German Innovation

The Traditional Approach of Employee Protection Law—Still in Line with Reality?

German employment and labor law has a rather traditional, paternalistic approach. A great deal of legislation is based on unacceptable working conditions of employees in times of industrialization in the 19th century which is why employment and labor law, from a European perspective, is first and foremost employee protection law.

Founder’s and Management’s Perspective

Times have changed and we have come a long way from the 19th century - with the German legislature failing to amend and develop laws in line with technological developments of recent decades This raises the question whether the rather traditional approach of employee protection law is still in line with today’s world of remote working highly skilled employees in a fast-growing industry like the fintech industry or the tech industry in general.

A Works Council: Just More Red Tape?

For example, founders and management often are rather reluctant to support the election of a works council, for various reasons. Some fear a works council may slow them down and may not fit the company’s culture or strategy. Others think that this will just add another layer of bureaucracy, while some feel a German-style works council is “old school” and not the right representation for an international environment. There is also the fear that a works council might actually form a gap between management and workforce entrenching their positions rather than unify and align.

Sometimes you can even read about “Union Busting” at start-ups. Recently, we have seen start-ups that got quite a bit of media attention because they tried to stop a works council election.

Many Start-ups Struggle to be Compliant

Aside from employee representation the question pops up whether German employment law is up to date and suitable for a start-up’s practical needs. For example, in Germany, certain agreements must still be in written form–that is, a physical document signed in wet ink.

We have learned that many start-ups struggle to cope with this kind of red tape in a world of DocuSign. Recently, a delivery service provider faced a multitude of lawsuits because the fixed-term agreements they used did not comply with the strict written form requirements.

Goodbye DocuSign

Very recently the German legislature has passed a law which will require employers in Germany, as of August 1, 2022, to lay down the essential terms of employment in written form.

Miyu Lee, General Counsel at fintech Mondu in Berlin and a panelist, comments, “Many companies question whether German labor law is up to date here and do not understand what a printed piece of paper can solve which an email cannot.”

To give another example: In Germany, virtual work options for employees are tax-privileged only to a very limited extent. Real equity, so employees becoming shareholders of the company, involves a lot of red tape and triggers complications under corporate law. It is questionable whether Germany has the right compensation options to attract global talent in a start-up world.

All in all, the German legislature should watch the innovative endeavors and technological progress of the new economy more closely and adapt employment laws to accommodate these developments. German start-ups will need the proper employment framework to hire personnel and scale; at the moment start-ups are using their efforts to comply with laws which are outdated and unsuitable for the latest job market trends.

The Future of Works Councils and Unions in a Changing Employment Landscape

Looking at the other side, works councils and unions are struggling too to find the right approach in a changing employment landscape and employee structure. In the automotive industry, unions and works councils are deeply rooted in the sector’s DNA. But they have struggled to find a foothold in the start-up and tech world.

Well-educated tech specialists at a start-up may think: “I won’t be here too long, I have a good education, I can work anywhere and I can negotiate for myself, I am on par with the management, I don’t need a works council.” In addition, especially in Berlin, many employees in tech have an international background and are not familiar with the concept of a works council.

“It is certainly a challenge to explain an international workforce that has no idea of the concept of a German-style works council, how it works and what potential benefits it brings,” says panelist Daniel Weidmann, lawyer at dka Rechtsanwälte in Berlin. “But after some discussion it becomes clear that a works council can help tackle issues at tech workplaces as well, such as performance monitoring, health and safety issues or standby work during weekends. This is why more than a dozen Berlin tech offices have seen their first works council elections in the past years.”

How Unions Try to Get a Foot in the Door

In the past, notably in the German automotive sector, there was strong union representation, the metalworkers’ union IG Metall being a key player. It has been a challenge for unions to establish worker participation in unfamiliar sectors like tech.

Sometimes unions are perceived by employees as old-fashioned, blue-collar institutions, notably in the tech ecosystem with high employee turn-over and primarily white-collar employees, often with an international background. Unions are still strong where they have traditionally been strong, in industries such as metal and chemicals. But in emerging sectors such as food, parcel, and beverage couriers, though workers are in higher demand than ever, their working conditions are often precarious and not regulated by collective agreements.

Unsurprisingly, it is not unions that drive labor unrest and strikes in tech and the platform economy, but informal groups of workers and worker’s collectives.