Possible new structural arrangement for the employment of older employees?

 

The noticeable lack of qualified employees but also the securing of special know-how or maintenance of important contacts of older employees make their employment beyond the statutory pension age attractive for many companies, although the achievement of the normal pension age is, according to the employment contract, the end of the employment. Since, however, the requirement for their work after that date is usually only temporary, the need for flexible limitation is evident in practice.

Permanent employment often not appropriate

The background is that the continuation of the employment on a permanent basis is frequently not appropriate from the point of view of the company and the employee. The employee wishes to plan for his ultimate retirement, on the other hand, the Dismissal Protection Act continues to apply without restriction to the employment of employees over the statutory pension age. That can be problematic for employers, in particular when performance suffers due to age.

Deferment of the ending of the employment by termination agreement requires a material reason

Deferment of the ending of the employment by a termination agreement which provides for temporary continuation of the employment by extension of the “notice period”, requires, according to the established judgments of the Federal Labour Court, a material ground in the sense of the Part-Time Temporary Employment Act (TzBfG).

Temporary employment as solution

In practice, temporary employment according Section 14 TzBfG is typically preferred, although temporary employment without material ground is excluded because of the prohibition on previous employment with the same employer (Section 14 Abs. 2 sentence 2 TzBfG). To date only a temporary employment with material ground e.g. a mere temporary requirement for the work was the only safe basis (Section 14 Abs. 1 Nr. 1 TzBfG).

New structural possibilities from 1 July 2014?

With the new Section 41 sentence 3 Social Code VI applicable since 1 July 2014, the legislator intends to cater for the wishes of employers and employees to be able by agreement to continue the employment, even after the statutory pension age has been achieved, for a specific period previously determined with legal security. The following sentence 3 has been added to Section 41 Social Code VI:  

“If an agreement provides for the ending of the employment on achieving the regular pension age, the parties to the employment contract can agree to defer the time of the ending of the employment including several times as the case may be”.

Does this provision fulfil its promise?

Unfortunately, the new provision was drafted in haste and leaves important questions open. It makes, for example, no express statement on whether this provision is mandatory or not, as far as collective bargaining agreements are concerned. It is also unclear whether Section 41 sentence 3 Social Code VI permits only an extension of the employment. Changes to the work would then not be admissible. Likewise a maximum limit is not provided for the possibly repeated temporary periods, although, according to the explanatory memorandum, the legislator appears to have considered this.

The most important question is, however, has the legislator achieved his objective? Can employments with employees who have reached the statutory pension age be extended for temporary periods as often as desired?

Unfortunately, there is considerable doubt on this since there are good grounds to argue that the new provision breaches European law, namely Article 6 Directive 2000/78/EC because Section 41 sentence 3 Social Court VI facilitates an indefinite number of temporary periods over the statutory pension age expressly without any restriction or limit. It cannot therefore be excluded that the provision breaches the prohibition on age discrimination which always leads to the non-application of any such provision according to the judgments of the European Court of Justice. An interpretation that conforms with European law is likely also to be excluded in the absence of concrete criteria for a limit to the provision.

Existing solutions remain important

Companies should therefore avail of the new provision at most in awareness of these risks. It is likely that a limitation on a material ground recognised according to Section 14 TzBfG is the only legally secure solution. The alternative is continuation as a freelancer, but this must also be observed in practice, so that no fictitious self-employment arises. Employee leasing is also usually excluded as a structural possibility.

Having regard to the needs of many companies to continue to employ older employees on a temporary basis, it remains to be hoped that the legislator amends the new provision to conform with European law. That would be a genuine benefit both for companies as well as for older employees.