New Hurdles for Employers in Germany – The Sharpening of the Law on Proof of Essential Working Conditions and its Consequences

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The European Union (EU) in 2019 launched a civil law directive on transparent and predictable working conditions in the EU. The directive stipulates that the rights and obligations set out therein must apply to all employment relationships by August 1, 2022, at the latest. Although the directive has already been in existence for three years and it was therefore clear that it must be implemented in Germany by August 1, 2022, the German legislature has only now taken action, putting employers under considerable pressure to act.

The new law implementing the directive provides for numerous amendments to existing laws. At its core, however, are far-reaching changes to the Law on Proof of Essential Working Conditions (Record of Employment Act), which is the subject of this article.

Current legal situation

According to the current legal situation, employers must document the essential terms and conditions of employment (e.g., start of the employment relationship, place of work, remuneration, working hours, notice periods) in writing, sign the document and provide it to employees. The Record of Employment Act stipulates the strict written form requirement, i.e., a handwritten signature. Electronic form is expressly excluded.

Currently, employers fulfill this obligation in practice by concluding a written employment contract that contains the essential terms and conditions of the contract. However, the current Record of Employment Act does not provide for any sanctions in the event of a breach, so that the written form (handwritten signature) is often not complied with, but digital signatures (e.g., DocuSign) are common in practice.

New legal situation

The new law that has now been passed, which will apply from August 1, 2022, provides for a considerable extension of the employer's obligation to provide documented working conditions. Documentation now must also be provided for:

  • the duration of an agreed probationary period;
  • the method of payment of wages;
  • agreed rest breaks and rest periods and, in the case of agreed shift work, the shift system, shift rhythm and prerequisites for shift changes;
  • details of on-call work (Section 12 of the German Part-Time and Fixed-term Employment Act) if such work has been agreed upon;
  • the agreed possibility of imposing overtime and its conditions;
  • any entitlement to further education provided by the employer;
  • name and address of the pension provider if the employer promises the employee a company pension through a pension provider (however, the obligation to provide documentation does not apply if the pension provider is obliged to provide this information);
  • the procedure to be followed by the employer and the employee when terminating the employment relationship, at least the written form requirement and the deadlines for terminating the employment relationship, as well as the deadline for filing an action for protection against dismissal; and
  • further obligations to provide documentation in the case of foreign assignments of employees.

Electronic form continues to be excluded. This is despite the fact that the directive would have allowed otherwise. The German legislature is thus missing an opportunity to adapt the law to practical reality and to advance digitalization in Germany.

In addition, the legislature has now provided for severe penalties if the employer does not provide the employee with the terms and conditions of the contract, or does not provide them correctly, completely, in the prescribed manner or in a timely manner, in violation of the law. The violation is an administrative offense that can be punished with a fine of up to EUR 2,000 per employment contract.

Implementation of the new law in practice

Due to this significant risk of penalties, particular care should be taken in the future to refrain from the widespread practice of signing employment contracts digitally and to adhere strictly to the written form requirement. In particular, signing with DocuSign, etc., should be avoided in order to prevent penalties.

In the case of employment relationships that already existed prior to August 1, 2022, the new, more extensive contractual terms and conditions are to be handed over only at the request of the employee (within seven days after the request). This does not require an amendment to the employment contract; an additional information sheet signed by the employer is also sufficient.

For all new employment contracts, however, the template employment contracts must be adapted to the new legal situation.

There is thus a need for action on the part of the employer, which will require significant resources due to the short time remaining for implementation by August 1, 2022. This is especially the case since it is to be expected that lawyers representing employees will proclaim the invalidity of the termination in the event of insufficient information, particularly regarding the termination procedure, even if this is not an express consequence of a violation according to the law’s explanatory notes. In addition, the considerable threat of punishment will also lead to employers’ making themselves vulnerable to extortion during termination negotiations if they do not comply with the new legal requirements in order to drive up severance payments. For this reason, too, it is urgently recommended to act now.

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