On June 23, 2022, the German parliament, Bundestag, passed a draft law that implements the EU Directive on transparent and predictable working conditions. This amends, among other things, the German Verification Act. The law has far-reaching consequences for employers. Employment contracts will have to be adapted and the work of HR departments will become more extensive.

Click here to see the main changes in the bill at a glance.

What is the background to the amendment of the Verification Act?

The amendment to the Verification Act (NachwG) implements Directive EU 2019/1152 on transparent and predictable working conditions (the Directive). The aim of this Directive is to harmonize information about essential aspects of the employment relationship and working conditions across Europe, thereby ensuring greater transparency and safety in the workplace. Among other things, the Directive establishes obligations to provide information and sets minimum requirements for certain working conditions. To enforce the Directive’s provisions, member states are to establish effective and dissuasive sanctions for violations of the obligations arising from the Directive.

To the chagrin of employers, the amended NachwG in part goes beyond the Directive’s requirements. For example, the NachwG retains the requirement that information about the essential terms of the contract be in written form, even though electronic form would suffice under the Directive.

Disputes are inevitable due to the lack of clarity. In this context, it is also relevant to question, when analyzing conformity of the changes with the Directive, whether the sense and purpose of the Directive was sufficiently observed in the implementation.

Administrative offence: €2,000 per individual case

Before the reform, the NachwG was often regarded as a “toothless paper tiger,” since violations could theoretically trigger claims for performance by employees and claims for damages, but violations were not otherwise sanctioned.

Sec. 4 of the new version of the NachwG now regulates administrative offences with a fine of €2,000. The fine applies to each individual case, i.e. to each employee who is informed contrary to the requirements of the Verification Act, e.g. “not at all, not correctly, not completely, not in the prescribed manner or not in time.”

However, violations of the NachwG will not affect the existence of the employment relationship, its duration or the framework conditions under dismissal protection law.

Formal requirement - necessary changes were missed!

Even before the Bundestag passed its resolution on June 23, 2022, keeping the written form requirement was strongly criticized by employers. Written form requires execution and delivery on paper with handwritten signatures. Unfortunately, lawmakers decided against the admissibility of electronic form; the Directive would have allowed this.

In view of digitalization, this is a clear step backwards. Companies that want to avoid fines for violating the NachwG must now mandatorily comply with the written form. Employers must now also keep originals of digital personnel files for verification purposes and thus have double the effort in physical and digital storage.

What has changed regarding essential contents of a contract?

The revised NachwG will apply from August 1, 2022. It will apply to all employment relationships without exception as well as for internships (cf. sec. 2 para 1a NachwG old and new version).

The catalogue of information to be disclosed has been significantly tightened and expanded. For a clear understanding of the changes, we have prepared a comparison of the old and new versions of the NachwG in the overview here and noted the changes.

Impact on new hires as of August 1, 2022

Employers must take active steps in any case for new hires as of August 1, 2022. The new regulation provides for a three-stage deadline for the information of employees (briefly presented below):

• No later than the first day of employment: Information on contracting parties, remuneration and working time
• No later than the seventh calendar day after the agreed commencement of the employment relationship: Information about the beginning of the employment relationship, end of any fixed term, place of work, activity and any probationary period as well as on any work on call and the possibility of ordering overtime
• At the latest one month after the agreed start of the employment relationship:
  Other information as stipulated in sec. 2 para. 1 sentence 2 NachwG.

In practice, the deadline regulation means that the written employment contract with all essential contractual conditions will be available before the start of work, at the latest on the first working day. This is dictated by practicability and risk minimization.

Effects on employees hired before August 1, 2022

Employees who were hired before August 1, 2022 have to be informed in writing by the employer about the essential contractual conditions specified in the amended NachwG, only if these contractual conditions are not already listed in a written employment contract.

However, if employees legitimately request a transcript of employment conditions, it must be handed over to them within seven days (sec. 5 sentence 1 NachwG new version).

In order to avoid being potentially overloaded by claims or requests by employees for information, we advise preparing for them as early as July 2022, and to prepare corresponding sample transcripts. If employees assert information claims, it is unfortunately necessary to check in each individual case which information has not yet been provided. This may be the case, for example, with the required description of the agreed activity.

Selected regulatory requirements and drafting tips

Characterization / description of the activity (no. 5 new version)

The requirement to include a brief characterization or description of the activity to be performed by the employee in the employment contract has not changed. However, it will no longer suffice—if a company wants to reliably avoid a fine—to use only a keyword-like statement of the job title, e.g. “The employee will work as a lawyer,” without characterizing or describing this job. An addition such as “ The employee’s duties include, in particular, [...]” must now be included, unless, for example, a job description can be referred to. Such description must be attached to the employment contract in order to comply with the formal requirement.

Duration of the probationary period (No. 6, new version)

Sec. 2 para.1 no. 6 NachwG (new version) stipulates that the duration of an agreed probationary period must be stated. Employment contracts usually already contain a corresponding provision.

The Part-Time and Fixed-term Employment Act (TzBfG) was also amended with the NachwG and passed on June 23, 2022. Sec. 15 para. 3 TzBfG now provides: “If a probationary period is agreed for a fixed-term employment relationship, it must be in proportion to the expected duration of the fixed-term and the nature of the work.” This means that a probationary period of six months can no longer be agreed across the board for fixed-term employment relationships. The probationary period must now be “proportionate.”

Unfortunately, what this means exactly remains open. However, there should not be serious consequences for employers if the agreed probationary period is disproportionate. Admittedly, the probationary period is then not validly agreed and the shortened notice period of Sec. 622 para. 3 German Civil Code does not apply. Irrespective of this, the six-month waiting period for the application of the Protection against Dismissal Act remains in force insofar as the right of ordinary termination has been agreed in the fixed-term employment relationship.

Information on individual remuneration components (No. 7, new version)

Employment contracts that are concluded after July 31, 2022, the salary must be broken down into its individual components and presented accordingly (including due date and method of granting). Regulations providing for a “total salary” or an “hourly wage” which includes “all allowances, special payments, etc.” violate the NachwG. However, the regulation that either all or part of the overtime is compensated by payment of the salary should remain permissible if the regulation is designed or interpreted in such a way that any overtime (to the agreed extent) is not compensated.

That said, it is not advisable to include in the employee’s remuneration the costs related to working in a mobile office or home office, even if such regulations “only” cover potential claims for reimbursement of expenses. In any case, the sense and purpose of the Directive require a “breakdown” of the remuneration as such; therefore, it isn’t clear which part of the amount should be regarded as remuneration and which part as reimbursement of expenses.

Rest breaks and rest periods (No. 8, new version)

Information on working time has been supplemented by a requirement to indicate agreed rest breaks and rest periods. While rest breaks are understood to be interruptions of working time of a certain duration which serve the purpose of recuperation, rest periods are defined as fixed non-working time between the end and the beginning of work. Unless otherwise regulated, the Hours of Work Act (sec. 4 ArbZG) sets the statutory rest period as at least 30 minutes for working time of more than six up to nine hours and 45 minutes for a working time of more than nine hours. The statutory rest period (sec. 5 ArbZG) must be at least 11 hours, unless an exception applies, and the rest period is shortened.

Information on the shift system (No. 8, new version)

Particularly in larger enterprises, especially production enterprises with different shift models, it is advisable to present information about the shift system, the shift rhythm and the requirements for a change of shift in an annex to the employment contract in general and to inform the employees in this annex which shift system they currently fall under. Otherwise, model employment contracts for employees in the shift system would have to be drawn up individually. According to the explanatory memorandum to the amended NachwG, additional evidence of individual shift changes (e.g. updated rosters) within the agreed shift system or the agreed shift rhythm is not required.

Possible entitlement to further training provided by the employer (No. 12, new version)

The purpose of the notice requirement is to ensure that training provided by the employer is offered to all employees, including “those in atypical employment relationships.”

Occupational pension schemes: Indication of the pension provider (No. 13 n.F.)

This point will play a rather minor role in practice, because under the new regulation the obligation to provide evidence does not apply so long as the pension provider itself is already obliged to provide this information. Consequence: No information on direct insurance, Pensionskassen and pension funds has to be provided in the employment contract, as these pension providers are already obliged under insurance supervisory law to inform pension scheme members (employees) of the provider’s name and address. Thus, only those employers who promise an occupational pension through a provident fund are obliged to provide the employees evidence of such provider.

Information on the termination procedure (no. 14 new version)

Information about the relevant notice periods is regularly found in employment contracts. If a staggering of the length of the notice periods is contractually agreed (e.g. in connection with the length of service), according to the explanatory memorandum to the amended NachwG it is sufficient to indicate the agreed calculation for such staggered periods. The staggering itself does not have to be stated.

New is the required information on the possibility of bringing an action for protection against dismissal under sec. 4 of the Protection Against Unfair Dismissal Act (KSchG) and the procedure to be followed for the dismissal, “at least” the requirement of the written form. What is meant by the term “procedure” unfortunately remains unclear at first. Since it is a minimum requirement in No. 14 n.F., a reference to the written form requirement will not suffice. The rights of participation of a works council or necessary declarations of consent by authorities in the case of special protection against dismissal, e.g. in the case of severe disability or parental leave, must be stated.

Additional regulations for stays abroad

The provisions in sec. 2, subsec. 2, of the NachwG on work performed abroad have been concretized and extended. Whereas they previously applied to work performed “for more than one month” outside Germany, it is now stipulated that this applies to work performed “for more than four consecutive weeks” outside Germany. In principle, the transcript containing the information required under sec. 2 para. 1 sentence 2 and the additional information required under sec. 2 para. 2 (shown here in simplified form) must be handed over before departure:

• State(s) and planned duration
• Currency for remuneration
• Cash benefits and benefits in kind associated with the stay abroad
• Intended return to Germany and conditions of return.

The regulations on stays abroad are supplemented by the newly inserted sec. 2, subsec. 3, which regulates additional requirements for stays abroad within the scope of the European “Posting of Workers Directive.”

Information on the subsequent amendment of essential terms and conditions of employment

As before, sec. 3 of the NachwG stipulates that a change in the essential terms and conditions of an employment contract must be notified to the employee in writing, but now it must be done, “no later than the day on which it takes effect,” whereas under the original wording it was “no later than one month after the change.” Exceptions apply only if the changed working conditions are based on a change in the laws or collective regulations applicable to the employment relationship (collective agreements, works and service agreements, etc.). Such a change may become relevant if, for example, the employer decides to increase the number of days of leave.

Outlook and open questions

As already noted at the outset, HR departments will have their work cut out for them, although there is one simplification brought by the changes. Sec. 2 para. 4 of the amended NachwG allows for the information required under sec. 2 para. 1 sentence 2 nos. 6 to 8 and 10 to 14 to be replaced by a reference to the collective agreements, works agreements or service agreements applicable to the employment relationship.

Furthermore, exciting questions remain: Do the provisions of the NachwG in this case on the written form requirement—also have to be observed for termination agreements? Does the NachwG have to be observed for service contracts with (third-party) managing directors, since the law is based on a European directive and the European concept of employee also covers (third-party) managing directors? Moreover, in connection with notifications in connection with transfers of undertakings, insofar as these have (only) been made in text form, the question may arise as to whether it will now be necessary to provide a new notification in compliance with the written form requirement of the NachwG if relevant changes occur as a result of the transfer of employment relationships, for example if other collective agreements apply.

We will, of course, continue to monitor further developments and will inform you of any new developments.

We are always available to answer your questions and to assist you in implementing the new provisions of the Verification Act.