"Monthly Dose" Employment Law: December 2023

1. (Subsequent) deletion of the thank-you formula in the reference letter as a prohibited reprimand (BAG judgement of 6 June 2023, 9 AZR 272/22)

In its judgement of 6 June 2023, the German Federal Labour Court (Bundesarbeitsgericht, BAG) ruled that it is a violation of the prohibition of reprimands if an employer amends a reference to the detriment of an employee after the employee has justifiably asserted a claim for correction.

The plaintiff employee was lastly employed by the defendant as "Manager of Administration and Central Services" from August 2017 to February 2021. In March 2021, the defendant employer issued the plaintiff with a reference letter. The last paragraph of the reference reads

"Mrs D is leaving our company at her own request. We thank her for her valuable contribution and regret to lose her as an employee. We wish her all the best and continued success in her future career and life."

After the reference had been issued, the plaintiff repeatedly, but justifiably, asked the defendant to make changes to the content of the reference regarding her work and social behaviour and the quality of her work performance.

After the reference had been amended, the last paragraph of the final reference - omitting the “thank-you, regrets and wishes” formulae included in the first two versions of the reference - read as follows:

"Mrs D is leaving our company at her own request."

The plaintiff is of the opinion that the defendant's deletion of the "thank you", "regrets" and "best wishes" formulas violates the prohibition of reprimands in Section 612a of the German Civil Code (Bürgerliches Gesetzbuch, BGB). The defendant is of the legal opinion that the prohibition of reprimands set out in Section 612a BGB only binds an employer in the current employment relationship and does not apply after its termination. In addition, the principle of the truthfulness of the testimonial precludes the inclusion of such concluding sentences if the employer's subjective perception has changed in retrospect.

The BAG ruled in favour of the claim. Even if employees are not legally entitled to a “thank-you”, “regret” and/or “wish” formula, the removal of an originally existing closing formula, which can increase an employee's chances within the application process, constitutes a devaluation of the reference and thus a disadvantage covered by the prohibition of reprimands pursuant to Section 612a BGB. Pursuant to Section 612a BGB, an employer may not disadvantage an employee in a measure because the employee is exercising their rights in a permissible manner. The prohibition of reprimands is intended to protect an employee's freedom of will. Employees should be able to decide whether to exercise their rights or not without fear of being penalised by their employer. 

Even if the employer's constitutionally protected freedom of opinion is to be taken into account when interpreting Section 612a BGB, this does not give the employer the right to use the employee's justified remonstration as an opportunity to change the reference to the employee's disadvantage.

According to the principles of good faith, the employer is bound by the content of a reference given. He can only deviate from the declarations of knowledge regarding the employee's behaviour and performance if he subsequently becomes aware of circumstances that justify a different assessment.

Consequences for practice

In its reasons for its decision, the BAG clarifies that the employee's interest in asserting his rights against the employer in a permissible manner without fear of reprimand from the employer is generally to be valued higher than the employer's interest in subsequently changing the content of the reference, which he had previously drafted himself, in response to the employee's lawful conduct. In addition, the BAG emphasised that the applicability of the prohibition of reprimands - as well as the requirement of consideration under Section 241 (2) BGB - is not limited to the duration of the employment relationship, but must also be observed after its termination. In this respect, the prohibition of disciplinary measures can also have post-contractual effects.

2. Ineffectiveness of the limitation of variable remuneration to the duration of the appointment as managing director in the general terms and conditions of a managing director's employment contract and compensation for damages if the target is set too late (OLG Munich judgement of 3 May 2023, 7 U 2865/21)

In its judgement of 3 May 2023 (7 U 2865/21), the Higher Regional Court of Munich had the opportunity to decide, among other things, on the effectiveness of the agreement of variable remuneration in a managing director's employment contract for the duration of the appointment to the board and on a managing director's claim for damages if the performance parameters relevant for the specific variable remuneration are set too late. 

In the case underlying the decision, the plaintiff was appointed managing director of the two defendant companies, whose sole shareholder was U Holding GmbH. The managing director service agreement between the plaintiff and the first defendant stipulated that, in addition to a fixed annual salary of EUR 190,000 gross, the plaintiff could also receive a variable payment for the duration of her appointment as managing director, the amount of which depended on the achievement of the defined targets and was subject to a target bonus if 100% of the relevant targets were achieved. The first defendant had to set the targets for the respective financial year for the plaintiff in accordance with the contractual bonus regulation before the start of the respective financial year in consultation with the plaintiff. On 19 July 2019, the first defendant sent the plaintiff its targets for the variable remuneration for the 2019 financial year.

In a letter dated 6 August 2019, U Holding GmbH terminated the managing director's employment contract with effect from 29 February 2020 and sent the plaintiff a further letter dated 14 August 2019, which contained the dismissal of the plaintiff as managing director of the defendant companies and her immediate release from her duty to provide services. The plaintiff rejected both letters for lack of sufficient authorisation and brought an action against the first defendant for payment of the variable remuneration for the 2019 financial year, among other things, in the form of a claim for damages in the amount of the target bonus, as the first defendant had not set the targets before the start of the 2019 financial year. The defendant countered the claim for damages by arguing that it could (still) effectively set the plaintiff's targets for the 2019 financial year in the letter dated 19 July 2019 and that, moreover, a claim to the variable remuneration for the 2019 financial year would at best exist pro rata until the time of her dismissal as managing director.

The Munich Higher Regional Court upheld the claim for variable remuneration for the 2019 financial year in the form of a claim for damages. The claim was based on the entire 2019 financial year, as the restriction of the payment of variable remuneration only to the duration of the appointment to the executive body was invalid pursuant to Section 307 (1) and (2) BGB. This restriction violates the basic principle of GmbH law embodied in Section 38 (1) of the German Limited Company Act (GmbHG), according to which a managing director can be dismissed at any time, but the dismissal as such has no influence on his remuneration claim. This is also not contradicted by the dismissal of the plaintiff as managing director, which was linked to the release in this case, as the clause in question makes it possible to dismiss the managing director as a board member but not to release him from his contractual duties, i.e. to allow him to continue working without the promised variable remuneration. This would constitute an unreasonable disadvantage for the managing director in accordance with Section 307 (1) and (2) BGB, which cannot be ruled out by the actual release of the plaintiff against the background of the prohibition of a reduction in scope in accordance with Section 306 (1) and (2) BGB. In addition, the variable remuneration is to be granted as damages in the amount of the target bonus in accordance with Sections 280, 283 BGB, as the defendant did not set the plaintiff any contractual targets until the beginning of the 2019 financial year and the target set on 19 July 2019 was too late in this respect.

Consequences for practice

The decision clearly demonstrates the differentiation and sensitisation between the position of a managing director under company law and the managing director's service contract under employment law that is regularly required when implementing managing director service contracts. Against this background, companies should refrain from granting variable remuneration only for the period of the appointment to the executive body and bring about the synchronisation of the variable remuneration with the executive body activity intended by such a regulation either through a linking clause already in the executive employment contract or through a mutually agreed termination of the executive employment contract in the immediate temporal environment of the dismissal. The Munich Higher Regional Court's application of the BAG's legal principles on the claim for damages of the employee entitled to a bonus in the event of a failure to conclude a target agreement for variable remuneration (see only BAG judgement of 12 December 2007, 10 AZR 97/07) to performance-based variable remuneration of a managing director is also legally comprehensible. Companies must observe the conclusion or determination of the relevant targets as part of the annual planning of the performance of the managing director's employment relationship.

3. No entitlement to turnover-based special remuneration on the basis of the principle of equal treatment under labour law in the case of stand-in activities (LAG Cologne judgement of 4 July 2023, 4 Sa 638/22)

In its decision of 4 July 2023 (4 Sa 638/22), the Regional Labour Court  (LAG) Cologne had the opportunity to decide on the entitlement of an employee employed as a stand-in in a fitness studio chain to a turnover-based special remuneration based on the principle of equal treatment under labour law.

The defendant belonged to the K-Group, which offers health-orientated strength training in more than 150 training studios throughout Europe. In Germany, it operates 19 main studios and employed 101 employees as so-called instructors at the time of the decision. With 96 of the 101 instructors, the defendant had concluded separate agreements on the payment of a monthly special remuneration, which was dependent on the turnover of the training studio in which the respective employee was employed. No such agreement was made with the plaintiff, who was employed in the function of "instructor/jumper". He received a basic salary that was significantly higher than comparable salaries at the defendant. In addition, it was agreed in the employment contract: "The place of work is the employer's studio in F N. The place of work can be anywhere in Germany in the employer's main studios". The plaintiff was deployed in various regular studios of the defendant throughout Germany for periods ranging from a few days to several weeks. He was also deployed at Studio F N during the period in question, but worked more than half of his assignments at other locations during the period in question. With his claim, the plaintiff sought a share in the special remuneration system set up by the defendant and based this on the principle of equal treatment under labour law. As he was unsuccessful at first instance before the Labour Court Cologne, he then pursued his claim on appeal before the LAG Cologne.

The LAG Cologne denied the claim asserted and dismissed the plaintiff's appeal. In particular, the asserted claim could not be derived from the principle of equal treatment under labour law. Although the LAG Cologne recognised unequal treatment in the present case, it considered this to be objectively justified. There is no violation of the principle of equal treatment under labour law if there is an objective reason for the unequal treatment. The objective justification is primarily determined by the purpose of the regulation. In the specific case, the purpose of the turnover-related special remuneration was to reward work performed. At the same time, it was intended as an incentive for future work, in particular to increase customer loyalty to a specific studio. In the opinion of the LAG Cologne, this purpose could not be achieved by the plaintiff's work as a "jumper". With regard to customer loyalty, the defendant did not potentially benefit to the same extent from a stand-in who spends more than half of his working time at changing work locations as from a permanent employee who works permanently at a specific studio. The plaintiff's changing work location does not fulfil the incentive function of striving for long-term customer loyalty to a particular studio. In addition, the plaintiff had received financial compensation in the form of a lump-sum special remuneration instead of a share in turnover, as he had received a significantly higher basic remuneration compared to other employees working for the defendant. As a result, the unequal treatment with regard to the turnover-based special remuneration was justified.

Consequences for practice

From the employer's point of view, the judgement of the LAG Cologne clearly shows that special payments relating to a specific group of people can be granted in a differentiated manner compared to other people who are comparable in terms of their specific work activities and that a differentiation complies with the principle of equal treatment under labour law if the employer can explain the relevant differentiation criteria transparently and as objective justification for the unequal treatment. Careful preliminary considerations, in particular with regard to the specific purpose of the relevant special payment and the group of persons associated with it, allow the employer to find customised solutions in practice.

4. Special protection against dismissal pursuant to Section 15 KSchG for a works council member in the event of department closures in a matrix organisation (LAG Niedersachsen judgement of 24 July 2023, 15 Sa 906/22)

Members of the works council and other employee representatives are subject to special protection against dismissal in accordance with Section 15 of the German Dismissal Protection Act (Kündigungsschutzgesetz, KSchG), which generally excludes ordinary dismissals for the representative members named in the provision. An exception exists only in the event of a plant closure or the closure of a plant department within the meaning of Section 15 (5) KSchG.

Against this legal background, the Lower Saxony Higher Labour Court ruled in its judgment of 24 July 2023 (15 Sa 906/22) that a matrix structure, which represents a work organisation designed independently of the contractual employer, is not a department within the meaning of Section 15 (5) KSchG. The court therefore declared the ordinary dismissal of the works council member for operational reasons, which the employer attempted to justify by referring to a departmental closure, to be invalid.

In the case at issue, the defendant, a global pharmaceutical company, employed the plaintiff as the only employee in the "IT ERP - Finance and Controlling" department. The plaintiff's tasks included the development and implementation of SAP financial solutions and the analysis of business processes. Due to the defendant's matrix structure, she reported to a director based in India. The plaintiff also held the office of chairwoman of the works council and representative of the company's severely disabled employees.

In May 2022, the defendant decided to downsize the site in Lower Saxony and to outsource the plaintiff's tasks abroad entirely. As a result, the defendant dismissed the plaintiff for operational reasons and justified the dismissal with the closure of the entire operating department.

The Labour Court Hannover already upheld the action for protection against dismissal and found that the former "IT ERP - Finance and Controlling" department did not constitute an operating department within the meaning of Section 15 (5) KSchG and that the dismissal was invalid for this reason. 

The Lower Saxony Higher Labour Court also agreed with this reasoning and dismissed the defendant's appeal. In the opinion of the court, the requirements of the exemption provision were also met due to the non-existence of an operating department within the meaning of Section 15 (5) KSchG.

An operating department is a spatially and organisationally separate part of the company which requires a personnel unit, which has its own technical resources and which pursues its own operational purpose, even if this consists of a mere auxiliary purpose for the work-related purpose of the company as a whole. However, such a department could not be recognised in the area of "IT ERP - Finance & Controlling". 

The plaintiff was the only employee in this area and thus neither formed a spatially delimited part of the business nor required a personnel unit. The office equipment provided to the plaintiff, such as a study, desk and laptop, also did not indicate that she had her own technical equipment. In the opinion of the court, such office equipment is considered a matter of course and does not justify the existence of an operating department as the usual equipment for office employees. 

Furthermore, the integration of the plaintiff into a matrix structure cited by the defendant did not indicate the existence of an organisationally delimitable operating department. Due to her assignment to the "IT ERP - Finance & Controlling" department and the fact that she is bound by instructions by means of technical subordination, the plaintiff is integrated into a matrix organisation and thus does not operate independently in organisational terms. It is not excluded that independent operating departments can exist within a matrix organisation. However, the existence of a matrix structure alone is not sufficient to establish an operating department within the meaning of Section 15 (5) KSchG.

Without additional circumstances, the court was also unable to assess whether the implementation and customisation of the SAP applications to the business as a separate business purpose was sufficient for the assumption of a business department.

Consequences for practice

It is not advisable for members of the works council, the youth and trainee representative body, an on-board representative body or a maritime works council, members of the staff representative body, an election committee or election candidate as well as other persons named in Section 15 (3a) BetrVG to circumvent the special protection against dismissal by forming (small-scale) matrix structures. 

The decision clearly shows that the involvement of employees in an inter-company matrix structure must be assessed independently of the question of how a company maintained in Germany is organised. In any case, a matrix structure does not have to have an immediate effect on the definition of an establishment (under the German Dismissal Protection Act). The dissolution of a department within the matrix (such as the finance department consisting of a single person in Germany) does not necessarily lead to a dissolution of the legal company structures. According to the Chamber's line of reasoning, a dismissal based on the provision would only have been justified here if the employer had shut down the entire matrix level (worldwide).

5. Effectiveness of a ban on a works council member in the event of suspicion of a criminal offence without the legally binding conclusion of impeachment proceedings (LAG Hesse decision of 28 August 2023, 16 TaBVGa 97/23)

In its decision of 28 August 2023 (16 TaBVGa 97/23), the LAG Hesse had the opportunity to decide on the question of whether the chairman of a works council can be denied access to the company by means of a ban on entering the premises on suspicion of committing a criminal offence. 

In the case on which the decision was based, the employer banned the works council chairman from the premises after the works council chairman wanted to hand in some documents to the HR department after a works council meeting and, due to the absence of all employees in the HR department, stamped the receipt of the documents himself and then pushed them under the door. The employer then filed a criminal complaint for forgery of documents and initiated proceedings at the Labour Court Frankfurt to exclude the works council chairman from the works council pursuant to Section 23 (1) of the Works Constitution Act (Betriebsverfassungsgesetz, BetrVG). It also issued a ban from the premises, citing falsification of documents and thus the commission of a criminal offence as justification.

Following an urgent application by the works council and the works council chairman, the Labour Court Frankfurt ordered the employer in the first instance to grant the works council chairman unhindered access to the company for the purpose of carrying out his works council activities. The LAG Hesse dismissed the appeal lodged by the employer against this decision. 

In support of its dismissal of the appeal, the LAG Hesse stated that the ban imposed on the works council chairman constituted an obstruction of the works council's work. Pursuant to Section 78 sentence 1 BetrVG, works council members may not be disturbed or hindered in the performance of their duties. The works council member remains in office until the legally binding conclusion of the proceedings pursuant to Section 23 (1) BetrVG and must be granted unhindered access to the company. The employer is not authorised to create facts by refusing the works council member access to the company.

The only exception to this is if there is a serious breach of duty. In this case, the employer itself must apply to the labour court for a temporary ban on the exercise of the works council office. It is not a matter of criminal law, but of the question of whether the trusting cooperation within the meaning of Section 2 (1) BetrVG between the parties to the works council is unreasonably impaired. 

In the present case, such a serious disruption of cooperation that could justify an obstruction of the works council chairman's access until the legally binding conclusion of the dismissal proceedings by means of a ban from the premises could not be established. Even if there had been a corresponding application for a temporary ban on the exercise of the works council office, the ban would have to be categorised as an impermissible obstruction.

Consequences for practice

Issuing bans on works council members on suspicion of a criminal offence remains a risky area for employers - especially in the case of parallel impeachment proceedings initiated in accordance with Section 23 (3) BetrVG. In this respect, the decision of the LAG Hesse fits in with the heterogeneous case law between the individual courts of appeal. As a rule, the BAG does not have the opportunity to decide on the specific facts of the case, as works council or staff council members generally seek legal protection against in-house bans in interim legal protection and interim injunction proceedings become legally binding after the appeal instance. As a guiding principle for an effective house ban, employers can claim that the offence on which the house ban is based significantly disturbs industrial peace or affects the employer's (property-related) legal interests. For example, in its recent decision of 23 July 20219 (8 M 26/19 OVG), the Greifswald Higher Administrative Court rejected a staff council member's application for a temporary injunction against a house ban declared by the local office on suspicion that the staff council member had aided and abetted fraud and embezzlement at the expense of the office.