Consideration of Directors in collective redundancies

ECJ, judgment dated 9.7.2015 – C-229/14 (Balkaya/Kiesel Abbruch- und Recycling Technik)

(Outside) Directors of a GmbH (Limited Liability Company) and interns must be taken into consideration when making collective redundancies.

The law stipulates that employers must serve notice of collective redundancy if they dismiss a large number of employees. This obligation dates back to the European Directive 98/59/ EC of July 20, 1998 on the approximation of the laws of the Member States relating to collective redundancies (“Collective Redundancies Directive”). 

Section 17 Subsection 1 KSchG (Law on Protection against Dismissal) sets out when an employer is required to serve such notice of collective redundancy. In companies that regularly have more than 20 and less than 60 employees, this is the case if, for example, the employer dismisses more than 5 employees within 30 calendar days. The standard contains further threshold levels for companies of varying sizes.

Determination of the threshold levels under Section 17 Subsection 1 KSchG

The European Court of Justice (ECJ) has now been asked to clarify who is to be regarded as “employee” for the purpose of this regulation. The reason for submission of the question was action for unfair dismissal before the Local Court Verden. The employer – a German GmbH – had served the plaintiff, as well as all other employees, with notice of ordinary termination for operational reasons due to the closure of the company, without previously having made notification of collective redundancy. The initial court was of the opinion that the company had 19 employees at the time of the serving of notice of termination. There was a dispute between the parties as to whether a further two persons, who also worked in the company, were to be regarded as “employees” within the meaning of the Collective Redundancies Directive, and were therefore to be taken into consideration when determining the threshold levels envisaged under Section 17 Subsection 1 KSchG. These were, on the one hand, the (outside) Director of the company and, on the other hand, a re-trainee who worked in the company as part of an internship funded by the Job Center, and who received no remuneration from the company.

Term “employee” for the purpose of the Collective Redundancies Directive

The ECJ answered the question in the affirmative in both cases. Both the (outside) Director as well as the re-trainee are “employees” within the meaning of the Collective Redundancies Directive. The  corresponding definition of an employee must be interpreted in uniform manner and in compliance with EU law. As such, the question of how the employment relationship is to be classified under national law is irrelevant.

(Outside) Directors and interns must be taken into consideration when determining the threshold levels

Under EU law, the defining characteristic of an employee status is the performance of work against remuneration and bound by instructions. The (outside) Director of a GmbH is appointed by the Shareholders’ Meeting, is subject to its instructions and supervision when performing his duties, and can be removed from office by it at any time against his wish. Since, as a result, he is in a subordinate relationship to the company, the (outside) Director must be regarded as “employee” for the purpose of the Collective Redundancies Directive.

The dismissal of (outside) Directors and interns is notifiable

The same applies to re-trainees and interns, who effectively work in a company in order to acquire or improve knowledge, or to undergo vocational training. They too must be taken into account when determining the threshold levels under Section 17 Subsection 1 KSchG. Additionally, their dismissal must also be notified.

Summary

Notification of collective redundancies continues to demand the utmost care. During proceedings for unfair dismissal, employers cannot invoke the fact that Directors, plant managers and similar senior persons are not to be taken into consideration under Section 17 Subsection 5 KSchG. National law must be interpreted in accordance with EU law, such that they too apply as “employees” for the purpose of the Collective Redundancies Directive. The same applies to interns. Particularly in small companies, this can trigger an obligation to notify. In this respect, attention must be paid to the fact that the notification of collective redundancy must be submitted to the Employment Office before serving notice of termination or concluding termination agreements. Otherwise, the notice of termination will be ineffective.