The GERMAN COALITION AGREEMENT: A to Z from a Labour law perspective
“Seek More Progress – Coalition for Freedom, Justice and Sustainability”: that’s the title of the Traffic-light Coalition’s 178-page Coalition Agreement for 2021 to 2025. The preamble emphasises the immense challenges facing Germany that will shape society for years to come. They also offer great opportunities. Those who work in HR will find the plans described under the heading “Respect, Opportunities and Social Protection in the Modern Working World” particularly interesting. We’ve summarised these plans for you, from A1 certificates to working time.
- A1 Certificates
The Coalition wants to quickly abolish unnecessary requirements for the cross-border provision of services by introducing a real-time European electronic register. In addition, certain business trips will become exempt from the requirement to have an A1 certificate, when no services are rendered, or goods sold locally.
Currently, employees are required to carry an A1 certificate when working abroad within the EU, whether they are on a short business trip or longer posting (and generally also when they are working remotely in another country for a brief period, even if it is at the wish of the employee). There have been frequent attempts to abolish the A1 certificate in the past – at least for brief business trips to other countries. The Coalition’s plan is therefore to be welcomed as it will reduce the huge red tape burden on employers. It remains to be seen what relief the planned real-time European register will have for employers and when the efforts at EU level will be implemented. Until then, the A1 certificate remains obligatory for every – even brief – trip abroad for employees.
In the case of secondment, you can find support through the professional web-portal www.bb-go.de.
- General Equal treatment act
The Coalition plans to evaluate the General Equal Treatment Act (Allgemeines Gleichbehandlungssgesetz, AGG), close gaps in protection, improve legal protection and extend the scope of application of the Act. The details, however, are still unclear. Conceivably, §1 of the AGG could be extended to reflect the list of characteristics in the EU Charter of Fundamental Rights, which also prohibits discrimination based on skin colour, social origin, genetic features, language, political or any other opinion, the membership of a national minority, property or birth.
One clear aim is to amend Article 3 (3) of the Basic Law (Grundgesetz, GG) on equal treatment to prohibit discrimination based on sexual identity and replace the term “race”.
- Employee Mobility
In the case of cross-border posting, the Coalition is seeking to improve the protection of employees and remove bureaucratic hurdles. It wishes to see the Directive on the posting of workers implemented throughout Europe in line with the Directive, and for it to be simply used and implemented in a manner that protects posted employees. The Coalition is also planning to implement the German employee posting law without any bureaucracy, to equip the control authorities to enable them to carry out effective and efficient controls and take action against abuse and fraud, and to provide broad guidance for posted and remote working employees. In addition, the Coalition wants to establish an information platform in all EU languages with information, for example, on the national employment law of the Member States.
These changes should be welcomed as cross-border posting of workers can currently involve considerable formal requirements for employers. The details are still unknown. It will also be interesting to see whether the Coalition’s plan is limited to changes to German law, and thus to posting of workers to Germany, or whether it plans to facilitate posting within the EU in general. A key element is the planned European information platform as it could provide employers with assistance on complying with national (minimum) employment conditions when posting workers.
- Personnel leasing
The Coalition plans to assess the Law on Temporary Work (Arbeitnehmerüberlassungsgesetz) in light of the expected case law of the European Court of Justice (ECJ), and see whether and which statutory amendments may need to be made. It is worth highlighting that the Coalition Agreement recognises that works agreements and personnel leasing are necessary instruments for employers, although effective legal enforcement is required to prevent structural and systematic infringements of occupational health and safety in this area.
- Occupational Health and safety
The Coalition intends to maintain a high level of occupational health and safety in a changing working world while adapting the rules to meet new challenges. One focus is psychological health and the preparation of a report on harassment at work. Small and medium-sized enterprises shall receive support to help them prevent infringements and implement occupational safety rules. In addition, the Coalition plans to strengthen operational integration management (BEM). The preventative procedure established in § 167 of the 10th Volume of the Social Code (Sozialgesetzbuch), which applies where employees are continuously unfit for work for longer than six weeks within a year or where they are repeatedly unfit for work, already plays an important role in day-to-day operations and works agreements. It should be strengthened on both employer and employee sides to applying binding uniform quality standards throughout Germany.
- Working time
The Coalition wants to facilitate flexible working time models. It should be possible to do this within the framework of collective agreements under certain conditions and within firm time limits. The 8-hour day principle, as per the Working Time Act (Arbeitszeitgesetz) will be maintained. There should be some “room to experiment” on the basis of collective agreements or works agreements adopted based on flexibility clauses in collective agreements, which could foresee limited deviations from the maximum daily working hours. Adjustments may need to be made in light of the 2019 ECJ judgment on working time (keyword: time recording), although flexible working time models, such as trust-based working time, should still be possible.
Unfortunately, from a business standpoint, these initiatives fall short of what has long been needed. In particular, adherence to the 8-hour working day does not reflect employer or employee requirements. The 8-hour working day is also not mandatory under EU law because the EU Working Time Directive uses a maximum weekly working time. It would therefore be welcomed if the Coalition were to sound out flexible working time models based on the EU Working Time Directive and ensure that business practices are better portrayed in the Working Time Act in the future. The Coalition recognises the need for greater flexibility, as introduced by the “room to experiment”. Unfortunately, it is left for collective agreements or works agreements based on flexibility clauses in collective agreements to introduce this room to experiment, which makes it dependent on the ups and downs of the unions. In addition, the scope of application is significantly limited because companies that are not governed by a collective bargaining agreement are excluded, although this exclusion does not appear to be objectively justified. The Coalition Agreement does not mention the 11-hour rest period between the end of work on one working day and the start of work on the next working day as required under the Working Time Act. Yet it is these rules on rest periods that need to be rethought considering the increasing use of digital working tools. If an employee reads their emails in the evening, this interrupts the rest period. Accordingly, the employee would only be able to start working 11 hours later. Hopefully, the planned room to experiment will develop creative solutions for such issues.
The implementation of the consequences of the 2019 ECJ judgment mentioned in the Coalition Agreement, especially on time recording, is long overdue. It’s pleasing to see that the Coalition recognises that flexible working time models (such as trust-based working time) should be possible in the future.
- Training and development
"CVs are often marked by breaks, especially in times of change. We want to provide security even during transitions and encouragement to try something new.”
With this statement in the preamble, the Coalition refers to the significant challenges created by digitalisation and heralds planned improvements in the opportunities for professional reorientation (Promotion or Livelihood Opportunity Funds under the Federal Education and Training Assistance Act (BAföG) and training and development – even part-time. The media has already interpreted these aims as the desire to make Germany the “Training Republic”.
The intention to offer employees financial support for employment-related training similar to the Austrian model (reduced working time for training and development while receiving supplementary salary) will be particularly interesting for employers. This would allow employees to obtain professional qualifications or reorient themselves professionally. An agreement between the employer and the employee will probably be necessary. The Federal Agency for Employees (Bundesagentur für Arbeit) will assess whether the applicable prerequisites are fulfilled.
Qualification allowances inspired by short-time allowances should make it possible for companies undergoing restructuring or structural transformations to retain their employees while obtaining qualifications and keep their experts. A detailed works agreement should provide the legal basis for this.
At the same time, incentives should encourage the use of so-called transformation collective agreements. The short-time transfer allowance should be extended while the various instruments (e.g., transfer agency, transfer company, etc) in the Third Volume of the Social Code should be further developed to apply to more than just transfer companies in the future.
- Occupational pensions
The grant of permission to use higher-yield investment opportunities is intended to boost occupational pensions. Strengthening private pensions as a supplement for the state pension has been a perennial issue in political and public discussions over the last few years. However, nothing substantial has been implemented so that the strengthening of this pillar of the pension scheme should be very welcome.
- Fixed-term contracts
Like its predecessor, the 2018 Coalition Agreement, this Coalition Agreement contains comprehensive rules for the change of the law on fixed-term contracts. The 2018 Agreement set out several agreed specific limitations concerning fixed-term contracts, such as the maximum duration of the fixed term, a rate or a reduction of the number of successive fixed-term contracts without objective grounds. In April 2021, Federal Labour Minister Hubertus Heil presented a draft bill on the amendment of fixed-term contract law, which foresaw significant restrictions but was not adopted.
The plan is now to limit to six years the maximum term of any fixed-term employment contracts with objective grounds concluded with the same employer, in order to avoid chain fixed-term agreements. This maximum duration should only be exceeded in strictly limited exceptions. In addition, the Coalition Agreement proposes to abolish the possibility of public service “contracts fixed for the term of the budget”. The planned changes do not seem to constitute as significant a limitation to this beloved flexibilisation instrument as the rules proposed in the draft bill presented by the last government.
- Employee data protection
The 2018 Coalition Agreement already established a plan to increase the level of protection for employee data during the last legislative period. This plan was not implemented. The new Coalition Agreement sets out an initiative to establish rules for employee data protection in order to provide more legal certainty for employers and employees and effectively protect the right to personality. The Coalition Agreement does not contain any specific details.
- Co-determination rights of works councils
Works councils should determine for themselves, whether they wish to work digitally or in analogue form. As part of a pilot project, online works council elections will be tested – to the extent these are permitted under constitutional law. The Works Council Modernisation Act (Betriebsrätemodernisierungsgesetz) will also be evaluated against the background of socio-ecological transformation and digitalisation. Unfortunately, in adopting the Works Council Modernisation Act, legislators failed to adequately advance the digitalisation of the work of the works council. The re-enactment of the rule in § 129 of the Works Constitution Act (Betriebsverfassungsgesetz, BetrVG), which applied until 30 June 2021, would have been desirable. This rule provided that meetings of the bodies under works constitution law (e.g., works council, general works council, group works council, etc.) could take place virtually. Conciliation committee proceedings could also be carried out virtually. The Works Council Modernisation Act allows virtual works council meetings to be held but gives precedence to attendance in person, which makes no sense given the digital possibilities. It also does not allow conciliation committee proceedings to be held virtually. The Coalition could have corrected this lack of courage to digitalise. According to the Coalition Agreement, this should not be directly expected. Hopefully, digitalisation will be offensively addressed as part of the assessment of the Works Council Modernisation Act allowing greater use of digital and virtual formats.
- Equal Pay and the act to promote transparency in wage structures
Crucially, the Coalition agreed on the equality of women and men as a specific aim:
"Equality of women and men must be achieved within this decade.”
To achieve this goal, the Coalition wants to advocate for equality of pay between women and men and close the pay gap. To this end, the Act to Promote Transparency in Wage Structures (Entgelttransparenzgesetz) should be further developed and to boost implementation “employees” should be able to exercise their individual rights by enabling organisations to bring actions on their behalf. This agreement ties in with Article 3 (2) of the Basic Law, which has stipulated equality since 1949.
- Skilled workers
Considering the lack of qualified skilled workers, the Coalition wants to further develop its strategy in this area. A key element is increased immigration of skilled labour. The Coalition is planning to further develop existing immigration laws, abolishing, for example, time limits in the successful Skilled Employee Immigration Act (Fachkräfteeinwanderungsgesetz), which contains temporary provisions for the Western Balkans. The EU Blue Card residency permit, which until now has only been open to highly skilled workers with qualifications in a profession, should be extended to skilled workers in non-academic occupations where it can be shown that they have a specific job offer at market conditions. In addition, the Coalition is intending to introduce a chance card based on a point system to facilitate the search for job opportunities on the German market.
Employers that struggle to find skilled workers will welcome this proposal because of the relatively protracted application procedure for residency permits for skilled workers with an apprenticeship. This procedure is significantly more difficult than the procedure for skilled workers with a university degree.
The Coalition also has extensive plans to bolster the work-family balance by simplifying parenting allowance. Partners will receive two weeks of paid leave after the birth of a child, even in the case of single parents. Foster parents will also be given the right to claim parenting allowance. The protection against dismissal while on parental leave will be extended until three months after the return to work in order to secure re-entry into the workforce. The number of days of paid sick leave for childcare will also be increased to 15 days per parent per child or 30 days per child in the case of single parents.
Further relief is planned concerning bridging part-time (Brückenteilzeit). To facilitate its use by employees in the future, the so-called “excessive burden clause” will be reworked and given a clearer structure.
- Trade Unions
In line with the times, trade unions should receive a right to digitally access an establishment that mirrors their analogue access rights. Paragraph 2 (2) of the Works Constitution Act governs the access of trade unions to establishments in order to exercise the powers and duties established under the Act. Article 9 (3) of the Basic Law grants trade unions an analogue access right to perform duties aimed at enforcing collective bargaining demands, such as providing advertising, information, and advice. The exact scope of the digital access right and how it will be arranged remains to be seen.
- Working from home/remote working
The Coalition plans to officially recognise working from home as a separate form of remote working to teleworking that therefore falls outside the scope of the Workplace Ordinance. The Coalition Agreement makes a relatively non-committal statement that all interested parties will be consulted on new work from home rules and that appropriate and flexible solutions will be developed. Employees in suitable roles will be given a right to request to work from home or work remotely from their employer. Employers will only be able to refuse such a request where operational needs would prevent it. There should still be space for collective bargaining agreements and works agreements to contain deviating rules. This initiative seems to largely correspond to the second draft for a Remote Working Act of November 2020.
In addition, it should be made easier to work remotely throughout the EU. This should generally be welcomed due to the various risks employers face when employees work remotely in another country because of the number of uncertainties and grey areas in the law.
Among others, the Equal Opportunities for People with Disabilities Act, the Act to Improve Accessibility and the General Equal Treatment Act are to be reworked. One of the focuses is the integration of people with disabilities into the labour market. Newly established, uniform points of contact will be further developed. In addition, a fourth level of the special compensatory levy will be introduced for employers that don’t employ persons with disabilities despite the obligation to do so. Private and public-sector employers with at least 20 positions in their company are currently required to fill at least 5% of positions with persons who are severely disabled. Employers who fail to fulfil this 5% threshold must pay a compensatory levy. The levy is based on the percentage of compulsory positions that are not filled by someone with a severe disability, as follows:
- EUR 125,00 where the number of people with disabilities employed is at least 3% but less than 5%,
- EUR 220,00 where the number of people with disabilities employed is at least 2% but less than 3%, and
- EUR 320,00 where the number of people with disabilities employed is less than 2%.
The Coalition plans to increase the minimum percentage of persons with disabilities employed, adding a further level, such as at least 5% but less than 7%. This will increase the pressure on employers to fulfil the obligation to employ persons with severe disabilities or it will simply be more expensive.
Complete applications submitted to the Integration Office will be deemed to be approved if no decision has been made within six weeks (authorisation myth). This will speed up the proceedings before the Integration Office. It would be a limited contradiction to the focus on labour market integration if the planned assumption of authorisation will also apply where the employer has submitted applications seeking approval to terminate the employment relationship with a person who is severely disabled or has an equivalent status, but it would also give employers clarity about the possible termination of employment as soon as possible.
All aid structures will also be adjusted to help people remain part of working life for as long and as inclusively as possible. Operational integration management should be better established on both employee and employer sides with the aim of applying uniform mandatory quality standards throughout the country. The “Hamburg Model” of vocational reintegration, for example, differs from operational integration management (betriebliche Eingliederungsmanagement, bEM). It is a step-by-step model for reintroducing the employee to their old activities.
- Minimum wage
The SPD and the Greens prevailed on minimum wage: the statutory minimum wage will be increased to EUR 12.00 per hour in a one-step adjustment. This is quite a significant increase for employers. Germany has had a minimum wage since 2015. Originally it was set at EUR 8.50 per hour and has been increased in small steps to EUR 8.84 in 2017, to EUR 9.19 in 2019 and to EUR 9.35 in 2020. Since 2021 it has been set at EUR 9.60. An increase to EUR 12.00 is a significant jump.
An independent Minimum Loan Commission will also decide over further incremental increases. The Coalition supports the proposal of the EU Commission for a Directive on adequate poverty-resistant minimum wages in the EU to strengthen the pay scale system. They want to advocate binding minimum standards, starting with the new Minimum Loan Act
- Mini and Midi-jobs
Mini- and midi-jobs should be improved. In particular, the hurdles for starting employment that is subject to insurance should be abolished. The maximum wage limit for midi-jobs should be increased to EUR 1,600.00 per month. The wage limit for mini-jobs is bound to a maximum weekly working time of ten hours and will therefore be increased to EUR 520.00 per month to reflect the intended increase in the minimum wage. This should please both employers and employees. In particular, the increase in pay through the increase in the statutory minimum wage has significantly reduced the weekly working hours of employees in mini and midi-jobs. The current monthly wage limit for a mini-job is still EUR 450.00 and EUR 1,300.00 for midi-jobs.
The Coalition also intends to prevent the abusive use of mini-jobs as a replacement for regular employment or repeated use creating a part-time trap, particularly for women. Compliance with the applicable employment laws should also be monitored more closely.
The cornerstones of pensions should remain unchanged. In particular, the retirement age will not be increased and the minimum pension level of 48% will be assured permanently. The pension contribution rate should not increase above 20%. To raise awareness of so-called flexible pensions, more information will be available, while its time limits for supplementary income in the case of early retirement will be removed. The Coalition will consider how to make it easier for those who wish to stay working for longer and will discuss flexible retirement in line with the Scandinavian model. Based on the rules in Sweden, for example, this could mean that all assured persons can decide from their 62nd year of life how long they wish to continue working (depending of course on an individual agreement with the employer), whereby a guaranteed pension will be paid from the 65th year of life.
- Seasonal Workers
The Coalition wants to provide full health insurance to seasonal workers from their first day working. The Greens have already criticised the fact that the period for which seasonal workers can work without social security was extended from 70 to 102 days due to the corona pandemic. This deprived many seasonal workers of health insurance. Paragraph 8 of the Fourth Volume of the Social Code provides that persons in minor employment may be employed without having to pay social security contributions for 70 working days where certain conditions are fulfilled.
- Collective bargaining autonomy
Collective bargaining autonomy, social partners, and the obligation to pay in line with a collective bargaining agreement should all be strengthened. Those would wish to submit a tender in a public procurement procedure for the Federal Government will be required to comply with a representative collective bargaining agreement for the relevant sector. This initiative implements what trade unions have been demanding for many years. Until now, only companies were subject to constitutive or declaratory rules on compliance with collective bargaining agreements.
The continued application of the applicable collective bargaining agreement should be ensured to prevent an establishment from being spun-off and transferred where the identity of the owner remains the same in order to escape the application of the collective bargaining agreements. Paragraph 613a (transfer of business) of the Civil Code (Bürgerliches Gesetzbuch, BGB) will remain as is. This initiative of the Coalition is a substantial change to the collective bargaining autonomy of the employer. In accordance with Article 9 (3) of the Basic Law, employers, too, have the right to decide whether or not to apply collective bargaining agreements. Any new rule must respect this constitutional standard. It is also still unclear what is meant by “in order to escape the application of the collective bargaining agreements”. There can be many reasons for a spin-off and transfer of a business, such as corporate law or tax reasons. In the case of doubt, the purpose of the transfer should be stated in the contracts.
- Corporate co-determination
Corporate co-determination, i.e., the participation of employees in supervisory boards, has continually decreased over the last few years. The Coalition Agreement plans two serious changes in favour of corporate co-determination and thus in favour of having employees on supervisory boards.
The Federal Government wishes to ensure that corporate co-determination continues to develop so that it can no longer be completely avoided where a Societas Europaea grows (freeze effect). The German co-determination laws, in particular the Co-Determination Act (Mitbestimmungsgesetz, MitbestG) and the One-Third Participation Act (Drittelbeteiligungsgesetz, DrittelbG) apply to stock companies (AG) and limited companies (GmbH), but not to the Societas Europaea (SE). The form of corporate co-determination for the SE is decided through negotiation. Depending on the facts, an SE can be formed without any co-determination and this freedom from co-determination can, in principle, be frozen. This is the result of a decade of negotiations at EU level to implement the supranational legal form. This obvious impact of choosing this supranational legal form should be abolished.
The group attribution that applies under the Co-Determination Act should be transferred to the One-Third Participation Act where there is real control. For the Co-Determination Act or the One-Third Participation Act to apply, certain thresholds for the number of normally employed workers must be fulfilled. This includes not only the number of workers from the company but workers from dependent group companies can also be attributed to the company for the calculation. The attribution is much easier under the Co-Determination Act as a simple majority shareholding will generally suffice. This is not enough under the One-Third Participation Act. Instead, integration or a control agreement are required in practice. The employees of dependent companies are therefore often not attributed under the One-Third Participation Act. Attribution of employees should now be simplified under the One-Third Participation Act. If the agreed change is implemented as intended, it would significantly increase the number of supervisory boards with co-determination rights, especially for companies with more than 500 but fewer than 2,000 workers.
Practical Tip: Regardless of these two initiatives, there will still be significant freedom with respect to the structure of a company, the choice of (foreign) legal form and the location of the registered office.
The EU Whistleblower Directive should be transposed into a national law that is both legally certain and practicable. Under EU Directive 2019/1937 of 23 October 2019, this should have happened by 17 December 2021. Whistleblowers need to be protected from any legal drawbacks when notifying infringements of EU law, but also when providing information on significant infringements of regulations or other wrongdoing, where the exposure would be of particular public interest.
The Traffic light Coalition wants to set a fresh tone in various areas of labour law through new provisions and changes to existing conditions. While the initiatives are mostly only presented in vague terms, at first glance, some are probably inconvenient from a company perspective, but some should be welcomed. It remains to be seen whether and how these plans will be implemented over the next four years and what the actual impact will be. Hopefully, urgently needed adjustments and flexibility – particularly around working time law - will be adopted in the next legislative period - where necessary, after testing as part of the planned room to experiment. The extensive plan to master the challenges of digitalisation through training and development should be welcomed. On the other hand, the changes are expected to mean greater work for HR departments and further restrictions on the flexible use of employees, as well as an increase in co-determination at both work and company levels.
Markus Künzel, Rechtsanwalt, Accredited Labour Law Specialist
Martin Fink, Rechtsanwalt, Accredited Labour Law Specialist
Dr Erik Schmid, Rechtsanwalt, Accredited Labour Law Specialist
Dr Martina Schlamp, Rechtsanwältin
Laura Anna Hagen, Rechtsanwältin