GERMANY: An Introduction
Due to current global crises and the government’s budgetary difficulties, the German economy is expecting another year of economic stagnation, if not decline. While the German Economic Institute (IW) expects the gross domestic product (GDP) to fall by 0.5%, the German Federal Bank (Deutsche Bundesbank) is forecasting an economic growth of 0.4 %.
From a legal perspective, both at an EU level and from a German national standpoint, several relevant developments can be observed. The legislature must still implement EU directives, such as the pay transparency directive, while the Whistleblower Protection Act has finally been implemented (HinSchG).
Key Developments and Their Significance for German Labour Law
The Whistleblower Protection Act (HinSchG), effective from 2 July 2023, exceeds EU Whistleblower Directive requirements by incorporating violations of both EU and national laws. It specifically covers punishable offences and fines, safeguarding life, health, and employee rights. The Act facilitates reporting administrative offences through internal whistle-blower systems, ensuring protection and anonymity.
Since 17 December 2023, small and medium-sized companies (50 to 249 employees) have to establish internal reporting offices, allowing shared reporting systems. Anonymous reporting is mandatory. A central external reporting office at the Federal Office of Justice oversees both public and private sectors.
Reprisals or sanctions against whistle-blowers are strictly prohibited, with the burden of proof reversed in favour of the reporter, accompanied by the right to claim damages. Violations of the Act’s main provisions are punishable as administrative offences, incurring fines.
The HinSchG does not clearly indicate whether it brings about changes in dealing with the issue of sexual harassment in the workplace. Sexual harassment in the workplace or during the application phase has garnered increasing attention due to the “#Me Too” movement. Many courts already demonstrate heightened sensitivity to this issue. Consequently, in particular for employers, employment law issues such as prevention within the company and the response to instances of sexual harassment come into focus.
Specific legislative changes have not occurred recently in Germany. However, protection against sexual harassment is anchored in the General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz– AGG), which imposes a duty of care on employers. As the AGG does not provide fines for violations, such offences would not be covered by the HinSchG. Complaints should therefore be directed to the complaint office established under the AGG. However, the majority of sexual harassment cases in the workplace within the meaning of the AGG are also likely to be criminal offences, which in turn would be covered by the HinSchG, however there is not yet legal clarity on this point.
On 1 January 2023, the Supply Chain Due Diligence Act (Lieferkettensorgfaltsgesetz– LkSG) came into force. This obliges companies to comply with human rights and certain environmental due diligence obligations along their value chain in an appropriate manner. The obligations to be fulfilled are graded according to the actual possibilities of influence, depending on whether the company is dealing with its own business sector, a direct contractual partner or a more indirect supplier.
The LkSG’s area of scope has now expanded. Originally, it applied to companies with at least 3,000 employees in Germany, but since 1 January 2024, the threshold is 1,000 employees. No later than 2027, companies employing 500 individuals will also fall under the jurisdiction of the EU Supply Chain Act.
The Act is accompanied by various obligations for companies. Companies, for instance, must adapt a human rights strategy and carry out a risk analysis within their activities and supply chain relationships, thereby laying the foundation for the definition of preventive and remedial measures. It requires the assessment and prioritisation of identified risks and obliges companies to investigate unclear situations. To comply, management and compliance officers must proactively enhance corporate governance, updating compliance systems and adjust contracts with suppliers accordingly.
The integration of Environmental, Social, and Governance (ESG) principles is increasingly recognised as a factor for long-term corporate success and the recognition of those principles increasingly becomes mandatory. For instance, the Stock Corporation Act (AktG) stipulates that the remuneration structure of the executive board of a stock corporation must be aligned with the long-term and sustainable development of the company. According to the Corporate Sustainability Due Diligence Directive, companies with more than 1,000 employees should consider climate goals in variable remuneration. Similar regulations are expected in the future regarding the remuneration of managing directors of limited liability companies (GmbH).
Furthermore, because of the EU Directive on Corporate Sustainability Reporting (CSRD), companies are obliged to prepare non-financial reports on the impact of their business operations on people and the environment, as well as on the effects of sustainability aspects on the company. The scope of the corresponding national regulations is expected to expand continuously. Starting from July 2024, these regulations will apply not only to companies with over 500 employees (current regulation) but also to those with more than 250 employees.
The implementation of the EU Pay Transparency of Directive should also be closely monitored. It is to be transposed into national law by 7 June 2026, and entails significant enhancements compared to the current Transparency of Pay Act. This includes extensive disclosure obligations during ongoing employment relationships and in the job application process, as well as extensive information rights for employees.
Companies are strongly advised to assess their salary structures for compliance with the directive and initiate any necessary adjustments. In this regard, the Federal Labour Court (BAG) found in a recent decision that negotiating skills alone cannot justify pay inequality between men and women.
One senate of the Federal Labour Court intends to substantially change its stance regarding mass dismissal, regulated in Section 17 of the Dismissal Protection Act (KSchG). Errors in the mass dismissal notification should no longer result in the invalidity of dismissals (while errors in the consultation process with the works council should still lead to the invalidity of dismissals). As this falls within the reach of the jurisdiction of another senate, a so-called divergence request has been initiated. If the other senate does not agree, the decision would be in the hands of the Grand Senate of the Federal Labour Court (composed of the President of the Federal Labour Court, one professional judge from each of the nine other senates not chaired by the President, and three honourary judges from each of the employee and employer groups). Such a change in case law would mean a considerable reduction in risk for employers in the event of mass redundancies.
A decision in criminal matters by the Federal Court of Justice of January 2023 greatly affects the remuneration of works council members. The court held that the offence of embezzlement may be fulfilled in cases of excessive remuneration of works council members. The legislature now aims to amend the Works Constitution Act to eliminate legal uncertainties in determining the remuneration of works council members. A swift legislative process is expected, and the proposed changes in the draft law are mostly clarifying in nature, aligning with the established jurisprudence of the Federal Labour Court. Of note, however, is the intended statutory inclusion of the recognised possibility for concluding a works agreement that regulates a procedure for determining comparable employees. Such works agreements would significantly enhance legal certainty for employers. The draft amendment proposes that the specification of comparability in the works agreement and the determination of comparable individuals could only be reviewed for gross errors.
Pursuant to the “Time Clock” decision of the Federal Labour Court in September 2022, employers are obligated under Section 3 paragraph 2 No 1 of the Occupational Health and Safety Act (ArbSchG) to implement a system for recording the start and end of daily working hours, including overtime. The exact design of such a system was left open by the Federal Labour Court, which referred this matter to the legislature.
The Federal Ministry of Labour and Social Affairs presented a draft bill for the amendment of the Working Hours Act in April 2023. The draft bill essentially mandates electronic time recording for the start, end, and duration of daily working hours. The draft provides examples such as electronic recording through apps or conventional spreadsheet programmes such as Excel. Recording should generally be done on the same day as the work is performed. The responsibility for time recording lies primarily with the employer. However, according to the concept of the draft, employers may delegate the recording to employees or third parties (such as supervisors or hirers of temporary workers).
It is possible that a legislative adjustment to the Working Hours Act, along with clarification of the pressing issues raised by the Federal Labour Court’s decision, may occur as early as this year. Employers are eagerly anticipating the law and any further developments related to the draft bill.