Employers face changes starting 1 August 2022 – Incorporation of the Transparent and Predictable Working Conditions Directive

The following topics are covered here:

• What must employers keep in mind?
• Possible sanctions
• Which laws are being changed?
• What’s the current status of the legislative process?
• What are the key points of the Directive and the draft law?
• Act on Notification of Conditions Governing an Employment Relationship
• Vocational Training Act
• Law on Temporary Agency Work
• Trade, Commerce and Industry Regulation Act
• Part-time and Fixed-term Employment Act
• What are the key issues with regard to compliance?
• The definition of what constitutes an “employee”
• Electronic form
• "Procedure to be followed" upon termination
• Breaks and rest periods
• Employers must take action

The European Directive EU/2019/1152 must be incorporated into German law by 1 August 2022 at the latest. At the same time, the existing Directive EEC/91/533 (Employment Information Directive) will be repealed. A corresponding bill is in its final stages of preparation, so the law is expected to enter into force on time.

The aim of the European Working Conditions Directive is to improve working conditions for all employees by promoting transparent and more predictable employment conditions while at the same time ensuring that the labour market remains able to adapt to changing conditions. To achieve this objective, the Working Conditions Directive contains these key elements:

• Expansion of the employer's obligation to provide information on the essential aspects of the employment relationship already provided for in the Proof of Employment Directive (information and reporting requirements)
• Establishment of basic work requirements with regard to the maximum duration of a probationary period, the holding of multiple jobs, minimum predictability of work, requests for a transition to another form of employment, and compulsory training
• Introduction of enforcement mechanisms to ensure that the new requirements are implemented

The most serious changes will be made to the Act on Notification of Conditions Governing an Employment Relationship. In the future, more comprehensive information about the key terms of the employment relationship must be documented (generally included in the employment contract). In the future, for example, rules regarding rest periods and breaks must be included in the contract and, if necessary, the duration of the probationary period must be adapted as necessary. Problems could arise concerning the definition of an employee, the electronic form, and the "procedure to be followed" in the event of termination, which will have to be included in the documentation and/or employment contract from now on.

The European Member States, including Germany, must implement the laws, regulations, and administrative provisions necessary to comply with the requirements of the Transparent and Predictable Working Conditions Directive by 31 July 2022 at the latest. No later than 1 August 2022, the rights and obligations laid down in the Directive will apply to all employment relationships.

What must employers keep in mind?

All new employment contracts must include the additional information unless employees are informed of this in a separate document. Employees whose employment contracts begin after 31 July 2022 must be provided with a record of this more comprehensive information no later than their first day of employment (the draft law here distinguishes between information to be provided when the employment relationship begins and information to be provided at the latest by the seventh day after the employment has begun), and that which must be provided within one month of the employment start date). Furthermore, existing employment contracts (i.e., those involving current employees) must also be checked to ensure that they comply with the newly expanded information requirements. If this is not the case, employers must be prepared: If an employee requests this information, the employer must respond within one week (by the seventh day after receipt of the request), giving the employee (in person or by mail) a document with the key information (sections 1-10 of § 2 para. 1 of German Act on Notification of Conditions Governing an Employment Relationship – “NachwG”) The document containing the other information must be delivered within one month of receipt of the request.

Employers must therefore take action now to be well-prepared before 1 August 2022. Employment contract forms for new employees must be adapted. Appropriate informational documents must be prepared for the current employees. Alternatively, supplementary agreements must be concluded with the current employees.

Possible sanctions

Failure to comply with the obligation to provide documented information on the employment conditions will constitute an administrative offence and be punishable with a fine of up to EUR 2.000,00 for each individual case.

The Committee on Economic Affairs of Germany’s Federal Council (Bundesrat) has pointed out that this presents employers with more complex requirements and has proposed that sanctions should only take effect after employees have been unsuccessful in their attempts to obtain the necessary information from their employer. Whether these considerations will be included in the final version of the law remains to be seen.

Responsibility for control and penalties has already been discussed thoroughly in the previous legislative process, and the first draft still viewed the labour inspectorates as being responsible for this. However, it appears that responsibility will be assigned to the customs authorities. Some also suggested that the Federal Employment Agency should be assigned this responsibility. The ongoing legislative process will determine which authority will ultimately be responsible for handling the monitoring and sanctions.

Penalties are also included in other laws to be amended, such as the German Vocational Training Act and the German Act on Temporary Work (§ 11 para. 1 p. 1, § 16 para. 1 No. 8 of German AÜG).

Failure to provide all necessary information may also have procedural consequences for the employer with regard to evidence in a dispute with the employees. The obligation to provide evidence also serves to safeguard evidence of the agreed working conditions. Failure of the employer to properly communicate the relevant working conditions to the employees, could – even more so than before – benefit the employees in a judicial process by easing the burden of proof. The German legislature will probably not use an explicit easing of the burden of proof or reversal of the burden of proof as a sanction. Nevertheless, one can expect employers to find it even more difficult to pursue their rights in court proceedings if they have not properly complied with the reporting requirements.

Furthermore, it can be assumed to some extent that employees may refuse to perform their work in certain cases if the employer has not complied with their obligation to provide information and/or supporting documents. This aspect is, however, being hotly debated.

The practical relevance of (theoretically conceivable) compensation obligations is probably low. Yet they are conceivable. For example, an employer may be liable for damages if it fails to point out the relevant period of notice. This can lead to the employee being returned to the status s/he would have had if s/he had been properly informed.

Problems related to compliance can also occur, as it is becoming increasingly common to have business transactions include statements of compliance with all applicable laws (commitment to codes of ethics and/or conduct). This applies in particular to activities involving public procurement processes. Employers should therefore view the expanded requirements for information and/or documentation as part of their compliance management systems and should check these for compliance with the new legal requirements.

Which laws are being changed?

The implementation of Directive EU/2019/1152 will result in changes to the following German laws:

• Act on notification of conditions governing an employment relationship (NachwG)
• Vocational Training Act (BBiG)
• Crafts Ordinance (HandwO)
• Law on Temporary Work (AÜG)
• Maritime Labour Act (SeeArbG)
• Trade, Commerce, and Industry Regulation Act (GewO)
• Part-time and Fixed-term Employment Act (TzBfG)
• PTA Occupational Law, Paramedic Occupational Law, Anaesthesia Technical and Surgical Assistants Act

What’s the current status of the legislative process?

The Directive must be incorporated into national law by 31 July 2022. At the moment, one should assume that the German legislature will meet this deadline.

In January 2022, Germany’s Federal Ministry of Labour and Social Affairs (BMAS) published a draft bill for implementing the Directive. In April 2022, the government draft was approved. The first reading of the bill in the Bundestag (Federal Parliament) took place on 12 May 2022 and the hearing took place in the Bundesrat (Federal Council) on 20 May 2022. It involves a so-called act of objection. The law is currently being further discussed in the relevant committees and is being read in the Bundestag. It is assumed that the Bundestag and the Bundesrat will adopt the law in their last meetings before the summer break (8 July 2022).

What are the key points of the Directive and the draft law?

Act on Notification of Conditions Governing an Employment Relationship

The Act on Notification greatly expands the list of essential contractual conditions that must now be included in the documentation. It will now apply to all employees, regardless of the type and duration of their employment. However, the Committee on Economic Affairs of Germany’s Federal Council (Bundesrat) has recommended that temporary employment lasting one month or less continue to be excluded from the scope of application.

In the future, employees must be informed about the agreed working hours as well as the agreed breaks and rest periods. It is unclear whether a reference to the Working Hours Act is sufficient or whether detailed rules must be included in the employment contract. In case of doubt, detailed rules should be included in the employment contract (or an appendix to this).

Information must also be provided on the "procedure to be followed" in the event of termination. At a minimum, it must include information on the requirement that this must be in written form and include information on the notice periods and the deadlines for filing a complaint against unfair dismissal. Here as well, simply including a reference to the applicable legal provisions will probably not be sufficient, so the corresponding provisions must be incorporated into the employment contract itself (or an appendix thereto).

In addition, information on the duration of the probationary period and the possibility of required overtime and its conditions must be included as well.

Also new is the requirement that the contract’s key terms and conditions must now be provided to employees in written form within one week of the start of the employment relationship (whereby individual details can have to be provided earlier or later). The employee must be notified of amendments to the contract’s key provisions no later than the date on which these take effect. Even for existing employment relationships, employees must be provided with a written document if they request this.

Employees who are required to perform their work outside the Federal Republic of Germany for more than four consecutive weeks must be provided with a record of all the key information, in particular the country in which the work is to be performed and the currency in which the remuneration is to be paid. For stays abroad covered by the Posting of Workers Directive, additional information on remuneration must be provided, as well as a link to an official national website as per the IMI Regulation.

Legislative inaccuracies still exist regarding individual points of the regulation, and these will probably not be conclusively clarified in the further legislative process and will therefore be clarified by the courts sometime in the future. Until then, employers bear the risk of having provided too little information.

Vocational Training Act

The information that must be provided to trainees must be expanded to include certain mandatory details such as personal data about the trainee and the rules regarding overtime. If the remuneration is comprised of various elements, the employee must be informed of these in writing along with the form and amount of the remuneration.

In addition, the employer must from now on provide information about “training measures held outside the training centre”. This is always problematic if certain locations (e.g., construction sites) are not yet known at the time the training contract is signed.

If the employer fails to comply with these obligations in the future, this will also constitute an administrative offence punishable with a fine of up to EUR 2,000.

It is currently under discussion whether, as with the Act on Notification of Conditions Governing an Employment Relationship, a deadline should be introduced within which employers are required to inform trainees already employed before 1 August 2022 about these changes upon their request.

Law on Temporary Agency Work

In the future, the employees (temporary agency workers) must be provided with information about the hiring company or individual (name and address) in written form before the transfer.

To enable temporary workers to move into a permanent employment relationship, the law states that if a temporary worker has worked for a hirer for at least six months and gives the hirer a written request for an employment contract, the hirer must provide a reasoned written response within one month of receiving this request. This does not apply if the temporary worker has already expressed this desire once in the last twelve months. How detailed a “reasoned response” must be is unclear. Hirers, therefore, face a higher bureaucratic hurdle.

Hirers failing to comply with this obligation will not be subject to any sanctions.

Trade, Commerce, and Industry Regulation Act

If the employer is required to offer employees compulsory training, this must be provided free of charge to the employees and the time spent must be counted as working hours.

Part-time and Fixed-term Employment Act

Desire to change the work schedule

Employees who have been employed for over six months can notify their employer that they wish to change the number of hours worked or their work schedule and must then receive a reasoned reply in writing from their employer within one month. If the employer has already given a reasoned reply in written form within the last twelve months, a verbal reply is sufficient in subsequent cases.

Transition to a permanent employment relationship

The same applies to fixed-term employees desiring an open-ended employment contract. This is intended to facilitate the transition of fixed-term employees to a permanent employment relationship. The employer must explain whether it is possible to transition to a permanent employment relationship.

There is no limit on how often an employee can express their desire for a permanent employment contract. There are no repercussions for employers failing to fulfil their obligation to provide a response.

On-call work: work schedules

In the case of on-call work, employers will now be required to provide employees with a time frame (reference hours and days) in which they might be ordered to work. If an employer fails to comply with this requirement (i.e., if they don’t specify the "on-call times"), the employees can refuse to work. The employees are still entitled to their wages though.

Probationary period

For fixed-term contracts, the agreed probationary period must now be "proportionate" to the duration and type of work. Here, too, it is unclear what constitutes a “proportionate” probationary period. The Committee on Economic Affairs of Germany’s Federal Council (Bundesrat) has attempted to clarify this by stating that in the case of employment contracts of less than twelve months, it considers a probationary period of up to half of this period to be proportionate. If this is not stipulated by law, it will be necessary to wait for clarification through case law. Until then, employers bear the risk of the length of an agreed probationary period being considered disproportionate. If a probationary period is not proportionate in its length, the agreement of this probationary period is regarded as invalid.

It is also important to remember that the new requirements regarding the length of the probationary period in fixed-term employment contracts do not imply a change in the so-called waiting period in accordance with § 1 para. 1 of the German Dismissal Protection Act (Kündigungsschutzgesetz, KSchG). Even if the EU Directive would permit a different interpretation of the term "probationary period", the German legislature deliberately only proposes an amendment to § 15 Part-time and Fixed-term Employment Act (Teilzeit- und Befristungsgesetz, TzBfG), but not an amendment to § 1 KSchG. This will lead to future situations in which fixed-term contracts of less than 12 months have an agreed probationary period that has already expired, but for which the waiting period according to § 1 para. 1 of the KSchG has not yet expired. There will therefore be time periods in the first six months of an employment relationship in which the normal period of notice (outside a probationary period) must be taken into account, but the actual protection provided by the Dismissal Protection Act does not yet apply. Employers must consider this carefully and, if necessary, adapt their work employment contracts accordingly.

What are the key issues with regard to compliance?

The definition of what constitutes an “employee”

The Directive defines the basic rights that apply to all employees within the EU who have an employment contract or are in an employment relationship, taking into account the case law of the European Court of Justice.

In some cases, this can lead to problems applying the law as European law interprets the term “employee” more broadly than national (German) law does.

Germany has made it clear that in adopting the Directive, it will use its own national definition of what constitutes an employee. As this is a narrower interpretation than that in the Directive, the scope of application could be interpreted in accordance with EU law (the Directive). This would lead to difficulties in applying the law.

Each case must therefore be evaluated individually to determine whether employers want to include other employee groups (e.g., managing directors) or apply the narrower national definition of “employee” (which excludes certain employee groups).

Electronic form

While the Directive explicitly allows employers to provide the necessary information to employees in either paper (i.e., printed hardcopy) or electronic form, the current draft of the German bill lags behind because it still explicitly prohibits providing the information electronically.

Because this makes no sense in light of the world’s increasing digitisation, the Committee on Economic Affairs of Germany’s Federal Council has, among others, expressed its support for removing both the strict requirement for the written form and the exclusion of an electronic format from the law. Providing the information as text would therefore be sufficient. This point is highly controversial, so amendments are expected before the law comes into force.

"Procedure to be followed" upon termination

The draft of the German law goes one step further than the Directive and requires - for the employee to be fully informed about the correct procedure for handling a termination - the provision of information about the termination deadlines, the written form requirement, and the deadline for contesting the termination in accordance with § 4 KSchG. It is uncertain how detailed the information must be in individual cases. Simply including a reference to the applicable legal provisions (e.g., according to § 622 of German Civil Code, BGB) will not be sufficient. It therefore makes sense to include the corresponding regulations in the employment contract (e.g., in an appendix to the employment contract). Employers in doubt should prepare an appendix to the employment contract template that includes information on the procedure to be followed along with the deadlines.

Breaks and rest periods

The Directive requires employees to be informed of the length of their "normal" workday and/or "normal" workweek.

The draft of the German law goes further by requiring employees to be informed about their rest breaks and rest periods as well as the shift schedule (when working in shifts).

It is unclear whether and how clearly the employer must outline the Working Hours Act regulations in the employment contract or whether it only needs to explain that particular company’s work model. Here, too, we recommend that basic information on rest breaks and rest periods be included in an appendix to the employment contract.

This will, of course, require each individual employment contract to be adapted and modified.

Employers must take action

Despite the remaining uncertainties, it is clear that employers must take steps to adapt their standard employment contracts. New employees will find comprehensive clauses in their employment contracts designed to comply with the new regulations. However, employers will also need to take action with regard to existing employees. Employers should prepare a form letter for current employees that complies with the new regulations and (at a minimum) informs them of the legal changes. This letter should be viewed as an addendum to the existing employment contract. Employers must check whether different informational letters are needed for the different employee groups. The employment contracts of the longer-term employees, in particular, should be carefully reviewed. If these employment contracts do not comply with the required standards and especially the new regulations, we recommend that you conclude new employment contracts or supplementary agreements. Employers can then combine their need to implement employment contracts that comply with their terms and conditions with the requirements of the latest legislation.

Finally, employers must remember that, moving forward, the human resources department will be faced with greater organisational and regulatory challenges. Coordination and organisational processes must be adapted and improved if necessary. HR employees should receive training for compliance with the new requirements if necessary.

Even if these changes lead to more bureaucracy, employers must have a strong interest in ensuring HR compliance and seamless processes. So, there’s still much to be done. We at Mazars will be happy to assist you in this. Let's discuss whether your HR department and processes are ready to comply with the new requirements. Of course, we will also be happy to help you revise your standard contract documents.

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(Status: 17 June 2022)