Changes to the German Evidence Law from 1 August 2022

The implementation of the Directive on Transparent and Predictable Working Conditions in the European Union ([EU] 2019/1152, “EU Transparency Directive”) has caused much furore. The EU Transparency Directive aims to improve working conditions and increase the adaptability of the labour market through transparent and more predictable regulations. In order to implement the EU Transparency Directive, the German legislator has in particular – but not exclusively – adopted amendments to the German Verification Act (Nachweisgesetz, “NachwG”). The amendments to the law will come into force as early as 1 August 2022 and affect both new and existing employment relationships.

The reform of the NachwG has the following effects:

Required content of employment contracts

One of the main amendments to the NachwG concerns the extension of the minimum contents of employment contracts contained in Section 2 para. 1 NachwG. From 1 August, employment contracts must therefore contain the following mandatory information:

1. Name and address of the contracting parties,
2. date of commencement of the employment relationship,
3. in the case of fixed-term employment: the foreseeable duration of the employment relationship and the date of termination,
4. duration of any agreed probationary period,
5. place of work or, if the employee is not to work at only one particular place of work, an indication that the employee may be employed at different places,
6. brief characterisation or description of the work/activities to be performed by the employee,
7. composition and amount of the remuneration, including supplements, allowances, bonuses and special payments as well as other components of the remuneration and their due dates
8. agreed working hours, including any shift systems, the possibility of ordering overtime and break times, if applicable, information on on-call work,
9. duration of the annual leave,
10. entitlement to compulsory further training, if any,
11. information on the pension provider for the occupational pension scheme, if offered,
12. respective notice periods for terminating the employment relationship and for bringing an action for unfair dismissal,
13. reference to the written form required for notices of termination, and
14. general reference to the applicable collective agreements, works or service agreements and other regulations.

What exactly the new regulations must look like, in particular how detailed they must be, has not yet been conclusively resolved. Neither the new wording of the NachwG nor the explanatory memorandum to the new law provide sufficient information on the exact requirements for employers.

This ambiguity concerns in particular the requirement for employers to provide information on the “termination process” in future employment contracts. Accordingly, employers must inform about the procedure to be followed by the employer and the employee when terminating the employment relationship, including the formal requirements. Therefore, as of 1 August 2022, employment contracts must at least refer to the written form requirement and the relevant deadlines for terminating the employment relationship and bringing an action for unfair dismissal to the labour courts. Particularly the latter is not likely to have been the subject of standard employment contracts so far, which means that an adjustment of the standard employment contracts will be necessary in any case.

In addition, it is still unclear how detailed employers must provide information on the termination process, eg whether information on the Dismissal Protection Act (Kündigungsschutzgesetz, “KSchG”)), on any special protection against dismissal, on the works council consultation under Section 102 of the Works Council Constitution Act (Betriebsverfassungsgesetz) or on mass dismissal notices etc. must be included in employment contracts. As the new NachwG does not contain any further details in this regard the labour courts will have to clarify the details in the near future. We will of course inform you here as soon as there is news on this. In the meantime, the above minimum conditions should be implemented into employment contracts, whereby the remaining risk of insufficient information must be borne by the employer.

Controversial written form

Even on the basis of the new NachwG, employment contracts in Germany must (still) be signed in writing (wet ink). The signed copy must be handed over to the employee. Electronic forms such as e-mail etc. are excluded, even a certified electronic signature was used.

The German legislator has therefore not made use of the possibility provided for in the EU Transparency Directive to hand out electronic employment contracts. After this decision became public, this omission was widely criticised. The German legislator was accused of missing the opportunity for digitisation. In the opinion of the Federal Ministry of Labour and Social Affairs, however, the written form continues to be necessary, primarily because of the greater probative value of a written document.

Certainly, in view of the progressing digitalisation, especially of HR processes, a corresponding waiver of the written form requirement would have been desirable. Remarkably, all other EU member states have made use of the option provided for in the EU Transparency Directive to allow the electronic form of the employment contract. In Germany, however, the written form continues to apply – future modifications remain to be seen.

Deadlines for new and old contracts

As of 1 August 2022, employers must fulfil their obligations to provide evidence to their employees earlier than before. The written (and wet-ink signed) employment contract must now be handed over on the first working day of employment (instead of within one month, as before).

The new provisions of the NachwG apply in principle to all employment relationships beginning on or after 1 August 2022. However, employees whose employment relationship already existed prior to this date may request that their employer provide them with a copy of the essential contractual conditions based on the new NachwG. The employer must comply with this request no later than the seventh day after receipt of the request.

If material contractual conditions are changed during an ongoing employment relationship, the employer must hand over the relevant change to the employees – also in writing – no later than the day on which the change is to take effect. This requirement also applies to bonus letters, etc.

Legal consequences of violations of the NachwG

As of 1 August 2022, a violation of the NachwG can now be punished as an administrative offence with a fine of up to EUR 2,000.00. However, it remains to be seen how consistently violations of the NachwG will actually be punished by the competent authorities and whether the fine limit of up to EUR 2,000.00 will be exhausted.

Furthermore, a violation of the NachwG can lead to unfavourable evidentiary consequences for the employer in possible court proceedings or to claims for damages by the employees concerned.

Further legal consequences are not yet fully foreseeable. However, it is important for employers that even in the absence of a reference to the three-week period for bringing an action for protection against dismissal, the failure to observe this period should result in the dismissal being deemed legally effective from the beginning (cf. Section 7 KSchG). Therefore, an extension of the three-week period for bringing an action for protection against dismissal should not be a consequence of a missing reference in the employment contract.

To dos for employers

Employers are required to adapt their standard employment contracts as soon as possible to the more extensive requirements of the new NachwG. In most cases, this concerns in particular the information on the dismissal process, including the deadlines for bringing an action for unfair dismissal, as well as detailed regulations on remuneration and working hours. The new standard employment contracts should be used immediately, but at the latest for new hires as of 1 August 2022.

In addition, it is recommended that a “standard response letter” be prepared for employees who assert their right to information in the existing employment relationship, as the employer must respond to the asserted claim within seven days after receipt. A separate letter reflecting the minimum content of the terms and conditions of employment mentioned above may be used for this purpose. Alternatively, a completely new employment contract can be handed out to the respective employee. Of course, we are always happy to assist with the drafting of standard letters of response and the adaptation of model employment contracts.

Beyond that, employers should note that the written form requirement (still) applies for German employment contracts in any case. This means that bureaucratic hurdles cannot be removed by corresponding electronic processes. In order to be able to respond flexibly in terms of time and also to avoid difficulties in providing evidence, employers are recommended to provide their HR departments with powers of attorney to sign employment contracts and “information letters”.

Conclusion and future developments

The impacts of the new NachwG are considerable for employers. From 1 August 2022 at the latest, employers must fulfil the new verification requirements to the required extent – and continue to do so in writing (wet-ink). Employers are therefore faced with time pressure and organisational challenges, especially with regard to existing HR and onboarding processes.

Employers face particular difficulties with regard to the necessary scope and detail of the mandatory information to be provided to employees. Due to the partially inconclusive requirements of the NachwG, there is still much that is unclear in this regard and will have to be clarified by the labour courts in the future. Until then, however, employers will have to deal with any omissions.

If employers do not fulfil their obligations to provide evidence according to the NachwG, or do so incorrectly, incompletely, not in the prescribed manner or not in good time, this can be punished with an administrative fine of up to EUR 2,000.00. It remains to be seen how intensively the competent authorities will punish violations of the NachwG in the future and whether they will actually make use of the maximum fine.