Legal creative means or dare

The practical view: negotiating with a works council in a redundancy situation

By Dr. Kathrin Bürger, LL.M. (New York)

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Even in mundane circumstances, dealing with a works council on a daily basis can be chal-lenging. But when a company needs to lay off employees for operational reasons, the task is even more challenging. In these situations, company management is forced to involve its works council for the purpose of concluding a reconciliation of interests and a social plan, while works council members have to cope with layoffs of their coworkers.

Getting the works council to participate

According to section 111 of the Works Constitution Act, if a company has more than 20 em-ployees, the works council has the right to be informed of any proposed alteration to opera-tions and to consult with the employer about these alterations. In this context, any change within the organization constitutes an alteration – including shutting down or reducing the size or scope of operations. Theoretically, the goal of the works council’s participation in these circumstances is the conclusion of a reconciliation of interests – that is, a document stipulating the agreed upon changes as well as the timeline for the alteration.

However, this is not compulsory. After informing the works council, the company manage-ment can also act on its own and simply proceed with the alteration. Some federal states in Germany do permit a works council to bring a motion for a preliminary injunction to suspend the alteration, in states where a preliminary injunction will not be granted, the company can usually proceed. In addition, a reconciliation of interests itself is not enforceable under German law. Even so, in the event that an employer doesn’t involve the works council at all or terminates negotiations prematurely, the employees are entitled to indemnities in accordance with section 113 of the Works Council Act. These are, however, individual enti-tlements – not a subject the works council can discuss with the employer.

Combining the negotiations with a social plan

In addition to a reconciliation of interests, the company management needs to conclude a social plan with its works council. Social plans primarily cover the severance payments to which employees are entitled. In general, social plans specify a factor by which to multiply employees’ gross monthly earnings, taking into account each individual’s length of service with the company. In essence, this document does not consist of fixed numbers but a formula – though further regulations tend to be included here, too. The agreement set out in a social plan is enforceable by the works council as well as the employer. For this reason, an arbitration board can be called in if the two parties cannot reach an agreement on their own. In practice, works councils often prolong negotiations to buy time before layoffs begin. An extra month spent in negotiations is considered a win for the works council. But if an employ-er is eager to proceed, the employer can bring a lawsuit for the purpose of establishing an arbitration board. A trial of this kind is an accelerated procedure that follows certain regula-tions.

Including names in the negotiations

If the two parties do come together to negotiate a reconciliation of interests and a social plan, this is where the real work begins. In the interest of the employer, the reconciliation of interests should usually include a list of names of employees to be dismissed. On its face, it might seem this practice only has one effect: The list of names in the reconciliation of interests ap-prises the works council of which employees the employer has chosen to dismiss. But when the reconciliation of interests includes this list, section 1 paragraph 5 of the German Act Against Unfair Dismissal also shifts of the burden of proof to the employees, as the law then presumes the dismissals were made for urgent operational reasons. In addition, the social selection can only be reviewed for serious errors. While the burden of proof ordinarily lies fully with the employer when a dismissal is challenged, the incorporation of this list of names in the reconciliation of interests limits review and shifts the burden of proof to the employee. As a result, the chances are higher that a dismissal will be ruled valid with this list of names than without it. Furthermore, because the chances of success are smaller, employees tend not to bring a lawsuit against an employer when the reconciliation of interests includes a list of names. On the other hand, if the two parties do not settle on a list of names, nearly 100% of dismissed employees challenge the dismissal. This situation forces the employer to use more resources in fighting the lawsuits and to budget for settling them. A significant lower number of challenges is achieved by concluding such list. Of course, this list comes with a price tag. Because the works council, or at least its attorney, knows that there will be a limited number of upcoming challenges to the dismissals, the works council is emboldened to argue more forcefully for an increase in the severance payments written into the social plan – that is to say, the works council fights to boost the factor by which employees’ gross monthly earnings are multiplied. In the end, it is up to the employer to decide whether including a list of names is worth an increase in the size of the severance payments, as determined by the factor in the social plan. If the employer wants to avoid negative publicity as a result of the layoffs and keep the cost of trials and settlements in check, it makes sense to do the work upfront and use an increase in the factor tied to the severance payments as an incentive for the works council to agree on a list of names before layoffs begin.

kathrin.buerger@bblaw.com