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Important change in legislation affecting German employment agreements as of October 2016

Sep 29, 16 • Employment LawNo Comments

Text form to replace written form

Employment agreements concluded as of 01 October 2016 may no longer require certain unilateral statements to be made in written form – which was common practice until now – but can only prescribe text form. At first glance, this change in legislation seems to be minor. However, its impact on employers and employees will be considerable.

Text form requirements are less strict

The revised version of Section 309 No. 13 of the German Civil Code (BGB) replaces the previously used word “written form” by “text form”. In comparison to text form, written form is subject to considerably stricter requirements. A declaration in written form, for example, needs to be personally signed by the declarant, while the text form requirement is deemed satisfied by a readable declaration, in which the declarant is named and which is made on a durable medium like a letter on paper, an e-mail or SMS, etc.

Goal: Increasing consumer protection

The new legislation thereby prohibits various clauses in employment agreements that require a stricter form than text form for unilateral notifications and declarations to the contractual partner or a third party. In the future, written form may no longer be required in these cases. The legislator’s intention is to increase consumer protection.

Relevance for new contracts as of 01 October 2016

Former German employment agreements often contain provisions that require the employee to comply with certain notification or reporting obligations in written form. In addition, most employment agreements provide that the employee must assert claims under the employment agreement in writing. Failing to do so would result in forfeiture of the claims (so called limitation or expiry periods).

After the change in legislation, using provisions of this kind will be prohibited. In agreements concluded as of 01 October 2016, the mentioned clauses may only require “text form”. Should a new agreement concluded after 01 October 2016 comprise provisions requiring written form, such provisions will be invalid.

With respect to the limitation period of three months usually agreed in current agreements, this means that the employee might be entitled to assert claims for a much longer period, possibly even until the claim becomes statute-barred (three years). In other words: For three years, the employer will have no legal certainty and will not be able to exclude that an employee, who has long since left the company, might assert claims against him (e.g. overtime compensation, back pay, reimbursement of expenses, etc.).

Relevance for existing agreements in Germany

The new legislation probably also applies to agreements concluded (even long) before 01 October 2016 if they are modified by amendment agreement after 01 October 2016. Although there is reason to assume that the new legislation only applies if the whole agreement is newly concluded as of 01 October 2016, there is no certainty in this regard. As the law does not contain any specific provision addressing existing contracts, the legal situation will remain uncertain for several years, until this question is fully clarified by the courts. As a consequence, employers, who wish to be on the safe side, are recommended to take even amendments of existing agreements as an occasion for updating these agreements as a whole before signing them.

What employers need to do now

The amendment of Section 309 No. 13 BGB involves risks primarily for the employer. It is therefore advisable to seek a legal review of the sample agreements currently in use in good time before 01 October 2016 and to revise them where necessary: Agreements concluded as of 01 October 2016 will, in any event, have to be drafted based on the new legislation. But even in case of amendment agreements concluded as of 01 October 2016, the existing agreements and all their amendments agreed so far should undergo a legal review.

Our Employment Law Specialists will be pleased to assist you in drafting the legal content of your employment and amendment agreements. Please feel free to contact us. We are looking forward to hearing from you.

Exclusive offer available until 31 October 2016:

In the context of the forthcoming change in legislation, we are pleased to present an exclusive offer to review your employment agreement. Our attorneys specializing in employment law check and update the respective clauses at a special price of 150 euros plus VAT. Contact us!

Ellen Pusch

Ellen Pusch specializes in employment law and inheritance law at our Munich office. She drafts and optimizes employment agreements as well as specific types of termination agreements and assists with restructuring projects and M&A transactions (transfers of undertakings).

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