Back to the digital stone age: need for change for ALL employment contracts!

Back to the digital stone age: need for change for ALL employment contracts!

In Germany, the so-called Verification Act has existed since 1995. According to this law, employers have to provide essential contractual conditions in writing to employees. In practice, this law has received little attention so far, as it did not provide for direct sanctions against violations. Due to European law requirements, the German legislator was now obliged to amend the Act. To this end, the Federal Government has submitted a draft bill which provides for numerous amendments to the Act. The Bundestag approved this draft law on 23 June 2022. After approval by the Bundesrat, the amendments to the law can enter into force on 1 August 2022. Due to an expansion of the contract conditions to be documented and planned sanctions, the Verification Act is now coming into focus.

What changes are planned?

The amendments to the Act are made to implement an EU Directive on transparent and predictable working conditions in the European Union (“Working Conditions Directive”). The requirements of the Directive serve, among other things, to create transparency and predictability in the employment relationship. 

The following amendments to the Verification Act will enter into force:

Extension of the contractual conditions to be evidenced in writing 

So far, the employer has to prove the following employment conditions to its employees in writing: 

• name and address of the contracting parties, 
• the date of commencement of the employment relationship, in the case of fixed-term employment relationships: the foreseeable duration of the employment relationship, 
• the 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, 
• a brief description of the work to be performed by the employee, 
• the composition and amount of the remuneration, including supplements, bonuses and special payments as well as other components of the remuneration and their due date, 
• the agreed working hours, 
• the duration of the annual holiday, 
• the notice periods, 
• a reference in general terms to the collective agreements, works agreements or service agreements applicable to the employment relationship.

The new Verification Act provides for the following additions, among others:

• if applicable, a reference to the possibility of freely choosing the place of work;
• duration of the probationary period, if agreed;
• the composition and amount of remuneration, including overtime pay, bonuses, allowances, premiums and special payments as well as other components of remuneration, each of which shall be stated separately with their due date and method of payment;
• the agreed working time, agreed rest breaks and rest periods and, in the case of agreed shift work, the shift system, shift rhythm and prerequisites for shift changes;
• any entitlement to training provided by the employer;
• if the employer promises the employee an occupational pension through a pension provider, the name and address of this pension provider; the obligation to provide evidence does not apply if the pension provider is obliged to provide this information;
• the procedure to be followed by the employer and the employee when terminating the employment relationship, at least the requirement of the written form and the time limits for terminating the employment relationship, as well as the time limit for bringing an action for protection against dismissal; 
• a reference in general terms to the collective agreements, works or service agreements applicable to the employment relationship as well as regulations of commissions with equal representation which determine working conditions for the area of church employers on the basis of church law.

The information that must now be proven therefore clearly goes beyond the previous information and also contains information that is unlikely to have been contained in this form in any employment contract to date. 

Deadlines for providing evidence

Different deadlines apply for the written proof of the essential working conditions.

In the case of employees whose employment relationship begins on 1 August 2022 or later, the draft law requires written proof for some of the listed employment conditions on the first day of the employment relationship – for other employment conditions, proof within seven days or within one month after the agreed start of the employment relationship shall suffice. This also applies if an employment contract has already been concluded. 

For employees who were already in an employment relationship before the amendment to the law came into force, the law provides for an obligation of the employer to provide evidence at the employee’s request. The employer must then provide written evidence of some of the working conditions specified in the new version of the Verification Act, such as remuneration and working hours, within 7 days. These short deadlines for providing evidence make it clear that employers should prepare themselves for the changes to the Verification Act. 

If, after the Act has come into force, employees make an increasing number of requests for written proof of working conditions without the employer having defined processes and procedures for this, this is likely to regularly lead to the HR department being overburdened in view of the short deadlines for providing proof.

Planned sanctions: Fine for violations of the Verification Act 

For the first time, the new law provides for specific sanctions for violations of the Verification Act by the employer. If the employer does not provide evidence of the essential terms of the contract, or does not do so correctly, completely, in the prescribed manner or in good time, the employer will face a fine of up to two thousand euros from 1 August 2022. The fine can be imposed per violation – if the requirements of the Verification Act are not fulfilled for several employment relationships, this can be expensive for employers.

Evidence of the procedure to be followed in terminating the employment relationship?

The new obligation to provide evidence of the procedure to be followed by the employer and the employee when terminating the employment relationship appears to be particularly problematic for the drafting of contracts. Explicitly, the new Verification Act only lists the written form requirement for terminations, a reference to the notice periods as well as a reference to the period for bringing an action for protection against unfair dismissal. 

But what is the situation with regard to the multitude of other procedural provisions, such as the consultation of the works council before a dismissal is announced or obtaining the consent of the integration office when severely disabled workers are dismissed? Whether and to what level of detail these and other procedural requirements must be proven in writing according to the new law is completely unclear in view of the vague wording of the amendment. It also remains to be seen whether case law will derive claims for damages by employees or even a reason for the invalidity of a dismissal from an incorrect notice.

De facto written form requirement for all employment contracts through the new Verification Act?

Mandatory written form requirements have so far been encountered only in isolated cases in German labour law, such as fixed-term contracts. The (new) Verification Act does require comprehensive written proof of essential working conditions – but a breach of this requirement, for example by an employment contract in (non-qualified) electronic form, did not and does not lead to the invalidity of the employment contract. Employers can therefore theoretically continue to effectively conclude (open-ended) employment contracts electronically by means of common digital signature programmes. However, they would then need to provide an additional document with the essential terms of the employment relationship according to the Verification Act which needs to comply with the written form requirement. Written form under German law means old-fashioned “pen&paper” or “wet ink”. The electronic form is expressly excluded for this written proof. The Verification Act thus creates a de facto obligation to conclude wet-ink employment contracts or to additionally provide the essential terms and conditions of employment in writing and thus paves the way to the digital stone age for labour law. 

What does this mean in practice? – All employers must now become active! 

In view of the short proof periods and financial sanctions provided for under the amended law, employers must already now compare the employment contract templates they use with the changes in the law and adapt their templates. In particular, topics such as the procedure for dismissals as well as a reference to the deadline for bringing an action for protection against dismissal and rest periods are unlikely to be found in any template employment contracts so far.

For existing employees or employees who have already signed a contract starting on 1 August 2022 or later, either a written contract amendment or a written template information on the essential terms and conditions of employment should be prepared.

In addition, the future handling of the requirements of the Verification Act by the courts must be kept in mind.