In the first of our new series of labor and employment updates from around the world, we focus on Germany, where there have been a number of recent and significant developments.  With the help of Gleiss Lutz (a firm with offices throughout Germany), we are delighted to provide you with the latest news from Germany.

As so often happens in the aftermath of an election, the new German Government has turned its attention to labor and employment law, and has already announced new and significant legislation. On top of this, there have been some recent important judgments from the Federal Labor Court. Foremost amongst these developments are the following:

Introduction of a Statutory Minimum Wage

After intense debate and negotiations, the government has announced the introduction of a statutory minimum wage which will be introduced at some point during 2015. The introduction of a universal statutory minimum wage (subject to certain exceptions) is a change, even though several collective agreements provide for minimum wages and there are some minimum wage requirements already in place, such as for temporary agency workers.

The new minimum wage has been set at €8.50. Like other jurisdictions where this has been introduced, it is highly controversial, with opponents of the proposal claiming that it will damage the economy. The current focus of their opposition is the extent of any exceptions that will apply. For example, employers’ organisations have demanded that students, interns and trainees be exempt, as well as pensioners and retirees. However, the draft bill presented on March 19, 2014 only provides an exemption for workers under 18 years of age and the long-term unemployed. The bill will be presented to the German Parliament in April 2014.

Variable remuneration in the financial services industry                        

As in the rest of Europe, new restrictions on variable pay came into force on January 1, 2014. As is the case elsewhere, bonuses (or other variable remuneration) are generally capped at 100% of the annual fixed remuneration. This level can be increased to up to 200% of the annual fixed remuneration with special shareholder approval.

Temporary agency workers

The German law on temporary agency work (Arbeitnehmerüberlassungsgesetz or AÜG) states that the hiring of temporary agency workers should be, as the wording itself indicates, only “temporary.” The interpretation of the word temporary has been fiercely debated and this uncertainty has been a major concern to businesses relying on temporary agency workers. This matter is now being considered by the German Government. Following the election in 2013, the two major political parties stipulated in their coalition agreement their intention to introduce legislation expressly limiting the time period that a temporary agency worker can work in one company to 18 months.

In July 2013, a judgment from the German Federal Labor Court gave the Works Councils the right to veto the hiring of a temporary agency worker in cases in which the duration of their hiring was not stipulated in their contract.

In January 2014, the Regional Labor Court of Schleswig-Holstein took a step in interpreting the term “temporary.” The Court held that a temporary worker who is hired to fill a permanent position cannot be a temporary agency worker, even where such a person is engaged under a fixed-term contract. This judgment has caused widespread concern amongst German businesses. In many cases, it is simply unclear whether or not a position is a permanent one.

In December 2013, the Federal Labor Court addressed the consequences of misclassifying an agency worker as temporary when, in fact, they are deemed to be permanent. According to the Federal Labor Court, the misclassified workers are not treated as employees of the business using their services (which is the usual sanction under the AÜG for breaches). With this judgement, there is no longer the threat of an employment relationship between the agency worker and the company using their services. However, the federal employment agencies may, as a sanction, revoke the temporary work agency’s license.

Compensation for unlawful discrimination

One of the most significant judgments of the Federal Labor Court in the last couple of months was issued in December 2013. For many years there has been a debate about whether a discriminatory dismissal entitles an employee to a compensation for being discriminated against above and beyond the remedies already available to them by reason of being dismissed. In part, this debate has arisen because, unlike in many other jurisdictions, the usual remedy for unlawful dismissal (under the Protection Against Dismissal Act – Kündigungsschutzgesetz) is reinstatement. Other than in the case of certain dismissals for economic reasons, the act does not give the courts the power to make an award of compensation for an unlawful dismissal (albeit many dismissal cases are settled by paying compensation). Given the absence of a right to compensation in most situations under this legislation, the debate has focused on whether the German Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz), which entitles employees to compensation when they have been discriminated against, extends to discriminatory dismissals.

In December 2013, the Federal Labor Court addressed the issue in a case of a woman who was dismissed because of her pregnancy and claimed compensation in addition to the invalidity of her dismissal. A dismissal during pregnancy is in general unlawful and therefore null and void if the employer is made aware of the pregnancy. This is provided by the German Protection of Mothers Law (Mutterschutzgesetz).

The Federal Labor Court decided that, in addition to the invalidity of the dismissal, the woman was entitled to compensation for gender-based discrimination under the Equal Treatment Act. This was based on the fact that the employer dismissed the woman in a way that deliberately disregarded the protections afforded to her under the Protection of Mothers Law. The decision was highly controversial, with many commentators suggesting that for cases of dismissal, even those involving discrimination, the sole remedy should be reinstatement. However, the judgment of the Federal Labor Court is clear and leaves no room for doubt. As a result of this decision, in cases where a dismissal is discriminatory, an employee can be entitled to compensation in addition to reinstatement.

However, at present, compensation levels are low. In the case decided by the Federal Labor Court, the woman dismissed was granted compensation of €3,000, notwithstanding the fact that her employer not only terminated her because of her pregnancy, but had earlier tried to convince her to continue working despite being prohibited from doing on medical grounds. Furthermore, her employer terminated her on the day she informed him of her intent to return to work because of a miscarriage.

Works council elections

Perhaps the most significant issue for businesses at the moment are works council elections.  These occur every four years and will be taking place between March and May this year in many private companies. In principle, every workforce with more than five employees has the right to a works council. Whereas the creation of works councils in small businesses is unusual, approximately 80% of companies with more than 200 employees have a works council.

The elections create issues, as well as a great deal of work. Along with the strict organisation of the elections, one of the important things to be aware of is the special protection against dismissal. This special protection applies not only to elected members of the works council, but also extends to election candidates, members of the election committee and anyone involved in instigating the elections.

In addition, the composition of works councils is a significant issue for employers. It is very important for employers to have a works council with whom they can work constructively. Contrary to this, trade unions will often try to increase their influence by helping their members to become works council members, which frequently leads to uncooperative works councils.