Employment Update, Germany - June 2007

28 June 2007

Lutz Hoheisel

New Legislation

Amendment of German Act on Part Time and Limitation (Teilzeit- und Befristungsgesetz TzBfG)

With effect from 1 May 2007, the legislation on Part Time and Limitation of Employment Contracts (Teilzeit- und Befristungsgesetz TzBfG) has been amended. Section 14 para 3 of this Act now allows individuals who are at least 52 years old and who have been unemployed for at least four months beforehand, to enter into fixed term employment contracts for up to five years. If the individual was not unemployed, s.14 para 3 also applies where the individual has received transfer payments (Transferkurzarbeitergeld), a special form of unemployment benefit, or has taken part in publicly subsidised work-generating projects (so-called “1-Euro-Jobs”).

Background: Under German law, any fixed term employment contract must be justified in order to be valid. Justification is required because the time restriction exempts the employee from statutory termination protection. In order to promote employment, the TzBfG allows limited contracts of up to two years to be entered into under certain circumstances but without justification.

The earlier version of s.14 para 3 TzBfG allowed for fixed term contracts of up to five years in duration with the only pre-requisite being that the employee was at least 52 years old. This was especially beneficial for older employees who, in the view of the German legislator, generally have difficulty in finding jobs. The European Court of Justice (ECJ) held that this earlier provision conflicted with the Council Directive 2000/78/EC, as it discriminated against older employees due to their age (C-144/04 / Mangold). The ECJ stated that age as the only criterion to promote the employment of older people cannot justify fixed term employment contracts for up to five years in duration. Consequently, s.14 para 3 TzBfG was amended by adding the additional requirement that the individual must have been unemployed for at least four months beforehand.

Case Update

Notice of Termination, Garden Leave and Contractual Non-Competition Restraints: Federal Labour Court (Bundesarbeitsgericht), Judgment dated 6 September 2006 – 5 AZR 703/05

Employees are under a statutory obligation throughout the entire term of their employment, to refrain from competing with their employer. Generally, this obligation even applies after an employee has received notice of termination. In such cases, the employee must refrain from competing with the employer for the duration of the notice period until the employment relationship ends.

In a recent judgment, the Federal Labour Court had to rule on the applicability of the non-compete obligation where an employer gave notice of termination, released the employee (placing him on gardening leave until the end of his notice period), and asked the employee to report any income received from alternative employment entered into whilst on gardening leave (to allow the employer to deduct such alternative income from the employee’s notice pay in accordance with statutory law).

The Court ruled, by way of interpretation, that in such a case the employee could legitimately take the employer’s actions to mean that the employer is not concerned with the non-compete obligation. It was held that an employee on gardening leave is free to work for a competitor of his (former) employer during his notice period.

This ruling is not in accordance with practice, whereby employers are often keen to enforce non-compete obligations, especially where they are required to observe long notice periods. In order to safeguard their interests, employers should expressly state in notice letters that they expect the employee to adhere to the non-compete obligation for the entire term of their gardening leave. The inclusion of such an express statement, should give the German labour courts no reason to interpret the notice letter in the way the Federal Labour Court did in this case.