BBL comments on major decision by German Federal Labour court on insolvency employment law

Frankfurt, February 28, 2018
On 22.02.2018 the German Federal Labour Court (Bundesarbeitsgericht) ruled on the characterization of the claims of terminated employees for their salary in the context of a delay by the employer to accept the employees’ work performance in the event of insolvency proceedings that lack sufficient assets. This decision burdens insolvency administrators with a high risk of liability:

In the original case, the insolvency debtor had terminated the employment relationship with the plaintiff even before the opening of insolvency proceedings. The insolvency administrator repeated this termination with the opening of the insolvency proceedings (end of March) and a few months later (end of August), terminated in each case another time and released the plaintiff from the obligation to work. The plaintiff challenged all dismissals with an action against dismissal.

A few days after the second notice of termination was issued by the insolvency administrator, the insolvency administrator indicated on 31 August 2012 the imminent insufficiency of assets in the insolvency proceedings.

The plaintiff continued to pursue his challenge against his termination with the dismissal proceedings and prevailed: in all cases it was decided (in the first instance) that the dismissals were ineffective, and the defendant (the insolvency administrator) did not lodge an appeal or rescinded them. Only in May of the following year the insolvency administrator terminated the employment agreement again and subsequently agreed with the plaintiff on a settlement agreement to terminate the employment relationship with effect of the end of August 2013.

The plaintiff then demanded payment of the wages which had become due in the meantime as default wages for a period of time after notification of the imminent insufficiency of assets up to and including August 2013 and filed a claim for payment for a total of EUR 21,444.80.

The plaintiff was also successful in this respect. The Federal Labour Court did not accept the arguments of the insolvency administrator. He had argued that he was not obliged to give a prophylactic notice of termination during pending dismissal proceedings, unless the previous notice was obviously ineffective. However, this cannot be assumed in the present case, the insolvency administrator argued, for the following reasons: the dismissal failed as the respective mass dismissal notice for the termination of many employees at the same time was ineffective in accordance with § 17 KSchG because, while the general works council needed to be and had indeed been consulted on this matter, the general works council in turn had not been validly formed. Moreover, the insolvency administrator had not received any work for the insolvent estate due to the exemption from work.

However, the Federal Labour Court has ruled – like the lower courts – that the plaintiff’s claims must be satisfied in full as so-called new mass liabilities within the meaning of § 209 para. 1 No. 2 InsO. The defendant insolvency administrator was responsible for the justification of the liabilities, because he had failed to make use of the date provided for in § 209 para. 2 No. 2 InsO, namely the first possibility of termination after notification of the imminent insufficiency of assets, and had not given notice. This objective circumstance alone is important. He could also hold on to earlier dismissals, but would then bear the risk that these are ineffective and that he would have to satisfy the wages accrued in the meantime, so-called accepting default wages, as new mass liabilities (i.e. administrative claims on the estate, to be satisfied in full, that are not mere insolvency claims). This also applies, moreover, if the insolvency administrator complies with the date of termination according to § 209 InsO para. 2 No. 2 InsO, but then subsequently it turns out that this termination is also ineffective.

As a consequence, the insolvency administrator facing a staff reduction in a German company should therefore be advised to first of all stick to the date for termination according to § 209 para. 2 in any case. No. 2 InsO – i. e. to preserve the first possibility of termination after notification of a (threatening) insufficiency of assets – and to terminate employment relationships again as a precautionary measure if employees defend themselves against previous dismissals with a dismissal protection action.

In addition, the decision once again makes it clear that countless “pitfalls” in employment law have to be overcome on the way to restructuring or shutting down a company in Germany, because in the decided case, the ineffectiveness of the mass dismissal notice was not really obvious, but rather had the character of a “hidden defect”.

This makes extremely careful preparation of staff reductions by experienced labour lawyers indispensable and is especially true for foreign insolvency administrators who are forced to observe and apply German labour law when shutting down their operations.

The question as to the extent to which the insolvency administrator is personally liable in accordance with § 61 InsO, if he is unable to satisfy the new assets liabilities thus established, has not yet been conclusively clarified. In a similar case – LAG Munich, Urt. v. 21.07.2005 – 4 Sa 243/05 – this was in any case denied.

This decision is commented by:

Dr. Simone Wernicke  
Lawyer
Specialist Lawyer for Labor Law
 
Zeilweg 42  
60439 Frankfurt  
Phone: +49 69 963761-130  

 

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BBL is one of the leading German law firms with excellent connections, focusing solely on special situations – restructuring, rehabilitation and insolvency. We have significant experience in drawing up and implementing complex restructuring concepts within and outside the scope of insolvency proceedings. More than 50 lawyers are present in Germany and in London.
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