New rules for collective redundancies?

Companies undergoing a reorganisation or restructuring that involves collective redundancy are often vulnerable to mistakes due to the requirement by the German Federal Employment Agency (Agentur für Arbeit) that it be notified of the collective redundancy. Despite the fact that a number of court decisions have specified and sharpened the requirements for proper notice of a collective redundancy, by far not all legal issues have been clarified. Unfortunately, case law has repeatedly been good for a “surprise”, particularly regarding whether and under what prerequisites an error in the process of a collective redundancy notice invalidates the terminations. The collective redundancy notice remains a “regular guest” of the courts. Two recent examples of case law illustrate the latest developments. 

1. Background and applicable law

Section 17 of the German Unfair Dismissal Act (Kündigungsschutzgesetz) requires employers to give the relevant Employment Agency advance notice of a collective redundancy when a certain number of employees are to be made redundant within the next 30 calendar days. Redundancies in this sense are either notices of termination by the employer or consensual termination of employment contracts at the employer’s initiative. The threshold for mandatory collective redundancy notice depends on the number of regular employees at a local business unit:

Size of local business unit	Applicable threshold
More than 20 and fewer than 60 employees	Redundancy of more than five employees
At least 60 and fewer than 500 employees	Redundancy of 10% of regular employees or more than 25 employees
At least 500 employees	Redundancy of at least 30 employees

 

If the local business unit at which the redundancies are to take place has an employee representative body (works council), the employer must conduct the established consultation procedure with the works council before notifying the relevant Employment Agency of the impending collective redundancy (section 17(2) Unfair Dismissal Act). As part of the consultation procedure, the employer must first provide the works council with a comprehensive written briefing. The consultation procedure usually ends with a statement by the works council. The employer must forward to the relevant Employment Agency a copy of its initial briefing of the works council (section 17(3) sentence 1 Unfair Dismissal Act) and the works council’s statement (section 17(3) sentence 2 Unfair Dismissal Act). The copy of the briefing must be forwarded to the Employment Agency even before the actual collective redundancy notice, i.e. at the same time it is sent to the works council; however, the works council’s closing statement on the intended redundancies need only be enclosed with the actual collective redundancy notice.

Section 17(3) sentence 4 Unfair Dismissal Act requires that the employer must include the following information in any collective redundancy notice (“must information”):

• Name of the employer and type and address of the local business unit,
  
  
• Reasons for the planned redundancies, 
  
  
• Number and occupation of the regular employees at the local business unit and those to be made redundant,
  
  
• Time period in which the redundancies are to take place, and
  
  
• the criteria to be used to select which employees are to be made redundant.

In addition, section 17(3) sentence 5 Unfair Dismissal Act provides that, in consultation with the works council, the collective redundancy notice should include information regarding the gender, age, occupation and nationality of the employees to be made redundant (“should information”).

Redundancies without (proper) collective redundancy notice are usually invalid for this reason alone. 

The German provisions on collective redundancy notices found in section 17 Unfair Dismissal Act are based on European Council Directive 98/59/EC of 20 July 1998 on the approximation of the laws of the Member States relating to collective redundancies (“Collective Redundancy Directive”). Caught between the requirements of the Collective Redundancy Directive and the German Unfair Dismissal Act, the details of the requirements for proper collective redundancy notices and the consequences of improperly issued collective redundancy notices still remain subject to final clarification. This situation continues to entail significant risk for employers, as is illustrated by two cases regarding which recent decisions have been handed down:

2. Is “should information” mandatory?

Hesse Regional Labour Court ruled on a case (judgment of 25 June 2021 – 14 Sa 1225/20) in which the claimant contested a termination for business reasons as part of a collective redundancy scheme. The employer had issued a collective redundancy notice in advance but did not provide the “should information” on the gender, age, occupation and nationality of the employees concerned. The Employment Agency did not raise any objections to this.

Contrary to the overwhelmingly prevailing opinion at the time, both Frankfurt Labour Court and Hesse Regional Labour Court were of the opinion that the termination in question was invalid because the “should information” was missing. The courts stated that this followed from an interpretation of section 17(3) sentence 5 Unfair Dismissal Act in conformity with the Collective Redundancy Directive, stating that

• the Collective Redundancy Directive demanded that all useful information must be included in the collective redundancy notice, making no distinction between “must” and “should information”,
  
  
• the information regarding gender, age, occupation and nationality was useful information because it enabled the competent authority to focus its reemployment assistance efforts more accurately and thus be better prepared for the redundancy of a larger number of employees, and that this corresponded to the purpose of a notice,
  
  
• and thus it was necessary in order to enhance the full effectiveness of the Collective Redundancy Directive to link the lack of information on gender, age, occupation and nationality to the consequence of invalidity of terminations issued without this information (principle of “effet utile”).

This decision is not yet final; the employee lodged an appeal on points of law with the German Federal Labour Court (2 AZR 424/21). The Federal Labour Court has not yet handed down its decision.

3. Consequences of failing to forward the works council briefing to the Employment Agency

In another case that concerns issuance of a proper collective redundancy notice, the claimant also challenged the termination of his employment. The employer had issued a collective redundancy notice but, in contravention of section 17(3) sentence 1 Unfair Dismissal Act, failed to forward to the local employment agency in advance a copy of the briefing of the works council with which the consultation procedure according to section 17(2) Unfair Dismissal Act begins. 

Lower Saxony Regional Labour Court sided with the employer and pronounced the termination valid (judgment of 24 February 2021 – 17 Sa 890/20). The court stated in particular that the fact that the Employment Agency did not receive a copy of the works council briefing in a timely manner does not result in the invalidity of the termination. The court found that it was not recognisable that the forwarding obligation protects individual employees because at initiation of the consultation procedure it has not yet been determined who is affected by the termination. On the contrary, according to the court, this is not to be discussed until during the consultation procedure. The Employment Agency could thus precisely not adapt its reemployment assistance efforts to the content of the works council briefing, which was given at the very beginning of the consultation procedure.

The claimant (employer) lodged an appeal on points of law against this decision with the Federal Labour Court, which, in turn, decided on 27 January 2022 (6 AZR 155/21 (A)) to call upon the European Court of Justice due to the European law dimension of the legal issue in dispute to clarify whether the failure to forward the works council briefing to the Employment Agency in itself resulted in the invalidity of a termination (press release in German). The proceedings before the German Federal Labour Court are suspended pending the decision by the European Court of Justice.

4. Conclusion and practical advice

The decisions show that we will still have to wait for final clarification of the legal issues in connection with (supposed) errors to which employers are susceptible when giving notice of and implementing collective redundancies for which such notice is required. 

What is important for company practice is that the forms and instructions provided by the Employment Agency on issuing collective redundancy notices cannot be relied upon. 

• In the annex to blank 34 of the form provided by the Employment Agency for issuing collective redundancy notices, in which the “should information” is to be provided, it is explicitly stated that the “information for the reemployment assistance services” is voluntary and can “also be submitted later”. 
  
  
• By contrast, according to the judgment of Hesse Regional Labour Court, employers cannot rely on this. The court is of the opinion that the decisive factor is not the form provided by the Employment Agency, but solely whether the required information is actually provided. The latter, according to the court, is based solely on European law, i.e. the Collective Redundancy Directive. The court stated that reliability could at most be created by the European Court of Justice, but not by the forms provided by the Employment Agency. 
  
  
• In addition, a decision or information provided by the Employment Agency that the collective redundancy notice was properly issued is not binding on the labour courts. Such decision or information is therefore not sufficient to limit or preclude the risks attendant on a collective redundancy notice.

It remains to be seen what position the Federal Labour Court will take on a lack of “should information”. It is possible that the Federal Labour Court might again call upon the European Court of Justice to decide whether differentiation between “should” and “must information” is permissible under the Collective Redundancy Directive. In any case, until final clarification comes from the Federal Labour Court or possibly the European Court of Justice, as a precaution, collective redundancy notices should include all information, regardless of whether it falls under the category of “should” or “must information” under the law. 

Likewise, until clarification by the European Court of Justice and the Federal Labour Court, in divergence from current standard practice, it is advisable to submit to the Employment Agency a copy of the briefing provided to the works council at the beginning of the consultation procedure and the works council’s statement at the legally established times for each.

On the whole, collective redundancies and the corresponding notices to the Employment Agency continue to be very susceptible to errors and should be well prepared in view of the related consequences, i.e. in particular the invalidation of all terminations made in the context of the collective redundancies. This can also make it necessary to gather reliable data by requesting in advance any missing data from employees or adjusting or introducing processes for this purpose, particularly staff questionnaires. Any applicable co-determination rights on the part of a works council must also be kept in mind (section 94 German Works Constitution Act (Betriebsverfassungsgesetz – BetrVG).