A legislative change that entered into force on October 1, 2016, affects multinationals with employees working in Germany. In order to comply with these recent changes, companies doing business in Germany should now double-check and, where necessary, adjust their standard employment contracts.
The Legislative Change
The legislative change of the German Civil Code concerns formal requirements of standard business terms. This has an impact on standard employment contracts because, under German law, standard employment contracts are considered standard business terms.
Since October 1, 2016, provisions in standard business terms are ineffective by which notices or declarations that are to be made are tied to a more stringent form than textual form.
Textual form requires that the declaration must be made on a durable medium which can be any medium that enables the recipient to retain or store the declaration so that it is accessible for a reasonable period of time. In order to meet the new textual form requirement, a transmission of the declaration by means of telecommunication, in particular e-mail or (computer-) facsimile, will now be sufficient.
Impact on Standard Employment Contracts: Exclusion Clauses
With regard to employment law, in particular so-called exclusion clauses in employment contracts are affected by the legislative change. Exclusion clauses are part of most standard employment contracts in Germany. These clauses stipulate that any rights deriving from the employment relationship shall lapse unless they have been asserted within a certain period after falling due, usually within three to six months.
Until now, employment contracts in Germany usually provide that any claims have to be asserted in writing vis-à-vis the other party. To meet this written form requirement, a written document must be signed by the employee in person. As of October 1, 2016, written form can no longer be legally required from the employee, but only textual form.
How will the Revision Affect…
- Employment Contracts concluded on or after October 1, 2016?
Exclusion clauses in employment contracts concluded on or after October 1, 2016, will become ineffective by law if they demand more stringent requirements than the textual form to assert a claim by the employees.
As a consequence, claims of the employee (e.g. for overtime compensation) would not lapse after expiry of the period laid down in the employment contract, but continue to exist until expiry of the general limitation period of three years.
- Employment Contracts concluded before October 1, 2016?
In principle, the new law only applies to employment contracts concluded on or after October 1, 2016. However, special attention must be paid when existing employment contracts are altered after October 1, 2016.
As the German Federal Labor Court argued in a similar case an – even minimal – alteration of an employment contract may convert an “existing contract” into a “new contract”. This leads to the conclusion that the revision has to be taken into account for existing but altered employment contracts as well. The question, though, if the Federal Labor Court will apply the previously made judgement to this particular situation still remains open. However, in order to minimize a potential risk, the form requirements in existing employment contracts that are being modified should also be altered to meet the new requirements.
- Collective Bargaining Agreements?
The new law will have no effect on collective bargaining agreements and their exclusion clauses as the German Civil Code’s section on standard business terms does not apply to collective bargaining agreements.
However, where employment contracts only partly refer to the exclusion clauses of collective bargaining agreements, these clauses have to comply with the new textual form requirement.
To-Do’s for Multinationals
Companies with employees in Germany should modify the wording of exclusion clauses in their standard employment contracts by substituting the written form requirement with a text form requirement. Otherwise, the exclusion clauses in new employment contracts concluded on or after October 1, 2016 will be ineffective and claims of employees would not lapse after expiry of the period laid down in the employment contract.
Orrick’s German Employment Team can help multinationals amend their standard employment contracts in order to comply with the new legislation.