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18 November 2009
Federal Labour Court Ruling
The European Commission recently announced that it had sent a reasoned opinion to Germany requiring it to implement fully the EU rules prohibiting discrimination in employment. The reasoned opinion raised the point that German law does not afford employees the level of protection required by EU anti-discrimination directives, since it does not prohibit discriminatory dismissals. The sending of a reasoned opinion to a member state is the second of the three steps in the commission's infringement procedure. If Germany were to fail to respond to the reasoned opinion satisfactorily, the final step available to the commission would be to refer the matter to the European Court of Justice.
The commission's announcement has come as a surprise to many observers since it was widely believed that the dispute over whether the German law on protection against dismissal – governed by the Protection against Dismissal Act – was in line with the anti-discrimination directives of the European Union had been clarified by a Federal Labour Court ruling on November 6 2008 (2 AZR 523/07). In that ruling, the Federal Labour Court expressly decided that the General Equal Treatment Act of August 14 2006, which was designed to transpose the anti-discrimination directives into German law, was to be applied within the scope of the Protection against Dismissal Act.
Pursuant to Section 1 of the Protection against Dismissal Act, a termination must be "socially justified" to be legally effective. Social justification must be based on specific reasons regarding an employee or their conduct, or on urgent operational requirements. At first sight, these specific reasons leave little scope for possible discrimination on the grounds of race or ethnic origin, gender, religion or belief, disability, age or sexual orientation. In particular, where urgent operational requirements for a workforce reduction arise, these are not considered to leave much scope for discrimination. However, if such requirements force the employer to reduce its workforce, that employer is required to undertake a social selection of the relevant employees based on length of service, age, obligation to provide maintenance and severe disability. Both the length of service and age criteria raise the issue of whether age-related discrimination is possible.
Sections 1 to 10 of the General Equal Treatment Act substantiate the prohibition of discrimination and set out possible justifications for instances of unequal treatment pursuant to the EU anti-discrimination directives. However, Section 2(4) of the act expressly provides that only the provisions governing protection against dismissal in general and specific cases are to apply to dismissals. It was Section 2(4) which caused the dispute over whether the EU anti-discrimination directives had been adequately transposed into German law through the adoption of the the General Equal Treatment Act with respect to possible discrimination concerning terminations.
Given the overall protection against unfair dismissals provided by the Protection against Dismissal Act, the German legislature did not want to establish a separate system – to operate alongside the well-developed protection system – relating to possible discrimination when transposing the EU anti-discrimination directives into German law.
Federal Labour Court Ruling
In a case where age discrimination was alleged, the Federal Labour Court held that Section 2(4) of the General Equal Treatment Act does not impair the application of the prohibitions in Sections 1 to 10 with regard to discrimination, within the scope of the Protection against Dismissal Act. The court argued that the provisions of the General Equal Treatment Act transposing the EU anti-discrimination directives into German law, including the justifications of unequal treatment, would have to be taken into consideration when interpreting the indefinite legal terms of the Protection against Dismissal Act. The provisions of the General Equal Treatment Act are regarded as specification of these indefinite terms, in particular the term 'social justification'. This means that the labour courts, when applying the Protection against Dismissal Act (ie, when deciding whether a termination is socially justified) must consider the prohibitions of Sections 1 to 10 of the General Equal Treatement Act. As such, the court must decide whether a termination disadvantages the employee on the grounds of race or ethnic origin, gender, religion or belief, disability, age or sexual orientation, and whether such unequal treatment is justified.
Any termination which discriminates against an employee on any of the grounds mentioned above is not socially justified and therefore is legally ineffective. The court reasoned that the legislature intends to transpose the EU anti-discrimination directives into German law and expressly referred to the term dismissal conditions in certain other provisions of the General Equal Treatment Act. As such, it held that Section 2(4) of the General Equal Treatment Act could not be understood and interpreted as hindering the application of the act's other provisions regarding termination. Thus, the court held that the General Equal Treatment Act is to be applied in termination cases so as to appropriate the indefinite legal terms of the Protection against Dismissal Act.
The case before the court concerned an employee who had been dismissed for urgent operational reasons. His employer undertook a major workforce reduction. In the social selection process, the application of criteria such as length of service and age work in favour of and offer broad protection to older employees. In the event of major workforce reductions, particularly where such reductions occur repeatedly, the application of these criteria would lead to an increase in the average age of the workforce. In order to avoid this, the employer divided his workforce into different age groups and then applied the social criteria only within these groups. In applying this system, the employer retained a similar average age and age distribution of his workforce. The dispute arose over whether this practice constitutes discrimination due based on age, or could be considered to be justified unequal treatment under the provisions of the General Equal Treatment Act. Having decided that the General Equal Treatment Act provisions specify the indefinite legal terms of the Protection against Dismissal Act, the court further held that the employer's age-related treatment was justified and as such did not constitute legal discrimination.
Although the question of discrimination protection in termination cases under the Protection against Dismissal Act has been satisfactorily clarified by the ruling of the Federal Labour Court, several issues are still pending with respect to the implementation of the anti-discrimination directives concerning dismissals.
The act applies only if the employer regularly employs more than 10 employees and the employment relationship has existed for more than six months. The act does not apply to certain persons whose status is similar to an employee because of their economic dependence, such as freelancers or legal representatives of a company (ie, a managing director of a limited liability company or a board member of a stock corporation). With respect to managerial employees who are entitled by contract and in fact to hire or fire a significant number of employees at their own discretion (ie, without the permission or consent of others), Sections 9 and 14(2) of the Protection against Dismissal Act provide that for terminations which are not socially justified and thus ineffective, the labour court is allowed to dissolve the employment relationship on the pure motion of the employer (ie, without statement of grounds).
In the above-mentioned cases an employee within the meaning of the anti-discrimination directives is not protected against unfair dismissal under the Protection against Dismissal Act. However, the more general rules of the Civil Code provide that no legal action, including termination, may infringe public morals and all such actions must be in line with the principle of acting in good faith (Sections 138 and 242 of the code). A legal act is considered to be ineffective if it conflicts with public morals or does not conform with the principle of good faith. These indefinite legal terms are very broad and as such must be construed and appropriated by the courts.
Considering the Federal Labour Court's ruling with respect to the interpretation of the indefinite terms of the Protection against Dismissal Act – which are not as broad and ambiguous as the aforementioned Civil Code terms – there is no doubt that the terms prohibiting discrimination in the General Equal Treatment Act are to be appropriated in the same manner as the indefinite legal concepts of public morals and good faith. As a consequence, employees not covered by the Protection against Dismissal Act enjoy protection against discriminatory termination under the general rules of the code, prohibiting legal acts which infringe the principles of good faith or in conflict with public morals. When applying Section 138 and Section 242 of the code, the courts will have to consider whether a termination constitutes a discrimination under the General Equal Treatment Act. If a termination is found to be discriminatory, the courts must deem the termination ineffective.
Given the ruling of the Federal Labour Court and given the provisions of Sections 138 and 242 of the code, the reasoned opinion of the commission that the German law on protection against dismissal is in violation of the EU anti-discrimination directives appears to be unfounded. However, it seems likely that the commission will insist on Germany adopting certain explicit provisions with respect to discriminatory terminations into law.
In order to prevent an infringement suit before the European Court of Justice, the German legislature would be well advised, at the very least, to delete the misleading and essentially useless provision of Section 2(4) of the General Equal Treatment Act.
For further information on this topic please contact Marion Bernhardt, Reiner Kurschat, Bjoern Gaul or Bernd Roock at CMS Hasche Sigle by telephone (+49 221 77 16 128), fax (49 221 77 16 252) or email (email@example.com, firstname.lastname@example.org, email@example.com or firstname.lastname@example.org).
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