Employment Update, Germany - October 2007



Can wage dumping in relation to the commercial cleaning trade be prevented by broadening the Arbeitnehmerentsendegesetz (AEntG) (legislation implementing the Posting of Workers Directive (96/71/EC)?

Brief background

The AEntG was introduced approximately 10 years ago to eliminate discrepancies between the treatment of employees employed by domestic and foreign service providers within Germany. The AEntG aimed to achieve this by preventing sub-standard wages, fictitious self-employment and illegal employment under unfair conditions.

Recent developments

On 8 March 2007, it was decided that the scope of the AEntG should be extended to include the commercial cleaning trade. Its inclusion was primarily to oblige both domestic and foreign employers to pay all workers of the German cleaning trade the German minimum wage.

Despite such developments, the significance of this legislation in terms of its impact remains questionable.

Taking the construction industry as an example:

Initially, it was established that where the Ministry declared a particular industrial agreement to be ‘generally binding’, the effect of the AEntG was to impose the minimum terms of the agreement on all domestic and foreign employers who employ or post workers in Germany. The terms referred to include agreed remuneration, holidays and holiday pay.

However, research conducted in 2001 (the most recent data collection), indicates that enforcement of the AEntG is significantly lacking. The research states that whilst 14,165 summary and criminal proceedings were initiated across Germany, only 141 led to conviction. The vast majority were concluded with cautions or administrative fines, which on average amounted to €4,206.

In the absence of any real deterrent, evasion of the AEntG within the construction industry has continued to escalate. For example, foreign employers have been known to grant what appears to be a legitimate loan to employees posted in Germany, for a sum of at least the prescribed minimum wage, but which in reality is never paid out.

Other evasion tactics involve the multiple letting of accommodation to posted workers at extortionate interest rates, with settlement of accounts being deducted from the worker’s wages, and the non-payment of overtime to maintain pay rates below the prescribed minimum wage.

Another issue which has attracted increasing attention concerns the authority of the Ministry. As mentioned above, the AEntG only applies if the Ministry declares an industrial agreement to be ‘generally binding’. However, it appears that before a declaration can be made that at least half of the labourers to whom the agreement will apply must be shown to be members of an independent trade union.

With the continuing decrease in the unionisation of employees, this membership quota is increasingly difficult to fulfil and in turn undermines the authority of both the Federal and State Labour Ministries.

Little case law exists regarding the process and legitimacy of Ministerial declarations. As such, the reaction of German labour courts to pending complaints and the decisions they will make regarding the legitimacy of Ministerial declarations will be of great significance. It is anticipated that the courts will provide guidance on the extent to which declarations of general applicability can be reviewed by German courts. However, the courts response should they reach the conclusion that prerequisites for Ministerial declarations are impracticable and whether (and to what extent) they suggest that the legislator modify existing law, remains unknown.

Effect on employers

When applied to the Commercial Cleaning Industry, it would appear that the AEntG should not result in a decrease in ‘wage dumping’ by foreign employers.

Case law

Revocation of a company car: Federal Labour Court (Bundesarbeitsgericht), judgment dated 19 December 2006 – 9 AZR 294/06


Many employers grant a company car to employees that can be used for private purposes. In the employment contract, they often reserve the right to revoke that benefit “at any time in sole discretion” or “for justified reasons”. In practice, most employers only exercise the right if the employee is released from active duties (garden leave) or before he/she goes on parental leave. This custom is supported by previous judgments of the German labour courts: The courts found in several cases that employers exercising their right to request the return of the car, must have a justified reason for doing so - but held that such reasons need not be specified or described in the employment contract itself.

The judgment of the Federal Labour Court

An employee gave notice of the termination of his employment to his employer. The employer then released the employee from active duties until the end of employment and demanded the return of the company car. According to the employment contract, the employer was entitled to revoke the car at its sole discretion.

The employee complied with the employer’s request but filed a claim for damages compensating him for the loss of his company car. The Federal Labour Court found that sending an employee on garden leave is indeed a reason generally justifying the return of the company car. However, the court held that employees must be made aware of circumstances in which they have to give back the car. Therefore, instances of when the employer may require the return of a company car must be set out in the employment contract. This is in contrast to previous case law. As the employment contract in question had no provision for the car to be returned after the employee’s release from active duties, the revocation of the company car was unlawful and the employer had to compensate the employee.

Effect on employers

Employers should redraft their standard contracts in order to make them consistent with the new judgment. Details and circumstances setting out when a car will be revoked should be listed. Of course, only justified reasons are admissible, for example the release of the employee from his/her active duties after notice of termination, prior to parental leave, etc.

Employers should attempt to agree the contractual amendment with their employees. Should employees refuse to agree to an amendment entitling the employer to revoke the company car, their behaviour may work against them during potential litigation: in its judgment, the Federal Labour Court held that employees must reasonably and fairly agree to such an amendment if proposed by the employer. Employees who do not accept clauses naming justified reasons for the return of the company car might be held to act unreasonably if they claim for damages after they returned the company car following a justified request.