For companies and founders:
Today, your organization, procedures, and staff development are put to the test in ever more frequent intervals. Managing these processes is a challenge: a wide range of special interests is in play. Experience and sensitivity are indispensible for achieving a lasting consensus. Steadfastness and smart positioning are decisive, whether you are negotiating with employees or employee representatives or pursuing your interests in court.
Recruiting and dismissal:
The hiring of employees may once have occurred in a legal vacuum, but that is definitely no longer the case. Anti-discrimination laws require employers to take special care already in advertising a position and when interviewing candidates. Limiting the term of employment is also subject to narrow strictures. If the termination of employment relationships is on the table—especially when motivated by operational business concerns—then a forward-looking plan is necessary, whether it’s a single case or an extensive downsizing.
Bonus plans and pensions:
While the significance of collectively bargained wage agreements with labor unions is eroding, there is an increasing emphasis on performance-based compensation. Both binding metrics as well as room for discretion in evaluations are critical factors for any pay-for-performance program. Building an effective benefit system means taking the legal rights of individual employees into account while also respecting the extensive rights of participation afforded to employee representative bodies.
The right of co-determination enjoyed by works councils also impacts employee pension benefits, for example when changing pension funding mechanisms or switching to a contribution-based pension commitment.
Data privacy and compliance:
Protecting employee data has surpassed the traditional issues of occupational health and safety as a primary concern. The use of modern HR information processing systems is indispensible, but the relatively high data privacy standards in Germany mean that they are subject to certain limitations that can affect their implementation, for example in the HR departments of large corporations with multiple subsidiaries.
Data privacy also impacts the implementation of compliance systems and the sanctioning of infractions. Investigative measures triggered by suspicious circumstances can collide with the individual’s right to control the collection, storage, use, and disclosure of his or her personal data. In many cases, such measures may only be taken with the approval of employee representative bodies.
Works council and co-determination:
Given the extensive rights to participate in corporate decision-making enjoyed by employee representative bodies, balancing competing interests demands careful communication and coordination with the committees involved. An awareness of the legal framework is essential for ensuring that costly and time-consuming arbitration proceedings or disputes in labor court are reduced to an absolute minimum. This is especially challenging when implementing modern time management systems or incentive-based compensation plans, and, last-but-not-least, when scaling back the workforce.
Change management and restructuring:
Operational and legal changes place special demands on human resources managers. The redistribution of leadership and supervisory responsibilities, especially when a reduction in staff is involved, can easily collide with individual rights. In addition, the right of employee representative bodies to participate in corporate decision-making will already impact the planning phase, well before actual implementation begins. In such cases, the duty to inform staff at the operational and corporate levels may interfere with the imperative for a confidential evaluation of business practices by management and shareholders and an open-ended assessment of the options available.
Outsourcing and external personnel:
The legal framework for temporary and subcontracted work is under constant scrutiny by policymakers, with the regulatory trend oscillating between liberalization and restriction. The decision to work with freelancers or to award contracts for work means that these formats need to be distinguished from the traditional one of employing a workforce, first and foremost with regard to establishing whether or not there is an obligation to pay social insurance contributions and the liability risks that any decision in this regard may mean. Also, in deciding whether to make or buy, the implications entailed by transferring an operational unit need to be considered.
For managers and executives:
Change is an integral component of modern careers, which encompass many stations. Now more than ever, managers would be wise to examine the legal framework of their employment critically: complex compensation models with short- and long-term incentives, profit-sharing models, pension commitments by their employer, and non-compete clauses must all be evaluated, while liability risks must be identified and mitigated, especially when operational and legal responsibility are separate from each other. It cannot be taken for granted that an employer will offer tailored insurance solutions for board members, managing directors, and executives.
Compensation and pensions:
Regulatory requirements are increasingly influencing the structure of variable compensation plans, and not just in the financial industry. Across the board, the parameters for variable compensation are being reoriented around long-term measures of success, which means that the largely discretionary bonus, with all its advantages and disadvantages, is becoming less significant.
As an integral part of the compensation package, the value of a pension commitment is not readily apparent based on the figures alone. Not least due to more complex career paths, the issue of pension rights demands special care, for example the synchronization of such pension promises.
Employment with corporate groups; secondments:
Within corporate groups, an employment relationship may be established with a different entity from the one in which the employee concerned has operational and legal responsibilities. This has implications for the legal nature of the employment relationship and the protections afforded to it.
A prospective expatriate will be confronted with a constellation of various, sometimes overlapping or conflicting requirements of labor law, social insurance law, and tax law. Deployment abroad often raises questions about the fate of the original employment contract, which could be suspended for the duration of the assignment abroad or replaced with a new employment contract with the foreign subsidiary.
Non-compete obligations and change-of-control clauses:
A non-compete clause that applies to an employee after the underlying employment relationship has ended will have a significant impact on the search for new employment. Depending on the employee’s status—executive, managing director, or board member—statutory requirements affect the validity and scope of non-compete clauses to varying degrees; in some cases, the original employment contract will no longer provide any indications about which paths are open and which are blocked.
Changes in corporate structure or in an enterprise’s ownership (transformations or changes in the shareholding majority under corporate law) may have direct effects on an employee’s area of responsibility or discretion in executing job responsibilities. Especially in long-term engagements, care is required to ensure that a manager can take the new circumstances into account and avoid a stalemate situation.
Liability risks and D&O insurance:
When executives are called on to join a company’s management or its board of directors, they are confronted with considerable liability risks. These are exacerbated by the fact that the members of the supervisory board are duty-bound to hold executives accountable. Corporate officers especially—managing directors and board members—must therefore prepare and document their decision-making processes with an eye toward potential liability risks. But third-party financial loss liability insurance for directors and officers does not constitute a free pass. Any knowledge of deficiencies in the decision-making process will invalidate the protection afforded under the insurance policy.
In Germany and abroad:
International borders are losing their relevance to the decisions and activities of companies and business leaders. When your business crosses borders—whether you are outsourcing production or sending a manager on international assignment—you may be subject to multiple jurisdictions.
As a member of the INTERNATIONAL LAWYERS NETWORK (ILN), we partner with experienced legal counsel worldwide.
Global presence, top-quality counsel, and a tightly knit team make ILN (www.iln.com) one of the leading alliances of independent law firms.