Immediate Entitlement for Employees - No primary corrective authority for Collective Bargaining Parties

A collective bargaining provision stipulating longer pay scale increments for employment relationships "newly established" after a specified cut-off date constitutes indirect discrimination against fixed-term employees. Such a provision unlawfully disadvantages employees who are rehired after their fixed-term contract expires compared to permanent employees. As a legal consequence, the Federal Labour Court granted those affected a direct right to equal treatment ("levelling up") and clarified that in cases involving violations of EU law prohibitions on discrimination-such as Section 4(2) of the Part-Time and Fixed-Term Employment Act (TzBfG)-collective bargaining parties do not have a primary right to remedy the situation themselves.

Facts of the case

The employee was initially employed under several fixed-term contracts before being hired on a permanent basis in June 2020. An in-house collective agreement provided that longer periods between pay grade increments would apply to all employment relationships "newly established" after 30 June 2019. Since the employee was rehired after this cut-off date, the employer applied the less favourable provision to him. The claimant argued that this constituted unlawful discrimination based on the fixed-term nature of his prior employment.

The decision

The Federal Labour Court held that the collective agreement provision in question constituted unlawful indirect discrimination against fixed-term employees under Section 4(2) of the Part-Time and Fixed-Term Employment Act (TzBfG) and was therefore partially invalid.

In its reasoning, the Sixth Senate noted that although the reference to the "re-establishment" of an employment relationship appeared neutral on its face, it had a disproportionate impact on fixed-term employees. Unlike their permanent counterparts, fixed-term employees bear the risk of falling under the less favourable provision after their contract expires, solely because of their contractual status-since a new contract must be concluded for them to continue working. The provision thus exploits the structural necessity of concluding a new employment relationship to deny rights to those previously employed on a fixed-term basis.

The court found no objective justification for this discrimination. According to the Federal Labour Court, the legal consequence of the violation is the partial invalidity of the collective agreement provision, resulting in an immediate entitlement to the more favourable treatment ("levelling up").

The BAG's rejection of a primary right of collective bargaining parties to self-correct is groundbreaking. While courts regularly grant collective bargaining parties a grace period to remedy violations of the general principle of equality under Article 3(1) of the Basic Law, this does not apply to violations of prohibitions on discrimination "determined or shaped by EU law, such as Section 4(2) TzBfG". This is the case where a prohibition of discrimination derives from EU law and is given effect through national legislation-as is the case here, since the TzBfG implements two EU directives. In such cases, the principle of effectiveness under EU law requires an effective and dissuasive sanction, which takes the form of an immediate entitlement for the disadvantaged employee. The principle of effectiveness and the requirements for sanctions are not enshrined in the Basic Law. Consequently, the right to self-correct developed in relation to Article 3 of the Basic Law cannot be applied in cases of EU law violations. This conclusion is likely to be significant for other rights to equal treatment protected under EU law, where self-correction would then also be precluded as a matter of consistency. One example is the equal treatment of part-time employees required under EU law.

Practical Implications

This decision has significant practical implications. The key takeaway is the removal of the "safety net" of primary corrective authority for collective bargaining parties in all areas governed by specific EU law prohibitions on discrimination. Employers and collective bargaining parties can no longer rely on subsequent "remedies" with potentially economically cushioned transitional arrangements when clauses are found to be invalid. Instead, they face immediate and retroactive remuneration claims from affected employees.

Practical tip

Companies should therefore promptly review their collective agreements-particularly in-house agreements. Provisions linked to the "re-establishment" of employment relationships pose a particular risk, as they typically disadvantage fixed-term employees as well as other groups with interrupted employment histories.