German federal government planning reforms to temporary employment The German federal government is planning to reform the Act Regulating the Supply of Temporary Workers (Gesetz zur Regelung der gewerbsmäßigen Arbeitnehmerüberlassung (AÜG)), which is to say that the rules regarding sub-contracted and temporary employment are to be revised.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London – conclude: The federal government agreed to a reform of sub-contracted and temporary employment in the coalition agreement. This envisages, for example, plans for equal pay for temporary workers and permanent employees within a company. Temporary workers are to receive equal pay after having worked for nine months in the company. Moreover, temporary workers will as a rule be allowed to be employed for a maximum of 18 months. Exactly what the legislative amendments will look like is not yet clear. The government is expected to deliberate on the matter in May or June.

However, the reforms are expected to have an impact on the firms supplying the workers as well as their clients and temporary workers. Critics have said that this could be to the detriment of businesses and temporary workers. Handelsblatt reported on March 24 on a study from the employer-friendly German Institute for Economic Research (Institut der deutschen Wirtschaft (IW)) saying that the planned changes could particularly hit unqualified temporary workers. According to this, nearly every second business would take on a new temporary employee for simple jobs after nine months in order to avoid having to pay the higher salary. Businesses have shown substantially greater willingness to commit to equal pay or take on temporary workers on a permanent basis in the case of professionals and qualified temporary workers.

In principle, temporary employment is a type of employment which is subject to social security contributions. Temporary workers enter into a regular employment relationship with the firm borrowing manpower. The employer thereby enters into the same obligations as is the case with other employment relationships. For instance, the respective collectively agreed arrangements and employee protection against dismissal apply.

In addition, a working-time account has to be kept for employees. If more working hours are accrued than were agreed then these are credited to the account and, vice versa, working hours deficits can also be deducted. However, this is only possible within a certain framework in accordance with the AÜG.

Should you have any questions concerning temporary employment, our lawyers who are experienced in the field of labour law can be assistance.

Family foundation can ensure the continuity of a business A family foundation can be established as a way of avoiding inheritance related disputes. The purpose of a family foundation is generally to ensure ongoing support for relatives.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London – conclude: A family foundation is frequently used to try and preserve assets and prevent them from fragmenting. It can also be used to circumvent inheritance disputes. Additionally, they are usually aimed at providing family members with permanent economic security.

For these reasons, a foundation can also play an important role within the scope of business succession. Transferring company shares to the foundation secures the continuity of the firm, as a foundation cannot be sold in part or in its entirety. In doing so, it is also possible to prevent disputes from arising among multiple heirs, which could potentially jeopardise the firm’s continued existence, because the disposal, voting and control rights are transferred to the foundation’s executive bodies, such as the executive board. The family members can be taken into account in the foundation.

The constitutive documents of a foundation are key. They establish the aim and purpose of the foundation as well as set out its structure. The foundation is managed by an executive board, which e.g. is supervised by a board of trustees. The beneficiaries of the foundation are also specified. They receive payments out of the proceeds of the foundation. The foundation’s assets remain untouched.

The establishment of the foundation must accordingly be thoroughly prepared. The constitutive documents should lay down, for instance, the aim and purpose of the foundation, the amount of endowment capital and the line of succession. Furthermore, the legal framework must of course be adhered to. That being said, there is also a lot of creative leeway when it comes to the constitutive documents of a foundation to ensure that the founder’s will can be given due consideration. A foundation can be established during the founder’s lifetime or mandated in a will or contract of inheritance.

Experienced lawyers and tax advisors can be consulted when establishing a foundation. They can see to it that the constitutive documents are properly prepared and the foundation’s purpose is clearly defined. This makes it possible for potential legal disputes to be avoided.

BGH on GmbH managing director’s obligation to provide information in insolvency proceedings If insolvency has been filed against a GmbH, the managing director of the company has extensive obligations to provide information. He is not, however, obliged to furnish information regarding his personal assets (BGH IX ZB 62/14).

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London – conclude: In its judgment of March 5, 2015, the German Federal Court of Justice (Bundesgerichtshof (BGH)) took a stance on the managing director of a GmbH’s obligation to provide information (IX ZB 62/14). According to this, the managing director does have extensive obligations to provide information, but the Karlsruhe judges ruled that this does not include information concerning his personal assets. They stated that if insolvency is filed against a GmbH, the managing director is obligated to furnish information with respect to the company’s legal and financial situation as well as other factual circumstances pertaining to the company, including regarding the partners and claims lodged against him personally. He does not, however, have to give details concerning his personal financial circumstances and the feasibility of potential claims against him.

That being said, the obligation to provide information does encompass possible damages claims by the GmbH against the managing director and even crimes that have potentially been committed by the managing director which are connected with the insolvency.

If a managing director has breached his obligations, he may be liable in relation to the company (internal liability) or even third parties (external liability). In this context, he may be liable not only with his private assets; in serious cases, there is also the threat of a custodial sentence as well. The obligations of a managing director are regulated, inter alia, in the German Limited Liability Company Act (GmbH-Gesetz (GmbHG)).

Essentially, the managing director is obliged to exercise the level of care of a prudent businessman (sec. 43 para. 1 GmbHG). This applies to, among other things, managing the economic and financial affairs of the business. Even if this is delegated to third parties, the managing director must stay on top of things. If he breaches this obligation, he may render himself internally liable vis-à-vis the company. Fault based on intention or negligence constitutes a breach of duty. This does not encompass business decisions that do not lead to the desired outcome.

He may render himself subject to external liability if, for example, he has not duly paid social security contributions or failed to file for insolvency in due time.

With respect to claims arising from internal liability, a managing director can afford himself some protection and contractually exclude liability for “simple” or “ordinary” negligence. Lawyers who are competent in the field of company law can advise you when drafting agreements and dealing with liability issues.

Inheriting and bequeathing: Organise estate clearly and in good time There’s no room for friendship when money’s involved. The same can be said with respect to inheritances. Disputing over the estate can divide families. For this reason, the testator ought to arrange his estate clearly.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London – conclude: Inheriting and bequeathing will play a significant role in Germany going forward. Wirtschaftswoche reported on its website that around two to four billion euros will be passed on in the coming years in Germany. The reason for this is that the generation which became part of the economic miracle will in the foreseeable future be passing on the assets it has built up.

Of course, these assets are unevenly distributed, ranging from a few euros in a savings book, to a little terraced house, right up to a large business estate. In some cases, wrangling over the estate is inevitable. A great deal of money is at stake. And, as the old saying goes, there’s no room for friendship when money’s involved.

In order to prevent disputes arising among the heirs, the testator ought to precisely arrange his estate. If he fails to take measures while he is still alive, the rules of intestate succession apply automatically. Having regard to the statutory reserved portions, the testator can also opt to distribute his assets differently. It is best to express one’s final will in a testamentary will or a contract of inheritance.

The testamentary will presents the testator with the opportunity, bearing in mind the statutory regulations, to arrange the estate as he sees fit. Whereas the degree of kinship is a decisive factor in intestate succession, this can be changed by means of a will. Additionally, it is also possible to take into account persons or foundations which would not have a claim to the inheritance in the absence of a will. The more precisely the testator defines his final will, the less likely it is for a dispute to arise among the heirs.

The alternative to a testamentary will is a contract of inheritance. The latter allows similar arrangements to be made as in the case of the former. Having said that, there are a few differences. A contract of inheritance has to be notarised and there are always multiple parties involved in a contract of inheritance which contractually undertake reciprocal commitments. It is also not possible for a contract of inheritance to be altered unilaterally.

Those wishing to organise their estate at an early stage can turn to a lawyer who is competent in the field of succession law.

Termination agreement – The alternative to dismissal Unlike in the event of a dismissal/termination, the employment relationship is brought to an end on a mutually amicable basis in cases involving an agreement to terminate a contract. However, for this purpose certain requirements have to be contractually fulfilled.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London – conclude: An agreement to terminate a contract represents in many instances the elegant alternative to a standard termination for employers and employees. Whereas termination is a unilateral legal transaction, employer and employee have agreed to end the employment relationship in the case of an agreement to terminate a contract.

This can entail advantages for both sides. The employer need not, for example, have regard for notice periods and the legal consequences of a dismissal. The employee, on the other hand, may receive severance pay. Having said this, one must also exercise careful scrutiny in cases involving an agreement to terminate a contract. If mistakes are made in the process, mutual consensus might not be worth much and the agreement can be challenged.

An agreement to terminate a contract ought to satisfy at least the following requirements. The agreement needs to be in written form and signed by both parties, thus an agreement that is concluded orally or forwarded by email is not sufficient for it to obtain legal force. Moreover, the employee must not be taken by surprise or put under pressure. It is necessary in each case for him to be granted a certain amount of time for consideration before signing the agreement to terminate a contract. If he is pressed into signing immediately, the agreement to terminate a contract is invalid.

It is possible to arrange severance pay in the agreement to terminate a contract. It is not, however, mandatory for employees to receive severance pay. This is not a legal right. To this extent, the matter comes down to negotiation skills.

In order to prevent legal disputes from arising at a later date in cases involving an agreement to terminate a contract, the formal requirements should be satisfied and the substantive arrangements well balanced to ensure that consensus does in fact emerge between both parties in the end. This gives the parties the legal certainty that the employment relationship has come to an end. A lawyer who is competent in the field of labour law can therefore be consulted when dealing with an agreement to terminate a contract. Of course, this also applies to all other divisions within labour law. Obtaining competent legal advice from an early stage can enable you to avoid legal disputes at a later date.

Berliner Testament: Unilateral changes not possible Husbands and wives can reciprocally appoint each other as sole heirs in a so-called “Berliner Testament” (Berlin will). However, married couples must also bear in mind that unilateral changes are not possible at a later date.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London – conclude: The so-called “Berliner Testament” presents husbands and wives with the opportunity to reciprocally appoint each other as sole heirs. It should, however, be noted with this kind of will that, similar to instances involving a contract of inheritance, unilateral changes are not possible at a later date. Even the spouse that lives the longest has to abide by the provisions of the Berliner Testament and is not able to rescind them later on with a new will.

A case before the Superior Court of Justice of Berlin demonstrates why the provisions of a joint will ought to be very carefully thought through, including with regard to the issue of “final heirs”. The case in question concerned a husband and a wife who reciprocally appointed each other as sole heirs. The “final heirs” were to be the son and daughter of the married couple. No further decision was reached regarding the line of succession. The wife died in 2008 and shortly thereafter the son as well. The husband, or partner, drafted a new will in 2013 disinheriting his children and grandchildren.

In its judgment of December 19, 2014 (Az. 6 W 155/14), Berlin’s Superior Court of Justice ruled that disinheriting the daughter was no longer possible and she was therefore entitled to half of the estate. In the view of the Court, the husband could no longer alter the declared will jointly made with his deceased wife. The situation was different regarding the second half of the inheritance. The child of the deceased son was not automatically entitled to this because the grandchild had been cut out of the will. This was possible due to the fact that the married couple had not specified any further heirs other than their own children in the joint will.

It is clear from this example that many eventualities need to be considered in cases involving a joint will between spouses. For this reason, married couples ought to obtain comprehensive legal advice before they draw up their will. To this end, they can turn to lawyers who are competent in the field of succession law.

HRC Constance on margin of discretion and liability of managing director Managing directors of a GmbH (German limited liability company) enjoy a margin of discretion within which they are not subject to personal liability. Even in the case of unjustifiable dealings, liability for shareholder-managing directors is not triggered until later on.

GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London – conclude: As a matter of principle, managing directors of a GmbH enjoy a margin of discretion when it comes to their corporate activity. In the context of this activity, they must exercise the level of care of a prudent businessman. This also includes, e.g. assessing the risk of a transaction. The managing director may be liable if infringements arise. However, the Higher Regional Court (HRC) of Constance has generously defined the margin of discretion of a managing director who is also the sole shareholder in the GmbH. Following a ruling of the HRC Constance, the shareholder-managing director is only liable in cases involving unjustifiable dealings if these result in the liquidation of the GmbH or jeopardise its continued existence, or the company is divested of share capital (Az.: 3U 1544/13).

In the instant case, the sole shareholder-managing director concluded a contract for the delivery of vehicles with another firm. The firm granted a generous discount, but in return a down payment of between 30 and 50 per cent of the gross list price of the vehicles had to be made. This down payment arranged by the shareholder-managing director came to a total of around 160,000 euros without any associated sureties being demanded. The rude awakening followed shortly thereafter. The contractual partner went bust, the vehicles were not delivered and the down payment was gone. Not long after that, the GmbH had to declare insolvency. The insolvency administrator then asserted damages claims against the shareholder-managing director, stating that the latter had breached his obligations.

The HRC Constance did not, however, consider the managing director to be liable. It stated that the managing director is entitled to margin of discretion within which he is not subject to personal liability. If this discretion is exercised correctly then the managing director is not liable even if the transaction misfires. The Court said of the case in question that the risks when purchasing the vehicles were not consistent with those permissible to a prudent businessman and the managing director had thus breached his duty of care. It nevertheless went on to state that he was not liable; this would only have been the case if the GmbH had been divested of its share capital or its liquidity or existence jeopardised.

Managing directors and other executive bodies can turn to lawyers who are competent in the field of company law when liability and contractual issues arise.


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