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Directive on transparent and foreseeable working conditions - what do employers need to know now?

  • Germany
  • Employment law

01-06-2022

Update from 28.06.2022

Directive on transparent and predictable working conditions: Employment contracts now compulsory in wet ink? The German Bundestag passed the new Confirmation Act on 23 June 2022. After approval by the Bundesrat, which is expected for early July, the law is to come into force on 01.08.2022. Confirmation of working conditions in electronic form remains excluded despite all concerns raised in the legislative process. In order to avoid the imposition of fines, employers will therefore have to adapt their onboarding processes accordingly. Read more in the below article.

I. Overview

The so-called Confirmation Act („Nachweisgesetz”) obliges employers to hand out to their employees a written confirmation of the essential contractual terms and conditions. Directive no. 2019/1152 of the European Union on transparent and foreseeable working conditions extends the obligations to provide written confirmation and is to be transposed into national law by August 1, 2022. The corresponding draft bill of the German government (BT-Drs. 20/1636) has not yet been passed by the Bundestag. However, significant changes to the draft are currently not expected.

Based on the directive, the draft law primarily provides for a significant expansion of the Confirmation Act. In addition, unlike in the past, providing incorrect or incomplete information to the employee will in future constitute an administrative offense punishable by fines of up to 2,000 Euros. Furthermore, minimum requirements for working conditions will be defined. These include the maximum duration of a probationary period, the definition of a reference framework for on-call work, and an obligation for companies to provide a reasoned statement if an employee requests in text form full-time work, a reduction in working hours or a change in working hours.

Since most employers do not prepare separate confirmation letters in accordance with the Confirmation Act, but use their employment contract forms to fulfil the relevant obligations, the implementation of the Directive is of considerable practical importance. This is all the more true as the draft law excludes the proof of working conditions in electronic form - although this is exactly what the directive would permit.

II. What applied so far?

The Confirmation Act in its still valid version requires the employer to set down the essential contractual terms in writing, sign the record in wet-ink and hand it over to the employee within one month of the agreed start of the employment relationship. The statutory minimum list includes the names and addresses of the contracting parties, the start and duration of the employment relationship, and information on the place of work, job description, pay, working hours, vacation, notice periods, and applicable collective bargaining agreements or works agreements. What is often not known: A transcript in electronic form is excluded. DocuSign or scanned signatures, etc., therefore do not meet the requirements of the Confirmation Act.

An employment contract signed by the employer's own hand can fulfil the obligations of the Confirmation Act. Conversely, more and more companies (especially international) want to avoid the exchange of hand-signed employment contracts for understandable reasons of efficiency. Corona has reinforced this development. The Confirmation Act does not stand in the way of this development, because a violation of the Confirmation Act remains largely without sanction under the current legal situation and does not render the concluded employment contract invalid. This could now change following the will of the European legislator.

III. What new obligations will apply from August 1, 2022?

The German government's draft bill essentially provides for the following changes:

1. When to submit the minutes?

• The exemption from the requirement to provide evidence for short-term employment relationships of no more than one month is abolished.

• Previously, the written confirmation did not have to be submitted until one month after the agreed start of the employment relationship. According to the draft law, staggered deadlines will apply in the future. In the future, information on pay and working hours (including shift patterns) must be documented in writing no later than the first day of work. Information on the duration of the employment relationship, place of work, job description and probationary period must be proven no later than the seventh day after the agreed start of the employment relationship. All other terms and conditions of the contract must be provided in the form of a written record no later than one month after the agreed commencement of employment.

2. Form of the written confirmation - obligation to have a wet ink signed employment contract?

• Under the current law, the record of the essential terms of the contract must be in writing and signed by the employer. Confirmation of the essential terms of the contract in electronic form is excluded pursuant to Section 2 (1) sentence 3 Confirmation Act.

• As things stand at present, the need for a wet-ink signed confirmation will not change as a result of the implementation of the Directive. This is particularly explosive in view of the future provisions on administrative fines of the Confirmation Act (see Section 9 below).

• However, this does not result in an obligation to conclude a wet-ink signed employment contract. In particular, the Confirmation Act will not require the employee to sign the employment contract in person in the future. However, due to the threat of a fine in the new Section 4 of the Confirmation Act, companies may be forced to hand over the employment contract with wet-ink signature.

3. What applies to mobile work?

• If mobile working has been agreed with the employee, the confirmation of employment conditions or the employment contract must contain a reference to the fact that the employee is free to choose their place of work.

• In the future, it will therefore be necessary to examine more closely under which conditions employees - for example in the event of a lockdown - can be permitted to perform work at home, or whether this triggers an obligation to provide a confirmation letter in writing. However, it is questionable whether in such a case mobile work is a "contractual condition" that must be confirmed.

4. Confirmation of all elements of salary?

• Already under current law, the composition and amount of remuneration, including bonuses, allowances, premiums and special payments, as well as other components of remuneration and their due dates, must be confirmed in writing to the employee.

• After the draft bill, in addition, any pay due for overtime and – in general – the method of payment needs to be confirmed (e.g. whether salary is paid in cash or by bank transfer).

• In light of the threat of fines that will apply in the future for not confirming all salary elements in writing, employers will have to examine the extent to which it will continue to be possible, for example, to set out bonus regulations only in a separate bonus plan outside the employment contract.

5. Do shift schedules have to be included in the employment contract?

• Under current law, the employer must include "the agreed working time" to the written confirmation of employment conditions under the Confirmation Act.

• In the future, the agreed rest breaks and the agreed daily and weekly rest periods must also be confirmed. In the case of agreed shift work, the shift system (e.g. three shifts), the shift rhythm (e.g. weekly rotation or full shifts) and the conditions for shift changes must also be confirmed. According to the explanatory memorandum of the draft law, as things stand, general information on the agreed shift system will be sufficient. Additional confirmation of any individual shift changes (e.g. updated duty rosters) within the agreed shift system or the agreed shift rhythm is not required in this respect.

• If the shift system is laid down in a works agreement with the works council (“Betriebsvereinbarung”), a general reference to the fact that the relevant works agreements apply to the employment relationship is sufficient.

• Furthermore, the possibility of ordering overtime work and its conditions have to be included in the written confirmation or the employment contract.

6. Less flexibility with on-call work?

• The Confirmation Act did not previously contain any specific obligations to confirm the terms of on-call work.

• In the future, the number of minimum hours to be remunerated, as well as the minimum announcement period for calling to work must be included in the written confirmation or the employment contract. In addition, the employer must in future specify a time window, determined by reference days and reference hours, which is fixed for the performance of the work and outside of which the employer may not demand any work performance. This so-called reference frame must be included in the written confirmation or the employment contract. If the employer does not establish a reference frame, the employee may refuse to perform work. The flexibility of the employer in the context of work on call arrangements is thus further restricted.

• The draft law does not specify how broad the reference frame may be. In this respect, it will depend on the circumstances of the individual case. However, it will not be possible to circumvent the regulation by specifying a particularly broad reference frame (e.g. Monday to Sunday, 0-11 p.m.).

7. Procedure in case of termination - what must the employer inform about?

• At first glance, the employer's obligation to inform the employee in the written confirmation or the employment contract about "the procedure to be followed by the employer and the employee in the event of termination of the employment relationship" catches attention. According to the wording, this could also mean the hearing of the works council or the committee for disabled employees as well as the submission of applications for termination approval in the case of severe disability or parental leave. However, it is often impossible for the employer to foresee whether such a procedure will be necessary in the event of termination when the employment contract is concluded.

• Fortunately, however, the draft bill concretizes the employer's information obligations to the following minimum disclosures:

• the written form requirement for termination and the notice periods applicable to the contracting parties, including the notice period during the probationary period. The obligation to state the calculation modalities for notice periods staggered according to length of service is new.

• In addition, the written confirmation must contain information about the deadline for bringing an action for protection against dismissal in accordance with Section 4 of the German Dismissal Protection Act (Kündigungsschutzgesetz). The employee must therefore be informed either in the employment contract or in the written confirmation und the Confirmation Act that they must take legal action against the termination within three weeks, as otherwise the termination will be deemed to have been legally effective. However, the draft law explicitly clarifies that the three-week period also applies if information about this has not been properly provided. Whether this is compatible with the Directive appears doubtful. It is conceivable that the ECJ will overturn the regulation. Employers should therefore prepare for such a case by fulfilling this obligation as well.

8. Further training and company pension scheme

• Furthermore, the employer is obliged to provide information on the scope of the entitlement to training provided by the employer, if such an entitlement exists. An entitlement may arise from individual or collective agreements or from the law.

• If the employer promises the employees a company pension through an external pension provider, the name and address of this pension provider must be recorded in the employment contract or the written confirmation. An exception to this obligation to provide evidence exists if the pension provider is obliged to provide this information.

9. Breaches of obligation to provide confirmation

• Of central importance for the draft law are the consequences that may arise in the future in the event of a breach of the obligation to provide written confirmation properly. Under hitherto law, the worst case scenario was that the employer could not invoke certain regulations, e.g. preclusion periods under collective agreements.

• In the future, violations of the provisions of the Confirmation Act will constitute an administrative offense punishable by a fine of up to 2,000 Euros. In view of the potential consequences of a fine for the companies (for example, in the awarding of public contracts) and the executive staff, it is of little consolation that, according to the explanatory memorandum to the draft law, the economic situation of small and medium-sized enterprises is to be particularly taken into account when assessing the amount of fine.

• Employers act in violation of the law if the written confirmation of the essential terms of the contract is (1) not provided at all, (2) not provided correctly, (3) not provided completely, (4) not provided in the prescribed manner, or (5) not provided in a timely manner. The alternative "not in the prescribed manner" appears to be particularly important, since under the draft bill the transcript must be given with a handwritten signature. This is contrary to the widespread tendency in many sectors of the economy to sign employment contracts only by DocuSign. In the final analysis, this provision gives the employer the choice of either handing over, in addition to the employment contract, a hand-signed confirmation of the contractual terms and conditions set out above, or handing over to the employee a hand-signed employment contract containing all this information. However, it is not necessary to receive or store an employment contract signed by the employee in order to comply with the obligations under the Confirmation Act.

IV. What applies to already existing employment relationships? And what in the case of contract amendments?

• The extended confirmation requirements for employers apply to employment contracts concluded from the date on which the transposition law will come into force. According to the will of the European legislator, this is August 1, 2022. Timely implementation in Germany is realistic.

• For employment relationships that were established before the new Confirmation Act came into force, the confirmation obligations described above only apply, if the employee requests a written confirmation of the relevant contractual conditions. In this case, the confirmation must generally be handed over within seven days. Information on vacation, notice periods and applicable collective bargaining agreements with unions and works councils have to be confirmed in writing within one month.

• If the contractual terms and conditions which require written confirmation are amended during an existing employment relationship, the new contractual terms and conditions shall be confirmed to the employee in writing no later than on the day on which they become effective. Electronic form is also excluded for the notification of contract amendments.

• Again, failure to provide written confirmation in the cases above may result in fines of up to 2,000 Euros.

V. What other obligations are introduced for employers?

The Directive also contains provisions on the material structure of the working conditions. However, unlike the additional obligations to provide written confirmation, these are not subject to fines.

1. Duration of the probationary period for fixed-term employment relationships

• In addition to the changes described above for work on call the draft implementation bill provides that probationary periods must be proportionate in the case of fixed-term employment relationships. The duration of the probationary period must be in proportion to the expected duration of the fixed term and the nature of the contractually agreed role of the employee. In the case of activities that are particularly easy to learn, the previously unproblematic permissible duration of the probationary period of up to six months will therefore not be permissible without further ado.

• If the duration of the agreed probationary period is disproportionate, it is invalid. As a consequence, the shortened notice period of two weeks would not apply. Whether the statutory minimum notice period of four weeks applies instead or whether a contractually agreed notice period of e.g. three months would come into force also during the envisaged probation is not regulated.

• On a different page, the Working Conditions Directive does not affect that employees need to have six months of service before they fall under the remit of the General Dismissal Protection Act (“Kündigungsschutzgesetz”).

2. Duties to comment

• In implementation of the Working Conditions Directive, the German government's draft bill also provides for a number of obligations for employers to comment in text form on specific employee requests.

• Employees whose employment relationship has lasted longer than six months and who notify their employer in text form of their wish to change the duration and location of the contractually agreed working hours are entitled to a reasoned response within one month of receipt of the notification. The response can be sent in text form, i.e. email is sufficient.

• The same entitlement is granted to fixed-term employees who have been employed for more than six months and have notified the employer of their wish to be employed for an indefinite term.

• Similarly, temporary workers who have been leased to a company for more than six months and have notified the hirer in text form of their wish to enter into an employment relationship with them, are entitled to a reasoned response. In this context, the hirer, for its part, will have to observe obligations arising from the contract with the labour leasing agency such as non-solicitation or commission obligations.

• All constellations have in common that a reasoned response cannot be demanded if the employee has already submitted the respective wish once in the last twelve months before receipt of the notification.

VI. What should employers do now?

Employers in all sectors of the economy are recommended to take the following actions in light of the upcoming legislative changes:

• Review of employment contract templates to ensure that the essential terms and conditions of employment are stated in accordance with the Confirmation Act, in particular the new requirements on shift work, work on call and the procedure for terminations. Likewise, the extent to which the contractual terms and conditions of bonus systems must be set out in writing should be examined.

• If companies cannot or do not want to include certain information in their employment contracts, consideration should be given to providing the employee with a separate written confirmation of these contractual terms. This will often not be the preferred solution due to the administrative burden involved.

• Evaluation of personnel files: It is not required to store a copy of the employment contract or the written confirmation which has been counter-signed by the employee. An electronic copy with the employer's wet ink signature and an electronic confirmation from the employee that the original has been handed over to them is sufficient. Of course, this only applies if mutual wet ink signatures are not required due to other regulations, such as in the case of post-contractual non-competition clauses.

• Adjustment of the process for contract amendments: In principle, the imposition of fines for incomplete or non-written information only threatens employment relationships that are established after the transposition law comes into force. However, if existing employees request a wet-ink signed confirmation of their working conditions, this confirmation must be handed over within seven days or one month (depending on the working condition), otherwise a fine may be imposed. The same applies – also without a request of the employee – in the event of an amendment of contractual terms and conditions for which written confirmation is required. In this case, employers must pro-actively hand over a wet-ink signed confirmation to avoid the threat of fines.

• Review of company practice on agreeing probationary periods for fixed-term employment relationships. Especially in the case of shorter terms of six to 12 months and simple activities, it should be examined whether the previously permissible probationary period of six months continues to be appropriate.