissal protection proceedings. In this context, it is important to note that employers have a right to receive information from employees about job proposals submitted by the employment agency and job center as soon as the employee claims remuneration due to acceptance default. Post information, a mere denial by the employer is not sufficient. Instead, the employer must provide concrete evidence of doubts about the accuracy or completeness of the information and, in the event of a denial by the employee, prove it. In individual cases, it may be beneficial for employers to support employees in their application efforts by proactively procuring specific job offers relevant to their activity.

4. Employee's claim for damages in the event of "untimely" target setting for a performance-related bonus (LAG Cologne judgement of 6 February 2024, 4 Sa 390/23)

In its judgement of 6 February 2024 (4 Sa 390/23) the LAG Cologne dealt with the question of specific targets for a performance-based bonus, supposed to be set by the employer by 1 March of the respective reference year, still could be set in a timely manner during the fourth quarter of the relevant reference year, or whether, due to the delay in setting them, they cannot be considered in the assessment of target achievement and thus trigger a claim for damages against the employer for the employee.

The subject of the dispute was the performance-based bonus of the plaintiff employee for the reference year 2019. The bonus was primarily based on a works agreement (BV Bonus), which stipulated that the bonus would encompass the achievement of company and individual targets, and the employer had to set the targets for the bonus on 1 March of each calendar and financial year in advance. However, in the 2019 financial year, no targets were communicated to the employees eligible for the bonus by the 1 of March. Late in September 2019, the Managing Director of the defendant sent a circular email to the employees who were beneficiaries of the BV Bonus (including the plaintiff). The email communicated company targets for the 2019 financial year. It also mentioned that given the passage of time, no additional targets would be set for individuals for the 2019 financial year. Instead, the target achievement value for all employees was set to be 142% (as the average of all individual targets of the beneficiaries over the past three years). On 15 October 2019, during a "Heads Meeting", concrete figures were defined for the first time concerning the company targets and their weight in the overall target achievement level (70%). The employment relationship between the parties ended on 30 November 2019 due to the plaintiff's own resignation. The defendant granted him a performance-based bonus of EUR 15,586.55 gross for the 2019 financial year, setting a target achievement value of 26% for the company targets and 61% for the overall target achievement level. The plaintiff sought a further bonus amount of EUR 16,035.94, claiming that due to late (only September 2019) setting of company targets, the target achievement should be considered 100%, thus an overall target achievement level of 112.6% had been achieved.

The LAG upheld the claim and compelled the defendant to pay the further bonus amount claimed by the plaintiff. By not setting the targets until 26 September 2019, it had violated its obligation under the BV Bonus to set the targets by 1 March 2019 at the latest. Targets that are not agreed until after the specified date could no longer fulfil their purpose as a bonus-related incentive and motivation. In this respect, the LAG transfers the obligation to pay damages already recognised by the BAG in its established case law (e.g. judgement of 12.12.2007, 10 AZR 97/07) for the failure to conclude a target agreement (see also our Monthly Dose 02/2024: https://www2.deloitte.com/dl/de/pages/legal/articles/monthly-dose-arbeitsrecht-02-2024.html) to the case of targets to be unilaterally set by the employer for the bonus. The setting of targets becomes impossible at the end of a significant period of the financial year in accordance with Section 275 (1) BGB. This applies at least if ¾ of the relevant period has already passed. The amount of damages is to be measured at 100% of the target, as it must be assumed that the plaintiff would have achieved the targets. The defendant had not presented nor proven any circumstances that would warrant a different assessment.

Consequences for practice

The appeal allowed by the LAG Cologne (the appeal had to be allowed because the BAG had previously left open the transfer of its case law on employee claims for damages in the case of performance-based bonuses for failure to agree targets) is pending before the BAG (10 AZR 57/24). Yet, this decision once again demonstrates that employers should strictly adhere to the deadlines set out in the legal basis of the variable remuneration in the case of performance-based variable remuneration with time-bound target setting.

5. (No) co-determination of the works council in the use of ChatGPT and other artificial intelligence systems (ArbG Hamburg decision of 16 January 2024, 24 BVGa 1/24)

In its decision of 16 January 2024 (24 BVGa 1/24), the Labour Court (Ar-beitsgericht, ArbG) Hamburg had the opportunity to examine whether the works council possess a right to co-determination in the use of generative IT systems of artificial intelligence (AI) such as ChatGPT, inter alia under Section 87 (1) No. 1 or No. 6 BetrVG.

In the case underlying the decision, the employer wanted to make ChatGPT available to its employees as a new tool to support them in their respective function-related work performance. The employer specified the content of the specific use in a manual published on the intranet and a corresponding guideline. The use of ChatGPT is web-based on the server of the ChatGPT provider via private accounts of the employees, which they have to create themselves and pay the usage fees charged by the ChatGPT provider themselves. The employer has no access to the employees' usage data on the ChatGPT server. The employer has a group works agreement on the use of the Internet (KBV Browser), which does not contain any regulations on the use of AI systems.

The applicant group works council (KBR) requested that the employer block ChatGPT until a group works agreement on its use at the employer had been concluded. It argued that the use of ChatGPT by the employer's employees was subject to the co-determination rights under Section 87 (1) no. 1 BetrVG (= requirements for use in the guideline/manual relate to orderly behaviour), Section 87 (1) no. 6 BetrVG (= collection of personal information regarding the use of ChatGPT by employees, and Section 87 (1) no. 7 BetrVG (= introduction of ChatGPT could be associated with psychological stress for employees). Following the employer's refusal to comply with the request, the KBR initiated the interim injunction proceedings by submitting, in addition to the aforementioned request (1), among other things, the request (2) to order the employer to prohibit employees from using applications with generative artificial intelligence in connection with the performance of their work, as long as the works council has not given its consent or, in the event of refusal, the lack of consent has been replaced by a decision of the conciliation committee replacing the consent, and (3) to declare that the works council has co-determination rights under Section 87 BetrVG with regard to the introduction of AI.

The ArbG Hamburg rejected the KBR's applications.

It recognised motions (2) and (3) as inadmissible. Motion (2) was too vague, as it could not be deduced from the motion what the KBR understood by applica-tions with generative artificial intelligence and the KBR should have specified the specific software programmes (e.g. ChatGPT) in this respect. The inadmissibility of application (3) already results from the fact that such an application for a declaratory judgement cannot be the subject of preliminary injunction proceedings due to a lack of interest in a declaratory judgement.

The application (1) is unfounded as the co-determination rights asserted by the KBR under Section 87 (1) nos. 1, 6 and 7 BetrVG are not relevant. The issuance and publication of the guideline and the manual on the specific use of ChatGPT in the context of the performance of work does not concern the co-determined regulatory behaviour, but only the co-determination-free work behaviour. With ChatGPT, the employer is providing a new work tool. The guidelines are therefore orders that concern the manner in which work is performed and not collective cooperation and the guarantee and maintenance of the specified order. The right of co-determination under Section 87 (1) no. 6 BetrVG is also not violated, as this only applies to the use of technical equipment intended to monitor the behaviour or performance of employees. However, since ChatGPT are not installed on the employer's computer systems, but could only be accessed via a browser in a private account, this was to be denied due to a lack of monitoring pressure from the employer. The parties had already concluded a KBV for the use of browsers and thus exercised the right of co-determination. A right of co-determination under Section 87 (1) no. 7 BetrVG in conjunction with Section 3a (1) sentence 1 ArbStättV was not applicable. Section 3a (1) sentence 1 ArbStättV was also to be denied, as this would have required the existence of a specific risk to employees or a risk assessment. The KBR had not presented any evidence in this regard.

Consequences for practice

The decision of the ArbG Hamburg is, as far as can be seen, one of the first published decisions on the co-determination rights of works councils/staff councils regarding the use of AI enabled/determined by the employer in the performance of work by employees. In terms of content, the ArbG Hamburg correctly differentiates between the co-determination facts relating to the order and conduct of the employee in the company (Section 87 (1) no. 1 BetrVG) and the use of technical equipment with monitoring capability (Section 87 (1) No. 6 BetrVG) and denies the co-determination rights asserted by the works council in the present case. Despite denying the co-determination rights asserted by the council in this case, employers should still carefully ascertain the specific organization of AI use and the directives they furnish to employees in this regard. They should also examine whether the intended specific usage is subject to co-determination under Section 87 (1) no. 1/6 BetrVG on a case-by-case basis.

With regard to the obligation to bear the costs for the use of ChatGPT, employers must note that the BAG has repeatedly clarified the legal principle in its recent case law (most recently in its Judgement of 10 November 2021, 5 AZR 334/21) that the employer is obliged to provide employees with suitable work equipment essential for the performance of the agreed work at its own expense - in this respect, this obligation to bear the costs for the use of AI should in any case come into play (at the latest) when the relevant AI tool is integrated into the operational work processes.

6. Entitlement to compensation for leave not taken in the event of early retirement (ECJ judgement of 18 January 2024, C-218/22)

In its judgement of 18 January 2024 (C-218/22), the European Court of Justice (Europäischer Gerichtshof, ECJ) had the opportunity to preside on the legal issue of compensation for unused leave in the event of early retirement. The ECJ recognised that Art. 7 of Directive 2003/88/EC and Art. 31 para. 2 of the Charter of Fundamental Rights of the European Union (CFR) preclude a national regulation that prohibits financial compensation for annual leave not taken if the employee terminates the employment relationship at their own request and cannot prove that they did not take the leave for reasons for which they are not responsible.

The case underlying the judgement concerned a former public sector employee in Italy who took early retirement at his own request after 24 years of service. The employee demanded financial compensation for the holiday not taken during his period of service from 2013 to 2016 (79 days of holiday in total). The employer declined financial compensation for the holiday days as the employee had terminated the employment relationship by resigning.

In its ruling, the ECJ stressed the right to paid annual leave and its compensa-tion upon termination of the employment relationship constitutes an inalienable fundamental right of employees. The ECJ emphasised that the reason for the termination of the employment relationship is irrelevant and that the employee is entitled to financial compensation even if the employment relationship is terminated voluntarily. This applies as long as the employee was unable to take their holiday during their employment for justified reasons.

National provisions that prohibit such compensation are incompatible with EU law. The obligation of the employer to ensure that the employee can actually take their holiday entitlement was considered essential by the ECJ. If the employee voluntarily waives their holiday entitlement despite being able to take it, they could lose their entitlement to remuneration. In addition, the employer must inform the employee transparently and specifically about their holiday entitlement and give them the opportunity to actually take it.

Consequences for practice

The ECJ's judgement aligns with its recent case law on the restrictive require-ments for the forfeiture of statutory minimum holiday entitlements and also clarified their application to the question of compensation for the statutory minimum holiday entitlement in the event of the employee's own termination: In general, the statutory minimum holiday entitlement for the individual calendar year can only be forfeited if the employer informs the employee about the existing holiday entitlements in the respective reference period in such a way that the employee can make an autonomous decision on whether to take the holiday. Employers must implement a corresponding control process to ensure that individual employees are regularly informed and the information must be provided in a "verifiable" form (i.e. in any case in text form with suitable proof of receipt of the information by the employee; for example, by means of corresponding e-mail correspondence, the receipt of which the employee must confirm, e.g. by using the "Acknowledged" voting tool).