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Transatlantic frictions: N.Y. bank authority vs. German labor court

Acting under the pressure put on it by the New York financial supervisory authority, German Commerzbank dismissed 4 German employees, but has now been upbraided by Frankfurt Labor Court for doing so.

The US bank authority had demanded repercussions for the bank’s lax anti money laundering checks: “The Authority is instructing the bank to take all necessary steps to dismiss the four employees who played a central role in the context of the inappropriate conduct (…), but who continue to be employed with the bank”.

Otherwise, the bank would be under threat of losing the US banking license. Commerzbank complied with the request. But the verdict from New York cannot justify the dismissals because under German law, the parties concerned had not been guilty of any serious wrongdoing. Before Frankfurt Labor Court, Commerzbank referred to its actions – faced with withdrawal of the license in New York – as “dismissal under pressure” – a very extraordinary type of dismissal in Germany. Such dismissals are only permissible if a company is being threatened by third parties with severe consequences unless it parts ways with certain employees. The bank did not accuse the parties concerned of any individual, concrete misconduct.

But such dismissals under pressure are subject to very strict requirements in Germany. For instance, first the employer must stand up for the employees concerned and attempt to bring the third party round, in this case, the New York supervisory authority. According to Frankfurt Labor Court, the bank failed to provide evidence that to an adequate degree it had done so.

For this reason among others, at the end of 2015 the Court quashed the dismissals as being invalid. And the dismissals – also under the requirements imposed by the US authority – are not bereft of alternatives. In the settlement, namely, there was also already an alternative set out: At the minimum the 4 bankers are not supposed to be assigned tasks involving compliance, US dollar transactions or US business. The employees concerned had also agreed to this.

It is still unclear how the bank will respond to the defeat. According to the news, the bank filed an appeal, but the bank still has a couple of weeks to review whether it wants to fight the case – also through the second instance.

By Gerlind Wisskirchen, Partner, CMS – The firm is a member of the EACCNY