Germany: Update on Social Selection in Dismissal Cases

If the employment relationship comes under general protection against dismissal, a dismissal pursuant to the German Act on Protection Against Unfair Dismissal (KSchG) is justified if it is necessary due to urgent operational requirements. But even if these reasons are on hand and continued employment at the establishment or company is not possible, the employer generally may not select and dismiss his employees at his free discretion. On the contrary, he has to carry out a so-called social selection. In the absence of such test, the dismissal in any case will be socially unjustified, thus invalid.

Social selection is administered according to the principle that the socially weaker employee is to be protected and a socially stronger employee is dismissed. A socially stronger employee is an employee who is less dependent on his job. In individual cases after the continued employment of individual employees, this principle can be breached due to justified operational requirements. The social selection can be reviewed by a court. In practice, carrying out the social selection is the “weak spot” of dismissals for operational reasons because it contains manifold imponderables.

•  “Bucket” of employees to be included in the social selection

First, the employer has to review whether the discontinuation of a job really does justify a dismissal for operational reasons or whether e.g. a vacant job is available on the same hierarchical level where the employee could continue to be employed. If this is not the case, the employer stipulates the group of employees who are to be included in the social selection.

•  Same Establishment

Generally, only employees of the same establishment com into consideration. The Regional Labor Court of Rhineland Palatinate recently that it constituted a gross selection error if the social selection was carried out on a department-related basis, unless the comparability of employees was limited to the department. The social selection therefore may not be limited to parts of businesses or business departments and also the geographical distance of individual branches or operating sites does not oppose it insofar as an establishment – as defined in the Act on Protection against Unfair Dismissal – is involved.

The difficult question in practice is therefore, under what circumstances is an establishment – as defined in the Act on Protection against Unfair Dismissal – on hand. The works constitution law structures are not helpful thereby since the latter – contrary to the establishment being subject to protection against unfair dismissal – also acknowledge independent parts of a business that for their part fulfill the prerequisites for setting up a works council. Court rulings in this connection require that in HR and social matters, the core of the employer function is independently exercised by the same management and that decisions on working conditions and organisational issues, hires, transfers and dismissals are centrally taken for all departments and parts of a business. In this respect, two parts of a business with individual elected works councils can readily constitute one establishment because they are headed by one HR director managing the HR and social matters of the employees. The burden of proof concerning the scope of an establishment, thus, e.g. also “extending” the social selection to sites other than the employment site is, however, borne by the employee (see Federal Labor Court of 31 May 2007 – 2 AZR 276/06).

The social selection is to be carried out on an establishment-related basis also applies if the employer has reserved the right – e.g. in the employment contract – to transfer the employee on a cross-establishment basis. This does not lead to a scenario – as the Federal Labor Court once again affirms by judgment of 22 October 2015 – 2 AZR 582/14 – in which the employee can be compared with other employees beyond the borders of the establishment.

Another question is the extent to which temporary workers hired out to clients have to be taken into account in terms of the social selection. On this issue, by judgment of 20 June 2013 – 2 AZR 271/12 the Federal Labor Court rendered a landmark court decision, finding that, all temporary agency workers belong to the establishment of a temporary work agency i.e. the company hiring out the temporary workers, regardless of whether they are currently deployed at a client’s or not. Thus if the temporary employment agency is planning to give notice of termination for operational reasons in its establishment, it must also include in the social selection the temporary workers hired out to a client’s if they are comparable to the temporary workers affected by the loss of the workplace and if their being exchanged by other workers is not contractually ruled out in the labor service contract with the client.

•  Comparability/Exchangeability of employees

The employer must then determine the group of comparable employees that the employer has to include in the social selection. “Social selection” concretely means that although possibly the workplace of Employee A – being worthy of protection under the social selection – is discontinued, the latter may not be dismissed to the detriment of Employee B – being less worthy of protection under the social selection –; the employer must, as a result of the social selection, dismiss B and transfer A – whose workplace has been discontinued – to B’s workplace. This switch only works if A can take over B’s workplace, A therefore being comparable to B.

According to consistent court rulings, such comparability is determined by workplace-related features and thus to the activities carried out. Employees can be compared to each other if they are exchangeable, i.e. the employer could unilaterally redeploy or transfer the employee to a different workplace. The workplace may not be of lower or higher value, but must be on the same hierarchical level. It is decisive, therefore, how the employment contract has been structured in the individual case and how far the right of the employer to issue directives extends.

The Regional Labor Court of Rhineland-Palatinate (judgment of 14 March 2016 – 3 Sa 245/15) ruled that comparability is given also if the employee – based on the employee’s skills and training – can perform work that is different but of equal value. Furthermore, there is also comparability even if two employees have different earnings provided they perform the same work and are exchangeable. This was recently confirmed by a judgment of the Regional Labor Court of Hamm of 7 August 2015 – 13 Sa 166/15.

The social selection has to take place between employees working full-time and part-time. If the employer would like to avoid this, he must – based on a plausible business concept – allocate certain activities to certain working times and demonstrate why these activities can only be carried out by part-time or full-time staff (Federal Labor Court, 20 November 2014 – 2 AZR 512/13).

•  Selection Criteria

Once the “bucket” of employees to be included in the social selection has been determined, the length of service (seniority), age, financial obligations vis-à-vis dependent family members and severe disability must sufficiently be taken into account. It cannot be gathered from the wording of the Act how the mentioned social criteria are to be set in relation to each other. The employer is thus always entitled to a certain discretion when considering the social data. A decision of the Federal Labor Court from last year (Federal Labor Court decision of 29 January 2015 – 2 AZR 164/14) makes it very clear in this context. In this case, the judges corrected the employer’s social selection and found that an employee who had financial obligations towards his wife and two children and who had been working in the establishment for six years was more worthy of protection than a female employee who had already been working in the company for nine years but did not have any maintenance obligations. Thus, according to the judges, three years more seniority cannot balance out three financial obligations.

The employee can only challenge the validity of the social selection if the employee is more worthy of protection than the person the employee is being compared to. In this connection, the Regional Labor Court of Hamm in its judgment of 7 August 2015 – 13 Sa 166/15 – ruled that it is not to be taken into account if an employee draws his old-age pension and thus is adequately provided for because when it comes to the social selection, general socio-political assessments have to be excluded.

In case of termination pending a change of contract the social justification of the change offer is the main focus. The Federal Labor Court (judgment of 29 January 2015 – 2 AZR 164/14) found that in this case it has to be reviewed whether, instead of changing the working conditions of the employee who has been given notice of termination, the employer should have offered the changes to a comparable employee who would be more likely to find the changes reasonable. The criteria seniority, maintenance obligations, age and severe disability are relevant also for this review.

•  Exclusion from the social selection

The Act on Protection against Unfair Dismissal acknowledges that the employer can have an interest in having a balanced age structure. It therefore allows the carrying out of the social selection in the context of age groups if, for the purpose of securing a balanced age structure of the staff, this is in the justified interests of the establishment. This presupposes that, the formation of age groups and the dismissal decisions derived therefrom actually are suitable for securing the existing staff structure. The Federal Labor Court most recently ruled (judgment of 26 March 2015 – 2 AZR 478/13) that, the extent to which dismissals had impacts on the age structure of the establishment, what disadvantages ensued from this and whether this justified a social selection according to age groups, depended on the operational circumstances in the individual case.  The employer had to demonstrate in detail the impacts and possible disadvantages.  In any case, the distribution of the employees to the age groups had to be in proportion by percentage to the number of the employees to be dismissed in the relevant age groups. For this purpose, the employer first had to form age groups within the comparison group, determine the percentage distribution of the staff among the age groups and then proportionately distribute the aggregate number of dismissals among the individual age groups.

Compliments of CMS – a member of the EACCNY