German Regional Labor Issues Ruling on the Domestic Application of General Protection Against Dismissal

Quick Hits

• Technological advancements enable employees to work remotely for foreign companies without relocating, as illustrated by a recent ruling from a German regional labor court.
• The Rhineland-Palatinate Regional Labor Court ruled that the German Unfair Dismissal Protection Act does not apply to an employee working from home in Germany for a Spanish company, emphasizing the principle of territoriality.
• The decision highlights that exceptions to the territoriality principle in dismissal protection are limited.

Facts of the Case

The employee was employed in the technical department of the employer, a Spanish distributor of manufacturing materials for the production of tiles. He was the only employee working from home in Germany, while his colleagues worked at the headquarters in Spain.

The employer gave the employee notice of ordinary termination. The employee filed an action for unfair dismissal, which was dismissed by the Kaiserslautern Labor Court. The employee appealed against the dismissal of the action to the Rhineland-Palatinate Regional Labor Court, claiming that the German Unfair Dismissal Protection Act (KSchG) applied and criticizing the lack of social justification for the dismissal.

Legal Background

The applicability of general protection against dismissal depends first and foremost on whether the employer operates a business that generally employs more than ten employees (Section 23 (1) sentence 3KSchG. The term “business” in the provision refers to an organizational unit in which employers and employees continuously pursue a specific work-related purpose using technical and intangible work equipment, which does not merely serve to satisfy their own needs. In principle, only “company employees” in Germany are to be considered for the relevant number of employees (so-called territoriality principle). In any case, both parties agreed on this point at the outset.

However, the employee argued that, in this specific case, the statutory provision (Section 23 (1) KSchG) needed to be interpreted in accordance with the constitution, taking into account the general principle of equality (under Article 3 (1) GG) and his freedom of occupation (pursuant to Article 12 (1) GG in conjunction with Article 2 (1) GG), so that, in addition to himself, the defendant’s employees working in Spain would also be included in the threshold assessment. He considered this to be necessary for two reasons: On the one hand, the denial of general protection against dismissal due to the threshold not being reached constituted unjustified unequal treatment. In the event of ordinary dismissal, his Spanish colleagues would be entitled to severance pay of up to twenty-four months’ salary. On the other hand, he must be understood as being integrated into the Spanish employer’s business, so that his Spanish colleagues must be considered in the statutory threshold calculation (Section 23 (1) sentence 2 KSchG). This was due to the close connection between his employment relationship and the Spanish business. He was repeatedly sent on assignments to Spain, and the employer had issued him with an electronic employment certificate stating the Spanish company headquarters as his “last place of employment.”

Rhineland-Palatinate LAG Ruling

The Rhineland-Palatinate Regional Labor Court dismissed the employer’s appeal. In particular, it rejected the applicability of general protection against dismissal, i.e., the achievement of the threshold value pursuant to Section 23 (1) sentence 2 KSchG.

The Regional Labor Court recognized the case law of the Federal Constitutional Court, according to which exceptions to the principle of territoriality must be made in individual cases within the framework of Section 23 (1) sentence 2 KSchG through interpretation in accordance with the contract. The threshold determination (according to Section 23 (1) sentences 2 and 3 KSchG) involves a balancing of interests that takes into account the typically increased need for protection on the part of employers in smaller employment units in view of the business success sought with fewer employees and greater personnel vulnerability, as well as an environment characterized by regularly lower financial resources and smaller capacity. This reconciliation of interests would only be necessary to a limited extent in small units of larger companies, so that a constitutional interpretation of the norm could be considered with regard to such companies. For example, the respective threshold value could be affirmed in such a case if only the management of the company were located abroad, but a sufficient number of employees were employed in the territory of the Federal Republic of Germany.

However, the LAG saw no need for such an exception in the present case. The employee was the employer’s only domestic employee. The employer’s place of business and other activities were located primarily in Spain, where all colleagues were subject to Spanish employment contract law. In addition, the German courts ruled out any unequal treatment of the employee compared to his Spanish colleagues from the outset. The constitutional self-commitment (according to sentence 3 of the preamble to the Basic Law) only referred to the geographical territory of the Federal Republic. This prevented the LAG from eliminating unequal treatment between the employee, who worked in Germany and was subject to German labor law, and his colleagues, who worked in Spain and were subject to Spanish labor law, in accordance with the principle of equal treatment. Furthermore, the overall picture does not show any unity between the employee and the employer’s Spanish operation, but rather a “satellite-like” individual unit of the employee. In this context, the employee essentially organizes his working hours freely and, in view of his extensive home office privileges, is subject only to a limited right of direction by the employer. Furthermore, when establishing the employment relationship with the employer, the employee consciously agreed to the application of German law and thus to reduced protection against dismissal in the present case.

Conclusion

The ruling of the Rhineland-Palatinate Regional Labor Court emphasizes the rule-exception relationship between the principle of territoriality (rule) and constitutional restrictions thereof (exception) for the applicability of general protection against dismissal. The LAG emphasizes the previous case law of the Federal Labor Court (Bundesarbeitsgericht (BAG)), according to which the essential connecting factor for such exceptions is that the employment relationships of the employees—who are to be regarded as a threshold-fulfilling unit—are all governed by German law. Even though not all exceptions to the principle of territoriality in the context of general protection against dismissal have yet been clarified by the BAG, the LAG’s ruling shows that the requirements for such exceptions are (still) very high.

Ogletree Deakins’ Berlin and Munich offices and Cross-Border Practice Group will continue to monitor developments and will post updates on the Cross-Border and Germany blogs as additional information becomes available.

Dr. Martin Greßlin is partner in Ogletree Deakins’ Munich office.

Niklas Thiel, a law clerk in Ogletree Deakins’ Munich office, contributed to this article.