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What does the German labour market look like?

At a first glance the German economy seems to be quite robust despite ongoing Covid crisis. A closer look – however – reveals a number of warning signs that the situation is not quite as rosy as it portrayed by the government.

In June 2020 about 2.9 million employees (= 6.2 %) were unemployed, another 6.83 million employees where covered by the short time work scheme and about 4 million persons where covered by the basic subsidy system Hartz IV. Another one million employees are not included in the statistics due to sickness or government programs, often not at all registered are self-employed persons (since they are regularly not entitled to any benefits of the unemployment insurance). Taking  into account that the regular number  of employed persons is 44.8 million (out of 81 million inhabitants) and that only 27 million out of those employees are net tax payers (including 12 Million state employees) it becomes clear, that the financial burden  of the crisis must be borne by a relatively small basis of employees.

What did the German government do?

As other countries Germany accompanied lockdown measures with huge financial programs trying to alleviate the burden for companies and employees. Among the most notable non-financial emergency measures were the temporary suspension of the obligation to pay rent, to pay for certain essential services (e.g. telephone, electricity, gas) and the extension of loan contracts. Many companies made use of these options as well as offered tax breaks and the possibility to defer social security contributions.

3 reasons to be careful

1. Temporary corona payment suspensions ended on June 30th, 2020

Although unpaid bills of the kind mentioned above generally can be settled over time (e.g. the next 3 years) the importance to punctually resume all current payments as of July 1st 2020 cannot be underestimated. Especially in hardly hit industries and service sectors the burden to pay rent without having any sufficient income will likely lead to a new financial calculation by financial departments all over the country, whether the suspension of salary payments alone (due the continued short time work scheme) is sufficient for the survival of the business.

2. Insolvency filing obligations resume at the end of next quarter

More important for many companies is the temporary suspension of the duty for management of a company to immediately file for insolvency, if Corona is the reason for the difficult financial situation of the company. This suspension will end on September 30th 2020 and it is generally expected that a wave of insolvencies might immediately follow that date (if the government does not renew the suspension for another 6 months (which is provided for in the originally law)).

It needs to be pointed out – however – that many companies seem to be a under a wrong impression when looking at their legal obligations. The fact, that the management must not immediately file for insolvency does only apply, if Corona is the reason for the financial difficulties and there must be a positive business prognosis for the remainder of 2020 and thereafter. A company, which is not sure or even assumes, that after September 30th 2020 bills cannot be paid anymore, might even be subject to criminal liability e.g. by ordering goods or services in the current situation. Since all insolvency proceedings under German law trigger a criminal investigation there is a real danger that many officers of German companies already are in the precarious situation without knowing.

3. Dire economic outlook
Notwithstanding the legal situation and past, present and future government and EU measures the economic outlook for some core industries and services sectors in Germany is gloomy. This does not only, as in many countries, apply to directly affected services sectors such as airlines, travel agencies, hotels, pubs and restaurants, event mangers and trade fair organisers, but also the heart of the German economy, namely the automotive industry and – due to ongoing export and supply chain difficulties – other industrial manufacturing and (financial) service sectors.

Reconsideration of business prospects imminent

Taking it into account the above many companies currently are in the process of seriously reconsidering the business options. Despite the ongoing short time work, which takes some burden of salary payments from businesses, companies will have to look realistically at their business prospects for the current and oncoming years. In many cases this must lead to a restructuring plan involving a substantial reduction of the work force. German newspaper these days are full of company news announcing the layoff of  tens of thousands of employees, including workforce reductions at large companies, such as Commerzbank, Lufthansa, Bosch and Airbus.

Employment law in focus

Any reduction of the work force immediately leads to employment law questions.

Although German law has a certain reputation for being difficult as regards individual employee terminations in a situation such as the Corona crisis the process to issue a notice of termination is ultimately quite straightforward.

Things get considerably more difficult, when a works council or a trade union is involved. In these cases much more time and financial planning is needed to ensure a success of a restructuring project.

Companies and their advisors interested in more detailed information about the labour and employment law issues at stake, useful strategic considerations and time and budget planning should take look at our new brochure “Practical Guide to Redundancy and Restructuring in Germany”. Available as free download:

 

Urgent need for action for companies

Today (25 April 2019), following its promulgation in the Federal Law Gazette, the Law on the Protection of Trade Secrets came into force. After some changes to the government draft, the Bundestag passed the law on 21 March 2019, and the Bundesrat approved the draft on 12 April 2019. For companies, this entails substantial changes.
In our newsletter last year July (here), we had already informed about the Directive regarding the protection of confidential know-how and confidential business information against illegal acquisition, use and disclosure. After the transposition deadline for the German legislator had already expired in mid-2018, Germany now converted the Directive into national law.

No secret without appropriate secrecy measures

Amendments to the draft version were mainly made to protect freedom of the press and whistleblowers. However, the core of the law is largely unchanged from both the Directive and the government draft. According to the law, an information is only deemed to be a legally protected business or trade secret if it is subject of appropriate secrecy measures of the company. Without such measures, no claims for injunctive relief or damages can be asserted in the event of disclosure or unlawful use. The conceivable protective measures include, in particular, access restrictions, passwords and access codes as well as encryption systems, but also contractual arrangements.

Employment contracts need to be adapted

This means, in particular, that the hitherto usual clauses in employment contracts, which oblige employees to maintain secrecy about "all business secrets and processes in the company in general", should urgently be reviewed and, if necessary, revised. The clauses formulated in accordance with previously acceptable patterns will no longer meet the requirements. As a result, trade and business secrets will largely be unprotected, unless changes are made to employment contracts with key employees.

A coordinated secret protection concept is recommended

However, we recommend not only taking a critical look on employment contracts, but also on the protection of secrets in the company as a whole. It is important to clarify, who has access to which business secrets in the company, who is responsible for protecting them, what the appropriate protective measures are and how those are recorded. This requires not only a thorough analysis of the status quo, but also constant monitoring.
We will be pleased to advise you on how a tailor-made protection concept for your company may look like and, in particular and how such a protection concept can be effectively implemented and managed under German Law.
 
For some time, the European Union has been planning better protection for whistleblowers to improve compliance in companies. Now the clock is ticking. The EU Parliament passed the EU Whistleblower Directive with an overwhelming majority of votes, with 591 votes in favor and just 29 against, 33 abstentions were registered last Tuesday (16 April 2019). Thus, the two-year countdown has started for Member States to convert the Directive into national law.

Companies having just faced the initial hype around the General Data Protection Regulation (which entered into force at the end of May this year) have just noticed that another new European Regulation has somewhat gone under the radar and escaped their notice. Few noticed that European Parliament and the council of the European Union on June 2016 have passed directive (EU) 2016/943 on the protection of undisclosed know how and business information (trade secrets) against the unlawful acquisition, use and disclosure. Other than a regulation such as GDPR the directive is not directly applicable within the EU, but has to be translated into national laws within a two year implementation period. Germany has – once again – missed that deadline which leads to the consequence, that German courts now have to interpret German law in accordance with the directive although no corresponding German law has yet been past. Nonetheless companies, whose business is based on the protection of business secrets, must act immediately in order to protect their business interests.

Following the introduction of the General Data Protection Regulation (GDPR) on May 25th 2018 a number of large companies have decided to ban the use of WhatsApp, SnapChat and similar services on mobile devices, which are either company owned or privately owned devices which are used for business purposes (Bring Your Own Device).
The main reason has to be seen in recent decisions of German courts and opinions publicized by data protection authorities e.g. in Schleswig-Holstein, Thuringia and Lower Saxony.
 

On May 25, 2018, the new EU General Data Protection Regulation (GDPR) and the new German data protection law are entering into force simultaneously. They are no grandfathering clauses; the new laws immediately apply as of the first day without any limitations.
In order to enforce the new regulations in practice especially the GDPR establishes drastic penalties. Fines to the height of 20 Mio Euros or 4% of the total worldwide turnover of the undertaking in previous business year can be imposed.
As before, special rules apply for employee data. This brief overview explains which organisational steps should now be taken by companies, which have not yet started a review in order to avoid huge financial risks as of spring 2018.

2017 is an election year in Germany. Usually this means that parties change into the campaign modus and legislative amendments are rare. This is not the case in 2017, partly due to the fact that most pundits expect the grand coalition to continue after the election.

The evaluation of employee performance and quality of work is essential for employees in all industries. Deficits can lead to complaints of customers and clients and thus may seriously endanger the success of the business enterprise. Specific issues arise in call centers, where main task of employees is answering calls in order to deal with the customer problems or to create new business. The solicitation of new business through calls initiated by the employee is a main line of business for many companies. Employers in such situation have a valid interest in monitoring and / or recording both the verbal communication between the employees and the customers and to record the details of calls that have been made. Employees on the other hand have a valid interest to protect their personality rights, the same applies to customers who call or are contacted.

2016 promises to be an interesting year in German employment law. Only a few days after a draft law on new regulations for temporary work and the differentiation between employment relationships and freelance and works contracts have been published (although it has been meanwhile been withdrawn and will be newly discussed in January) a new draft law on equal pay for men and women has been published by the competent Ministry for Families, Senior persons, Women and Youth. Further the government announced to prepare a further law giving employees the right to return to a fulltime job after having reduced the work time previously.

EMPLAWYERS partner Roland Falder has published a trilingual handbook on German und Chinese labour and employment laws together with his co-author Michael Lorenz, international tax expert and owner of a law firm based in Bangkok and Hong Kong. Roland Falder has a longstanding experience with international secondments to and from China and is a frequency speaker on Chinese employment law topics.

The handbook contains a description of the principles of German and Chinese labour, social security and tax laws in German, English and Chinese. It further includes templates and excerpts from relevant legal materials (such as the Sino German Double Taxation Treaty).

The book will be useful for foreign HR experts dealing with China and makes communication between HR departments and consultants in China and abroad easier. Even experts only interested in German or Chinese employment law will be able to benefit from the handbook.

The book is available in stationary German and Chinese bookstores and with many online dealers (such as amazon.de).