Issue: June 2018

GERMANY - Voluntary Leave Programs in the Context of Restructurings in Germany

By: Dr. André Zimmermann

Implementation of major restructurings in a time- and cost-effective manner involves a variety of challenges, not only under German employment law. If used correctly and structured in a creative and tailored way, voluntary leaver programs can constitute an attractive and effective tool for staff reductions. There are, however, a number of potential legal pitfalls that must be avoided.

What is a Voluntary Leaver Program?

A voluntary leaver program is the implementation of headcount reductions by systematically concluding severance agreements whose terms are usually standardized and communicated in advance. Such a voluntary leaver program may be run stand-alone, it may accompany a headcount reduction through dismissals for operational reasons, or it may be used as a precursor to such dismissals.

Advantages of a Voluntary Leaver Program

Voluntary leaver programs offer quite a few advantages for employers compared to dismissals for operational reasons:

  • No Social Selection Required

Perhaps the key advantage from an employer's point of view is that it is possible to avoid a social selection (Sozialauswahl) under the Termination Protection Act (Kündigungsschutzgesetz, KSchG). This means that it is also possible to terminate the employment of older employees and specially protected employees (e.g. severely disabled employees, employees on protected leave) and will facilitate keeping the "dream team" on board.

  • Faster Results

Voluntary leaver programs often lead to considerably faster results than a unilateral reduction of staff. This applies, in particular, if the works council utilizes all the blocking options afforded by the German Works Constitution Act (Betriebsverfassungsgesetz, BetrVG). Although works council consultation and co-determination rights may also exist in the case of a voluntary leaver program, experience has shown that the works council's resistance is usually much less pronounced than in a unilateral headcount reduction scenario.

  • Less Legal Risks

The conclusion of severance agreements in the context of a voluntary leaver program quickly creates legal certainty for the employer. By contrast, in the case of a dismissal for operational reasons there is a threat of a number of drawn-out legal actions which will use up significant resources with uncertain outcome (including back pay and reinstatement). Rarely can employers prove an airtight case of a dismissal for operational reasons.

Selection of Participants

Key challenge in the structuring of a voluntary leaver program is to reach the "right" employees and to avoid the "wrong" employees leaving.

To this end, selective offer procedures are often used in Germany. These involve limiting the potential group of participants to certain areas, positions or groups from the outset. It is also possible to exclude certain groups of employees (e.g. those with certain qualifications) or specifically named employees (e.g. by way of a blacklist, lists of key players) from the program from the outset.

A tried and tested and therefore recommended approach is that of "double voluntariness" (doppelte Freiwilligkeit). This means that the employer reserves the right to carry out a case-by-case assessment to decide whether it actually wishes to enter into a severance agreement with the respective employee wishing to leave his or her employment.

Co-determination Rights of the Works Council?

A voluntary leaver program as such is not subject to mandatory co-determination rights of the works council. Violations of certain consultation rights with regard to staff planning do not render any measures invalid, nor do they give the works council the right to apply for injunctive relief. However, questions on collective redundancies (Massenentlassung) and a change to the operation (Betriebsänderung), however, are highly relevant in practice.

If the voluntary leaver program reaches the collective redundancy thresholds, this triggers an obligation to issue a prior collective redundancy notice and to carry out a consultation procedure. Severance agreements are, after all, subject to the collective redundancy rules if they have been instigated by the employer. This is the case, for example, if employees are specifically approached.

It is not perfectly clear, however, whether a mere general announcement of a voluntary leaver program suffices if, following such announcement, an employee applies to participate of his or her own accord. Either way, in practice every major voluntary leaver program is potentially subject to collective redundancy procedure. Therefore, any internal and external communications and the structuring of such programs need to be handled very carefully and sensitively.

At the same time, exceeding the collective redundancy thresholds typically also involves a change to the operation, triggering the employer's duty to conduct negotiations regarding a reconciliation of interests (Interessenausgleich) and a social plan (Sozialplan), the latter containing the redundancy package.

Conclusion

When planning and implementing major restructurings, voluntary leaver programs can be a very attractive means of reducing staff. They often attract a high level of acceptance among the employees, avoid lengthy actions for unfair dismissal and can therefore speed up the implementation of a restructuring. Also, they are an effective means of avoiding, or at least alleviating, a social selection based on social criteria which needs to be undertaken before an employee can be dismissed for operational reasons. There are, however, some legal pitfalls which need to be handled sensitively and require experience, careful preparation, and support.

By: Dr André Zimmermann

Orrick, Herrington & Sutcliffe LLP