Significant Changes to the German Evidence Act - Key Takeaways for Employers

Significant Changes to the German Evidence Act - Key Takeaways for Employers

July 21, 2022, Covington Alert

On June 23, 2022, the German government transposed the European Directive (EU) 2019/1152 on transparent and predictable working conditions in the European Union ("Directive") into German law (Nachweisgesetz). The Evidence Act comes into force on August 1, 2022 and has the consequence for employers that they have to amend their employment contracts until then. This applies to new employment contracts and, under certain conditions, also to those already concluded. What is new is that fines may be imposed if these obligations are breached. The aim of the Directive and the Evidence Act is to create transparency for employees with regard to the working conditions that apply to them.

At the same time, the legislator passed amendments to the Commercial Leasing of Employees Act (Arbeitnehmerüberlassungsgesetz), the Part-Time Work and Fixed-Term Employment Act (Teilzeit- und Befristungsgesetz) and the Trade Regulation Act (Gewerbeordnung).  

Already under the previous Evidence Act, employers had to provide written evidence of the essential working conditions. This included:

• name and address of the contracting parties;
• start date of the employment relationship;
• in the case of fixed-term employment: the expected duration of the employment relationship;
• place of work or, if the employee is not to work at only one particular place, an indication that the employee may be employed at various places;
• a brief description of the employee’s activities;
• the structure and the amount of remuneration, including bonuses, allowances, premiums and special payments, as well as other components of remuneration and their due date;
• the agreed working hours;
• the duration of the annual vacation;
• the notice periods of the employment relationship; and
• a reference to the collective agreements, works agreements or public employers’ agreements with the staff council applicable to the employment relationship.

In the case of foreign assignments of employees, special obligations to furnish proof already applied with regard to duration, currency, remuneration, benefits in kind as well as the return of the employee.

The Evidence Act was not particularly relevant in practice so far. Up to now, the evidence had to be provided within one month of the commencement of the activity. In particular, the law did not provide for fines for violations of the obligation to provide evidence. Employees were only entitled to have the verification obligations fulfilled. Claims for damages could only be considered if employees actually suffered financial damage as a result of the employer's violations of the Evidence Act, which they had to prove.

What will Change from August 1, 2022?

The obligations to provide evidence have been extended and the deadline for providing evidence has been significantly shortened. In addition, employers face fines of up to EUR 2,000 per violation for breaches of the Evidence Act.

Unfortunately, the German legislator has not made use of the option to also provide evidence of working conditions digitally, even though the Directive explicitly provides for this ("The employer shall provide each worker with the information required pursuant to this Directive in writing. The information shall be provided and transmitted on paper or, provided that the information is accessible to the worker, that it can be stored and printed, and that the employer retains proof of transmission or receipt, in electronic form.", Art. 3 of the Directive). This still precludes the use of an electronic signature. Employers must continue to print out the working conditions on paper and sign them by hand in order to fulfill their obligations. Electronic signatures, scans or similar (e.g. Docusign) are not sufficient. This is surprising insofar as page 15 of the new federal government's coalition agreement of November 24, 2021 states: "...Germany needs a comprehensive digital awakening. We want to harness the potential of digitalization for people's development opportunities, for prosperity, freedom, social participation and sustainability. To this end, we will set ourselves ambitious and verifiable goals and take realistic and quickly tangible measures. Competencies in the federal government will be reorganized and bundled, a central additional digital budget introduced and laws subjected to a digitalization check." The considerations at the time apparently played no role for the Evidence Act.

In Detail

1. The obligation to provide evidence is extended. The notification obligations outlined above are still required and are expanded to include proof of the following working conditions:

• in the case of fixed-term employment relationships, the end date or the duration of the fixed term;
• also the duration of any agreed probationary period;
• if agreed, the possibility of ordering overtime work and its conditions, as well as the remuneration for overtime work;
• the method of payment of remuneration and all related parts;
• agreed rest breaks and rest periods and, in the case of agreed shift work, the shift system, the shift rhythm and the conditions for shift changes;
• any entitlement to further training;
• if a company pension scheme exists via a pension provider, the name and address of this pension provider; and
• the procedure to be followed by the employer and employee when terminating the employment relationship, at least the written form requirement for notices of termination, the notice periods (including, for example, during the probationary period) and the period for bringing an action for unfair dismissal.

2. The deadline for preparing the proof is shortened. In the future, employers will have staggered deadlines for complying with the verification requirements:

• Evidence of the essential terms of the contract, such as the name and address of the contracting parties, the composition and amount of the remuneration and the agreed working hours, must be available no later than the first day of work.
• On the seventh calendar day after the agreed start of the employment relationship, the following information, among others, must be proven in writing: Commencement of the employment relationship, duration of the probationary period and of any agreed fixed term, place of work, description of services and overtime arrangement.
• The remaining information must be proven no later than one month after the beginning of the employment relationship.
• Changes to the main terms of the contract occurring during the employment relationship must be notified to the employee in writing on the day they become effective.

For the sake of clarity, it is advisable to give all the information together to employees no later than the first day of work before the actual start of the activity.

3. The employer shall provide written evidence of the terms and conditions of employment, i.e. the essential terms and conditions of employment shall be set out in writing and handed over to employees. However, this does not have the consequence that the employment relationship only comes into existence or becomes effective through the written agreement. Employers can also fulfill their obligation to provide evidence by providing written information in a separate document - in addition to the employment contract - which they hand out to employees. In practice, however, it is customary to hand over a written employment contract (on paper).

4. As of August 1, 2022, violations of the obligation to provide evidence can be sanctioned. If employers do not fulfill their obligations to provide proof, do not do so correctly, do not do so on time, do so incompletely, or do so in the wrong form, they may face a fine of up to EUR 2,000 per violation.

5. Further changes:

• The Part-Time Work and Fixed-Term Employment Act has also been amended: in future, a probationary period for fixed-term employment relationships must be in proportion to the expected duration of the fixed-term and the type of activity. In the case of short fixed-term contracts (fixed-term contracts of less than twelve months), a probationary period of six months will therefore no longer be possible in the future, as was previously the case.
• In addition, employees whose fixed-term employment relationships last longer than six months, or temporary workers who are on lease to the hirer for more than six months, can now notify their employer or the hirer in text form of their desire for an unlimited employment relationship or the conclusion of an employment contract. The employer or hirer must respond in text form within one month of receipt of the notification, stating the reasons for the response.
• Temporary workers must now also be informed of the hirer's company and address in text form before each assignment.
• Finally, the Trade Regulation Act also receives changes: employees may not be charged training costs if the employer is required by or on the basis of a law, collective agreement or works agreement to offer the training. The training shall take place during working hours. Insofar as trainings must be conducted outside working hours, they shall be deemed to be working hours.

• As of August 1, 2022, these changes must be observed for all new employment contracts. There is an urgent need for action: templates must be reviewed and amended accordingly with regard to the changes in the new Evidence Act. For example, the procedure to be followed in the event of termination is unlikely to be included in most employment contract templates. In addition, the previous documentation should be reviewed due to the potential sanctions.
• Standard contracts for temporary workers and fixed-term employment contracts should also be revised with regard to proof requirements and probationary period regulations.
• For existing employment contracts, the new proof requirements only apply if employees request corresponding documentation. Those contracts therefore do not need to be amended. If employees request a proof, employers are obligated to provide them with the essential working conditions in writing within seven days. For this purpose, up-to-date templates with the essential contractual conditions should be prepared in order to be able to comply with this short deadline.
• International employers that have only small departments in Germany should consider granting powers of attorney to certain local employees.

If you have any questions concerning the material discussed in this client alert, please contact the members of our Employee Benefits and Executive Compensation practice.