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New rules on employers’ power to give directives

General rules

Under an employment contract, an employee pledges to perform work in the employer's interest. Usually, the employment contract will outline the employee's position and function (e.g. general accountant) and will further specify the place and time of work (e.g. in the Berlin office from 9 a.m. until 5 p.m.). However, no matter how detailed such a contract is, it will never describe each and every aspect of the work to be performed. It can only provide a general contractual framework, and within that framework, the employer has to specify the exact contents, the timing and the place of work. This "power to give directives" (Direktionsrecht) is an integral part of any employment relationship.

Limits to an employer's power to give directives

The employer's power to give directives is not indefinite, but has limits. First and foremost, the employer may not contradict the underlying contractual framework and is bound by the terms of the employment contract, the applicable laws and any applicable collective agreements (shop agreements and collective bargaining agreements). Where directives given by an employer contradict the underlying contractual framework, those directives are null and void and cannot legally bind the employee. Therefore, an employee who chooses not to follow such illegal directives does not commit a breach of contract, and does not have to fear legal consequences. The more detailed the employment contract is with respect to the duties of the employee, the narrower the employer's power to give directives will be. The employer may, for example, assign any tasks to a payroll accountant that usually fall under the job description of such professionals, but he may not assign duties outside this scope, e.g. cleaning the office. Likewise, the employer cannot order the employee to work a nightshift, if the employment contract specifies that the hours of employment are from 9 a.m. to 5 p.m. The same applies if the employment contract specifies a certain location as the place of work: the employer cannot unilaterally direct the employee to move to another office, but would have to formally change the contents of the employment contract, either by mutual consent or – as a last resort – by a dismissal with an option to continue employment under altered conditions (Änderungskündigung).

Additionally, when giving any individual directive (that is within the limits set by the employment contract), the employer must exercise reasonable discretion (billiges Ermessen) and the directive must be equitable. According to these standards, the employer must duly consider any conflicting interests of the employee and has to balance those legitimate interests (schutzwürdige Interessen) against the employer’s own interests.

This balancing of interests can be problematic and is prone to error where there are a number of conflicting interests. This will often be the case, when it comes to assigning another place of work to an employee. Even if the employment contract allows for relocation, the employer must take into account the facts in question. For example, an employee, who has worked in a certain location for some time, will have put down roots there (family, property etc.). In such case it is often not easy to find a balanced solution that duly takes into account both the employer's and the employee's legitimate interests.

Labour courts may have to decide whether the test of reasonableness has been met in a specific case. However, the question remains: what effect does an employer's directive have at the time it is issued where it is subsequently found to be inequitable?

Recent ruling: An employee must follow the employer's directives irrespective of doubts about equitability

Following a landmark case of the 5th Senate of the Federal Labour Court (Bundesarbeitsgericht – BAG) in 2012, employees remain bound by an employer's directive unless the directive is in fact in violation of the employment contract (or a collective agreement, or the law itself).

Accordingly, employees had to follow their employers' directives irrespective of any doubts as to the directive’s equitability. The 5th Senate of the BAG argued that such doubts could not justify a refusal to obey the directive. Therefore, until a court had ruled that a specific directive was in fact inequitable, the employee was bound to follow that directive. Disobedience could lead to a loss of the employee's claim for remuneration and the employee had to fear that he or she would receive a formal warning (Abmahnung) or even face termination of the employment contract.

New ruling: Inequitable directives are non-binding

This judgment of the 5th Senate of the BAG had been widely criticised as providing employers with an unwarranted position of power, while placing employees in the uncomfortable position of either following the directive – at least until a clarifying court ruling has been obtained – or facing grave consequences. For this reason, the Higher Regional Labour Court Hamm (Landesarbeitsgericht – LAG) refused to follow the judgment of the 5th Senate of the BAG in a 2016 judgment.

In the case before the LAG Hamm, the employer had issued a directive which would see the employee relocate from Dortmund to Berlin. The employee refused to follow the directive and claimed that his employer had not duly considered his interests in remaining in the Dortmund area. By the time the case was heard by the Court, the employer had, inter alia, issued a formal warning.

The LAG Hamm ruled that the employee did not have to follow the directive, even for a preliminary period, because the directive was inequitable. The employer was forced to rescind the formal warning that had been issued. An appeal was lodged and the matter came before the 10th Senate of the BAG, which was also opposed the 2012 ruling of the 5th Senate. The 10th Senate then formally asked whether the 5th Senate would uphold the position it took in the 2012 ruling. In response, the 5th Senate renounced its prior ruling. Accordingly, the path for a new ruling had been cleared and the 10th Senate now has ruled on 18 October 2017 (docket number 10 AZR 330/16) that inequitable directives do not bind the employee. Employees do not have to follow such directives and may instead disobey them – even if a court has not yet ruled that the directive is in fact inequitable.

Practical consequences

A powerful "tool" for employers has been abolished. Until now, employers could count on a directive being effective at least for a preliminary period, as long as the employer had ensured that the directive was in keeping with the limits of the employment contract. Whether or not the directive was in fact inequitable and did not pass the reasonableness test was a question for the future, and, for the court. In the meantime, the employee was bound by the directive and refusal to follow could have severe consequences, even if a court later ruled that the directive was in fact inequitable.

This situation has now changed. Inequitable directives no longer preliminarily bind the employee. It does not, however, mean that employees can safely refuse to follow directives: If an employee has refused to follow a directive and this directive is later found to be equitable, any formal warnings or letters of termination that were issued can be valid. Accordingly, the employee still chooses to disobey a directive at his own risk. Still, if the employee is correct in his view that the directive is inequitable, he is no longer is in danger of losing his job.

For employers it is now even more important to ensure that they duly identify and weigh up any conflicting interests when making decisions based on their unilateral power to give directives. In certain cases, it can be advisable not to issue a directive, but to instead make use of a formal dismissal with an option to continue employment under altered conditions (Änderungskündigung). While the additional formalities make this approach more burdensome, the employee is more likely to accept to work under the altered conditions at least for the interim period, until the Court issues its judgment on the validity of the dismissal.

If you have any questions related to this topic, please feel free to contact
Dr Gerald Peter Müller (Lawyer, Licensed Specialist for Labour Law).

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