Need for action for employers: The Verification Act (Nachweisgesetz – NachwG) and its amendments with fines

The relevance of the Verification Act in company practice has so far been manageable. Although the version of the Verification Act that is still valid until 31 July 2022 provides for an obligation to set down essential contractual terms in writing, the obligation to provide verification – in the absence of legally regulated sanctions – did not appear to be really compelling for most employers. Employment contracts were sometimes concluded verbally or digitally, very abbreviated and thus incomplete, or with deliberate disregard to some of the essential contractual conditions listed in the NachwG.

Any violations of the NachwG could theoretically lead to evidentiary difficulties for employers or give rise to claims for damages by employees. In practice, however, this rarely became relevant.

The Act on the Implementation of the EU Directive on Transparent and Reliable Working Conditions (Working Conditions Directive) was passed by the Bundestag on 23 June 2022 and leads to less pleasant changes for employers. At the same time, as of 01 August 2022, violations of the NachwG are even subject to fines for the first time.

I. The Verification Act in its previous version (until 31 July 2022)

Previously, employers were obliged to put the essential terms of the contract in writing no later than one month after the start of the employment relationship, sign this record and hand it over to the employee. The minimum content was the following contractual terms:

• Name and address of the contracting parties,
• the date of commencement of the employment relationship,
• in the case of fixed-term employment: 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 characterisation or description of the activity
• the composition and amount of remuneration, including supplements, allowances, bonuses and special payments and other elements of remuneration and their due dates
• agreed working hours, duration of annual leave, notice periods,
• reference to the applicable collective agreements, company or service agreements.

The provision of this record was expressly not allowed to be in electronic form.

However, employers did not have to fear any fines in case of a violation of the above-mentioned obligation to provide evidence of the employment terms.

II. Changes to the Verification Act as of 01 August 2022

The amendment of the Verification Act extends the employer’s obligations as of 01 August 2022 and modifies the procedure.

1. Extended obligations to provide evidence

In addition to the above-mentioned points from the previous version of the Verification Act, employers must document the following points in writing from 01 August 2022:

• in the case of fixed-term employment relationships, the end date,
• if applicable, the employee’s option to choose the place of work,
• if agreed, the duration of the probationary period,
• the composition and amount of the remuneration, including overtime pay, bonuses, allowances, premiums and special payments as well as other components of the remuneration, each of which must be stated separately, and their due date as well as the method of payment,
• the agreed working hours, agreed rest breaks and rest periods and, in the case of agreed shift work, the shift system, the shift rhythm and the conditions for shift changes,
• if agreed, the possibility of ordering overtime and the conditions thereof,
• any entitlement to further training provided by the employer,
• if the employer promises the employee a company pension through a pension provider, the name and address of that 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 in 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 unfair dismissal and
• a general reference to the collective agreements, works agreements or service agreements applicable to the employment relationship as well as regulations of commissions with equal representation which determine working conditions for church employers on the basis of church law.

2. Work on call

Furthermore, the new version of the NachwG also provides that further information is required in the case of work on call pursuant to section 12 of the Part-Time and Fixed-term Employment Act (Teilzeit- und Befristungsgesetz -TzBfG). Specifically, the following must be included in the written record:

• The agreement that the employee is to perform his or her work according to the workload,
• the minimum number of hours to be remunerated,
• the time frame, determined by reference days and reference hours, set for the performance of the work, and
• the time limit within which the employer must give advance notice of the location of the working time.

3. Shortened deadlines

Newly concluded employment contracts

In contrast to the previous version of the NachwG, as of 1 August 2022 the employee must already be provided on the first day of work with the written record of the name and address of the contracting parties, the remuneration incl. composition as well as the working hours including rest periods and breaks. For the above-mentioned contractual conditions that go beyond this, the new NachwG provides for a division and staggering of seven days or one month.

Old contracts

Employees who were hired before 01 August 2022 can also request their employer to provide them with a record containing the above-mentioned essential contractual terms within seven days. Only the information on leave, the occupational pension scheme, compulsory further training, procedural questions on termination and applicable collective agreements may also be submitted subsequently within one month after receipt of the employee’s request.

Changes in the current employment relationship

Contrary to the previous version, a change in the essential terms of the contract must no longer be notified in writing at the latest one month after the change, but already on the day on which it takes effect. However, this does not apply in the event of a change in the statutory or collective-law provisions.

4. Imminent fine in the event of infringements

A completely new feature is the inclusion of a fine in the event of a violation of the provisions of the Verification Act. This covers cases in which the employer does not fulfil his obligation to provide evidence at all, not correctly, in the wrong form, incompletely or not in time.

The administrative offence can be punished with a fine of up to € 2,000. For this reason, employers are more or less forced to deal with the amendments to the NachwG, as any infringements could (unfortunately) also be used as (probably inadmissible) leverage by employees, e.g. to steer settlement negotiations in a direction favourable to them.

III. Further changes in the AÜG, TzBfG and GewO

In addition, there are changes in the Temporary Employment Act (AÜG) regarding the specification of the identity of the hirer and a corresponding textual notification before the start of the temporary employment. In addition, the temporary worker is given the opportunity to express his or her wish to conclude an employment contract and to receive a reasoned response in text form within one month.

The new version of section 111 of the Trade, Commerce and Industry Regulation Act (Gewerbeordnung) stipulates that the employer may not demand reimbursement from the employee for the costs of required training if the employer is obliged by law or by collective agreement to offer such training.

The Part-Time Work and Fixed-Term Employment Act was also amended in several places. Of particular note is a provision on the probationary period, which will in future be found in section 15(3).

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. What is to be understood by this remains questionable and must be clarified by the courts. The explanatory memorandum to the law does not provide any information on a permissible percentage ratio.

IV. Recommendation for action and outlook

The amendments to the Verification Act increase the bureaucratic burden on employers and also create undesirable financial risks due to the introduction of fines.

The retention of the written form is also incomprehensible, as the EU Working Conditions Directive easily allows for information in electronic form. The written form, i.e. information in paper form with an original signature, stands in the way of the digitalisation of the world of work and is rightly criticised by employers. Unfortunately, Germany continues to play an exceptional role here and creates further bureaucratic hurdles – although this is not required by European law.

In view of the impending fines, employers are advised to adapt existing model employment contracts and prepare corresponding information letters in order to be able to process any enquiries from employees on working conditions without delays. This is because even in the case of delay, the fine would be realised. The seven-day deadline forces employers to prepare in advance.

Our Labour Law Practice Group is available to answer any questions you may have and will be happy to assist you in adapting your model employment contracts and drafting information letters to your employees.