News

LABOUR LAW

Entitlement to carry over holiday due to quarantine?

The European Court of Justice (ECJ) had to deal with the question of whether an employee who has been quarantined during their paid annual leave due to the Covid 19 pandemic can carry over their annual leave to a later period.

The background was the following case:

An employee was on holiday in December 2020.

Due to contact with a person who tested positive for COVID-19, the competent German authority placed the employee in quarantine during the same period.

The employee applied to his employer to have these leave days carried over to a later date. The employer refused.

The employee took legal action against this and was of the opinion that the refusal was in breach of EU law - the Working Time Directive.

Under German law, the employer only has to transfer the leave, i.e. "re-credit" the employee with the leave days, if the employee falls ill and can prove his inability to work.

So the question is:  Is mere quarantine equivalent to incapacity for work?

The Labour Court therefore asked the Court of Justice whether EU law requires that leave days that coincide with quarantine can be carried over.

The CJEU has ruled that EU law does not require that the days of paid annual leave on which the employee is not ill but is quarantined due to contact with a person infected with a virus must be carried over. The purpose of paid annual leave is to enable the employee to recover from the performance of the duties incumbent upon him under his employment contract and to have a period of relaxation and leisure. Unlike an illness, a quarantine period as such does not prevent the realisation of these purposes.

Consequently, the employer is not obliged to compensate for the disadvantages resulting from an unforeseeable event such as quarantine, which could prevent its employee from making full and desired use of his entitlement to paid annual leave.

(ECJ, judgment of 14 December 2023 in case C-206/22 | Sparkasse Südpfalz)

Evidential value of a certificate of incapacity for work ("yellow slip")

Two years ago, the Federal Labour Court already had to deal with the question of the probative value of a doctor's sick note if the employee reports sick immediately after receiving notice of dismissal.

In this case, it was decided that the evidential value of the certificate of incapacity for work is very low. This is all the more true today, since telephone sick notes were permitted and are now permitted again.

The court now had to deal with the case of an employee calling in sick for a week and being dismissed during this time. However, after the first sick note had expired, two further sick notes were received. What about the new sick notes that lasted exactly until the end of the employment relationship?

Here, too, the Federal Labour Court considered the evidential value of the certificates of incapacity for work to be undermined. This was due to the fact that the employee had started a new job the day after the notice period expired and was therefore only said to have been ill for the duration of the notice period, meaning that a precise extension had taken place.

In practice, this means that the employee can, of course, prove his or her alleged incapacity for work with a doctor's certificate. However, this evidential value is undermined by the fact that the sick note was issued precisely for the period of notice. This can give rise to serious doubts for the employer that there was no incapacity for work at all.

(Judgement of 13.12.2023 - 5 AZR 137/23).

 

BAG ruling on equal pay

Is a woman entitled to the same pay for the same work or work of equal value if a male colleague has negotiated higher pay?
The Federal Labour Court (BAG) had to deal with this question:
The female employee sued for the difference between her remuneration and that of the colleague who negotiated well - and was mainly proved right.
The BAG is of the opinion that the employee was discriminated against because of her gender, because she was paid a lower salary than her male colleague.
It is sufficient for the presumption of discrimination on the grounds of gender that employees of different genders and with comparable activities are paid differently. Although the employer can rebut this presumption, it has not been able to do so in these proceedings.
The court did not accept the employer's argument that the male employee had individually negotiated the higher remuneration better - the male employee's better negotiating skills are not an objectively suitable criterion that could justify unequal pay.
Consequence for the employer: He not only had to pay the difference in salary to the female employee, but also a compensation payment due to the violation of the prohibition of discrimination in the General Equal Treatment Act.

What does this mean for the employer: Of course, it is still possible to differentiate between employees of different genders with regard to salary - e.g. due to professional experience or qualifications; however, the differentiation must be justified objectively and in a gender-neutral manner.
(Judgement of the BAG of 16.02.2023 - 8 AZR 450/21)

A return to the time clock

A reform of the Working Hours Act is being planned - an obligation for employers to record employees' working hours electronically is to be introduced.

This would mean that there will be a legal obligation for employers to record the start, end and duration of employees' daily working hours - and to do so electronically.

In fact, employers are already obliged to record working time - based on a judgement by the European Court of Justice.

This means that the question of "whether" has been clarified; it is only the question of "how" that is unclear. This is now to be clarified by the amendment to the law.

Conclusion The employer's obligation to record working hours already exists, so the reform is not so far-reaching. The amendment to the law is likely to make electronic recording mandatory.

Calling in sick and then at a party - is immediate dismissal justified?

Anyone who reports unfit for work and is then seen at a party - and preferably posts photos on Facebook or Instagram - can, in the worst case, expect extraordinary dismissal for feigning illness and thus destroying the relationship of trust.

The probative value of the submitted certificates of incapacity for work is shaken if a healthy employee can be seen in the photos.

However, if the incapacity to work is due to a mental illness, the assessment can be quite different, because with this diagnosis a party could even promote recovery.

The employee in a case to be decided by the Siegburg Labour Court had submitted a certificate of incapacity for work for 2 days issued retrospectively with the diagnosis "mental illness", but she had reported flu symptoms to the employer. The diagnosis of the subsequently issued certificate of incapacity for work was therefore more than doubtful, so that the labour court considered the termination without notice to be effective and the complaint was dismissed.

 

 

Holiday is only subject to the statute of limitations if the employee has been informed in advance of his holiday entitlement (BAG, judgement of 20 December 2022)

Unsurprisingly, the Federal Labour Court (Bundesarbeitsgericht, BAG) ruled that holiday entitlement can only be time-barred if the employer has previously informed its employees of the possibility that it may expire.

This means that every employer is obliged to inform its employees in good time at the end of a calendar year that there are still days of leave to be taken and that these must be taken by the end of the calendar year or, if necessary, by 31 March of the following year. The announcement should be made in good time so that the employee still has a chance to take the leave. If the employer does not fulfil this obligation, the employee can still claim this leave years later.

If an employee has therefore already left an employment relationship some time ago and previously assumed that the leave was time-barred, he or she may have claims against the employer as a result of this new ruling. How many years retroactively this claim still exists has actually not yet been decided. The BAG ruling was about leave from the years 2013-2016.

 

Landmark ECJ ruling- Holidays do not automatically expire after three years

The European Court of Justice has ruled as expected and strengthened workers' rights:

Holiday entitlements become time-barred after three years. The question was: from when does the period begin?

According to the ECJ ruling: Only when the employer informs their employees about the limitation period does it start to run. If they are not informed about it, the holiday entitlement remains.

So if the employee is not informed that there is a risk of forfeiture of the holiday days, the entitlement remains valid beyond the three years.

 

Recording of working time (BAG of 13.09.2022)

The Federal Labour Court has now decided: all companies must record the working time of their employees. Until now, this was only necessary for the recording of overtime and the question of whether the provisions of the Minimum Wage Act were complied with - i.e. mainly for mini-jobbers and temporary workers without fixed hours.

The reason given for this far-reaching decision was that the Labour Protection Act, according to an interpretation in conformity with Union law, obliges the employer to record working hours.

The written reasons for the ruling are not yet available, so there is still some uncertainty as to what the recording of working time must actually look like.

At the moment, all employers are advised to introduce a system without waiting - it should be sufficient at the moment for employees to record their working hours themselves using Excel. However, the federal government intends to introduce electronic time recording.

Law transposing the EU Directive on transparent and predictable working conditions in the EU

On Thursday 23 June, the German Bundestag passed the draft law transposing the EU Directive (EU 2019/1152) on transparent and predictable working conditions in the European Union. The law brings numerous labour law amendments to the Evidence Act and other laws that are of great importance for practice.

Mainly, the Working Conditions Directive is implemented through amendments to the Nachweisgesetz (NachweisG), but other laws such as the Arbeitnehmerüberlassungsgesetz (Temporary Employment Act) or the Teilzeit- und Befristungsgesetz (Part-Time and Fixed-Term Employment Act) are also amended.
Unfortunately, many new regulations, especially new time limit regulations for the regulation of individual contractual conditions, are hardly comprehensible. In addition, it remains the case that the essential contractual conditions must be set down in writing - electronic form remains excluded - and this in the digital age!
In addition, it is now regulated that violations of certain provisions of the Verification Act constitute an administrative offence punishable by up to € 2,000.00. It is not only an administrative offence if no written employment contract is concluded, but also if the necessary contractual conditions mentioned in the NachweisG are not listed completely or the deadlines for the written fixation are not met.
The implementation of the new provisions of the NachweisG is obligatory for employment relationships newly established as of 01.08.22 .
However, even in the case of old contracts, employees can demand that the essential terms and conditions of employment under the Verification Act be set out in writing or, in the case of changes to the terms and conditions of the contract, the contract must be amended.
Brief summary of which contractual conditions must now be set out in writing, although this is not exhaustive:
- the end date in the case of fixed-term employment relationships
- if agreed: the duration of the probationary period
- the composition and amount of remuneration, including overtime pay, bonuses, allowances, premiums and special payments and other components of remuneration, each of which must be stated separately, and their due dates and the method of payment; the due date for payment of remuneration and the form in which it is paid
- the possibility of ordering overtime and its conditions
- 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 - here probably the legal wording, a reference is no longer sufficient - as well as the time limit for bringing an action for unfair dismissal; section 7 of the Act on the Protection against Unfair Dismissal is also applicable if the time limit for bringing an action for unfair dismissal is not properly stated.
Especially the absence of the time limit for bringing an action for protection against dismissal could have far-reaching consequences. Claims for damages for the employee are possible, but at least also a more generous handling for the subsequent admission of actions for protection against dismissal filed late (section 5 KSchG).
A revision of old sample contracts for new hires is therefore urgently needed.

 

 



Burden of proof and presentation in extraordinary proceedings

The Federal Labour Court (Bundesarbeitsgericht, BAG) has issued a clarifying decision on the question of the burden of presentation and proof in overtime litigation:

Case in brief:

The working time of the plaintiff -a temporary driver- was recorded by means of technical time recording, whereby only the beginning and end of the working time was recorded and not the break times.

At the end of the employment relationship, the plaintiff claimed overtime pay on the grounds that he had worked the entire time and could not take breaks because otherwise he would not have been able to process the delivery orders. The employer disputed this claim.

Now the question was who bore the burden of proof for the performance of the overtime. This question had therefore come into focus because the European Court of Justice (ECJ), in a judgment of 14 May 2019 - C-55/18 - held that Member States must oblige employers to introduce an objective, reliable and accessible working time recording system. Since Germany has so far failed to comply with this obligation, the burden of proof in overtime pay proceedings is modified. It was sufficient for the employee to state the number of overtime hours worked in order to conclusively substantiate the claim. With this reasoning, the court of first instance had upheld the claim. The court of appeal, on the other hand, had dismissed the action.

The BAG shared the opinion of the court of appeal, which concluded that the decision of the European Court of Justice did not apply to German law, as the judges of the European Court of Justice lacked the competence to comment on questions of remuneration. Literally, Article 153 (5) TFEU (this is about competences of the Union) states:

"This Article shall not apply to pay, the right of association, the right to strike or the right to lock out."

Literally, the BAG press release of 04.05.2022 states:

"In order to substantiate a claim for remuneration for overtime worked, the employee must - in brief - firstly show that he has performed work to an extent exceeding the normal working hours or has been prepared to do so on the employer's instructions. Secondly, since the employer is only obliged to pay remuneration for overtime he/she has arranged, the employee must show that the employer has expressly or impliedly ordered, tolerated or subsequently approved the overtime worked. These principles developed by the Federal Labour Court on the distribution of the burden of proof for the performance of overtime by the employee and its initiation by the employer are not changed by the obligation based on Union law to introduce a system for measuring the daily working time worked by the employee."

Conclusion: Thus, the previous case law remains that the employee bears the burden of proof that he worked the overtime and that this was done with the order or approval of the employer.

(Federal Labour Court of 04.05.2022, AZ: 5 AZR 359/21)

Contestability of a termination agreement

The Federal Labour Court (Bundesarbeitsgericht, BAG) had to deal with the question of whether a termination agreement is voidable if the employer only offers the termination agreement to the employee if the employee signs it immediately. (Judgment of 24.2.2022)

Guiding principle of the BAG:

A termination agreement may have been concluded in breach of the requirement of fair negotiation. Whether this is the case is to be decided on the basis of the overall circumstances of the concrete negotiation situation in each individual case. The mere fact that the employer makes the conclusion of a termination agreement dependent on the immediate acceptance of its offer does not in itself constitute a breach of duty pursuant to section 311 (2) no. 1 in conjunction with section 241 (2) of the German Civil Code, even if this results in the employee neither having a period of reflection nor being able to seek requested legal advice.

This decision was based on the following facts (abridged):

An employee was accused by the employer of having acted in breach of her employment contract (faking an increased sales profit by changing/reducing the purchase prices). The employee was presented with a termination agreement and asked to sign it immediately. After a break of about 10 minutes, the employee signed the termination agreement.

The employee challenged this contract on the grounds of unlawful threat, claiming that she had been threatened with extraordinary dismissal and the filing of criminal charges if she did not sign the termination agreement. Her request to be given a longer period to think it over and to be able to seek legal advice had not been granted. The employer had thus violated the requirement of fair negotiation.

The BAG ruled against the employee on the grounds that the alleged threat was not unlawful. In the present case, a reasonable employer could seriously consider both the declaration of an extraordinary dismissal and the filing of criminal charges. The employee's freedom of decision was not violated by the fact that the employer only submitted the termination agreement for immediate acceptance in accordance with section 147 (1) sentence 1 of the German Civil Code and that the plaintiff therefore had to decide on acceptance immediately.

 

Evidential value of the certificate of incapacity for work

It is not always helpful to submit a certificate of incapacity for work as proof of an alleged incapacity for work. The Federal Labour Court had to decide on the following case (according to the press release of the BAG):

The plaintiff had been employed by the defendant as a commercial employee since the end of August 2018. On 8 February 2019, the plaintiff terminated the employment relationship with effect from 22 February 2019 and submitted to the defendant a certificate of incapacity for work dated 8 February 2019 and marked as an initial certificate. The defendant refused to continue to pay remuneration. The probative value of the certificate of incapacity to work was shaken because it covered exactly the remaining term of the employment relationship after the plaintiff's self-termination. The plaintiff, on the other hand, argued that she had been properly on sick leave and had been facing a burn-out. The lower courts upheld the claim for continued payment of wages for the period from 8 February to 22 February 2019.


The defendant's appeal, which was subsequently allowed by the senate, was successful. The plaintiff initially proved her alleged incapacity for work in the period in dispute by means of a certificate of incapacity for work. This is the evidence provided for by law. The employer can undermine its probative value if he presents and, if necessary, proves factual circumstances that give rise to serious doubts about the inability to work. If the employer succeeds in doing so, the employee must substantiate and prove that he or she was unable to work. The evidence can be provided in particular by questioning the attending physician after he has been released from the duty of confidentiality. According to these principles, the defendant has shaken the probative value of the certificate of incapacity for work. The coincidence between the notice of 8 February to 22 February 2019 and the incapacity for work certified on 8 February to 22 February 2019 gives rise to a serious doubt as to the certified incapacity for work. The plaintiff did not meet her burden of proof on the existence of an incapacity to work in a sufficiently concrete manner during the proceedings - even after the senate had pointed this out. The action was therefore to be dismissed.

Conclusion:

If an employee terminates his employment relationship and is certified as being incapable of working on the day of the termination, this can shake the probative value of the certificate of incapacity to work, in particular if the certified incapacity to work precisely covers the duration of the notice period.

Federal Labour Court, Judgment of 8 September 2021 - 5 AZR 149/21 -
Previous instance: Lower Saxony Regional Labour Court, Judgment of 13 October 2020 - 10 Sa 619/19

Is a reduction of holiday during short-time work legal?

This question was disputed and was now heard today by the Federal Labour Court (ref.: 9 AZR 225/21). The lower courts (Düsseldorf Regional Labour Court of 12 March 2021, Ref.: 6 Sa 824/20) had already answered this question in the affirmative. Today, the Federal Labour Court (Bundesarbeitsgericht, BAG) followed this opinion.

The zero working days lost during short-time work can therefore be reduced proportionately. The reason given is that the duty to work is suspended during this time and therefore no holiday entitlement can arise.

According to the judgement handed down today, there is no pro rata holiday entitlement for periods without compulsory work.

The judges referred, among other things, to European law requirements and a decision of the European Court of Justice (ECJ 13.12.2018, RS. C-385/17), according to which employees are only entitled to holiday entitlement for periods during which they actually worked.

 

Entitlement to paid annual leave of an employee

And another referral to the ECJ concerning leave:

In order to clarify the question of whether and under which conditions the entitlement to paid annual leave of an employee who has suffered a full reduction in earning capacity in the course of the leave year can lapse 15 months after the end of the leave year or, as the case may be, at a later point in time, the Ninth Senate of the Federal Labour Court has submitted a reference for a preliminary ruling to the Court of Justice of the European Union.

Case:

The plaintiff, who is recognised as a severely disabled person, has been employed as a freight driver by the defendant since 2000. Since 1 December 2014, he has been receiving a pension for full reduction in earning capacity, which was most recently extended until August 2019. He claimed, inter alia, that he was still entitled to 34 working days of holiday from 2014 against the defendant. These claims had not lapsed because the defendant had not fulfilled its obligations to cooperate in granting and claiming leave (see ECJ, judgments in Cases C-619/16 and C-684/16 of 6.11.2018). In contrast, the defendant took the view that the plaintiff's leave not taken in 2014 expired at the end of 31 March 2016. If the employee - like the plaintiff in this case due to full incapacity for work - is unable to take his leave for a long time for health reasons, the forfeiture occurs 15 months after the end of the leave year irrespective of the fulfilment of the obligations to cooperate.
The lower courts dismissed the action. For the Ninth Senate, the decision as to whether the plaintiff's leave from 2014 expired on 31 March 2016 or, as the case may be, on a later date, depends on the interpretation of Union law, which is reserved for the Court of Justice of the European Union.
According to section 7(3) BUrlG, leave must be granted and taken in the current calendar year. A transfer of leave to the first three months of the following calendar year is only permissible if justified by urgent operational reasons or reasons relating to the employee. The Ninth Senate of the Federal Labour Court has interpreted this provision on several occasions in conformity with EU law.
Following the decision of the Court of Justice of the European Union of 6 November 2018 (- C-684/16 - [Max Planck Society for the Advancement of Science]) on Article 7 of Directive 2003/88/EC (Working Time Directive) as well as on Article 31(2) of the Charter of Fundamental Rights of the European Union, the Ninth Senate has recognised that, in principle, the entitlement to the statutory minimum leave can only be exercised pursuant to Section 7 para. 3 BUrlG expires at the end of the calendar year or of a permissible carry-over period only if the employer has previously specifically requested the employee to take his leave in due time in the leave year and has informed him that it may otherwise expire and the employee has nevertheless not taken the leave of his own free will (cf. in this regard Press Release of the Federal Labour Court No. 9/19 of 19 February 2019).
In the event that the employee was prevented from working in the holiday year for health reasons, the Ninth Senate also understands § 7.3 BUrlG in accordance with the decision of the Court of Justice of the European Union of 22 November 2011 (- C-214/10 - [KHS]) to the effect that statutory holiday entitlements expire 15 months after the end of the holiday year in the event of continued incapacity for work (cf. in this regard Press Release of the Federal Labour Court No. 56/12 of 7 August 2012).
For the decision of the legal dispute, it is now necessary for the Court of Justice of the European Union to clarify whether European Union law also permits the expiry of the holiday entitlement after the expiry of this 15-month period or, as the case may be, a longer period, if the employer has not fulfilled its obligations to cooperate in the holiday year, although the employee could have taken at least part of the holiday in the holiday year until the time of the occurrence of the full incapacity.

 

News on sick leave

The Federal Labour Court (Bundesarbeitsgericht - BAG) has made a landmark decision on the question of the probative value of the certificate of incapacity for work:

Facts (abridged):

The plaintiff had been employed by the defendant as a commercial employee since the end of August 2018. On 8 February 2019, the plaintiff terminated the employment relationship with effect from 22 February 2019 and submitted to the defendant a certificate of incapacity for work dated 8 February 2019 and marked as an initial certificate. The defendant refused to continue to pay remuneration. The probative value of the certificate of incapacity to work was shaken because it covered exactly the remaining term of the employment relationship after the plaintiff's self-termination. The plaintiff, on the other hand, argued that she had been properly on sick leave and had been facing a burn-out. The lower courts upheld the claim for continued payment of wages for the period from 8 February to 22 February 2019.

The defendant's appeal was successful. The plaintiff initially proved her alleged incapacity for work during the period in dispute by means of a certificate of incapacity for work. This is the evidence provided for by law. The employer can undermine its probative value if he presents and, if necessary, proves factual circumstances that give rise to serious doubts about the inability to work. If the employer succeeds in doing so, the employee must substantiate and prove that he or she was unable to work. The evidence can be provided in particular by questioning the attending physician after he has been released from the duty of confidentiality. According to these principles, the defendant has shaken the probative value of the certificate of incapacity for work. The coincidence between the notice of 8 February to 22 February 2019 and the incapacity for work certified on 8 February to 22 February 2019 gives rise to a serious doubt as to the certified incapacity for work. The plaintiff did not meet her burden of proof on the existence of an incapacity to work in a sufficiently concrete manner during the proceedings - even after the senate had pointed this out. The action was therefore to be dismissed.

Conclusion:

If an employee terminates his employment relationship and on the day of the termination he is certified as being incapable of working, this can undermine the probative value of the certificate of incapacity to work, in particular if the certified incapacity to work precisely covers the duration of the notice period.

ECONOMIC, COMMERCIAL AND CORPORATE LAW

ITALY: A few days before the deadline: Regional Administrative Court suspend the effectiveness of the decree about the communication of the beneficial owner to the Chambers of Commerce

In Order No. 8083/2023, the Lazio Regional Administrative Court (TAR) granted a trade association's request to suspend the effectiveness of the decree of the Ministry of Enterprise and Industry containing the implementing rules for the transmission of beneficial owner data to the Chambers of Commerce. This effectively suspends the deadline for compliance set for 11 December 2023.

Just before the deadline set for 11 December 2023, comes the suspension of the 29 September 2023 decree of the Ministry of Enterprise and Made in Italy (Mimit) that made the communication of the beneficial owner to the Chambers of Commerce operational.

In fact, the fourth section of the Regional Administrative Court of Lazio, with its order published on 7 December 2023, suspended the effectiveness of the aforementioned decree, effectively blocking the countdown that expired on 11 December 2023.

Therefore, since the order sets the hearing on the merits of the appeal at the public hearing of 27 March 2024, the fulfilment remains suspended.

Therefore, compliance is suspended and the matter moves forward in time, at least until the issue is addressed by the Regional Administrative Court on the merits at the hearing of 27 March 2024.

Regulation on the protection of natural persons with regard to the processing of personal data

In its judgement of 7 December 2023 in the "SCHUFA" case, the ECJ ruled that the Regulation on the protection of individuals with regard to the processing of personal data and on the free movement of such data (General Data Protection Regulation) must be interpreted as meaning that
- a legally binding decision of a supervisory authority is subject to a full review of its content by a court,
- the Regulation precludes the practice of private credit reference agencies of storing in their own databases information from a public register relating to the granting of a discharge of residual debt in favour of natural persons for the purpose of providing information on the creditworthiness of those persons for a period exceeding the storage period of the data in the public register,
- the data subject has the right to obtain from the controller the erasure of personal data concerning him or her without undue delay where the data subject objects to the processing pursuant to Article 21(1) of this Regulation and there are no overriding legitimate grounds for the processing;
- the controller is obliged to erase personal data that has been processed unlawfully without undue delay.

Europe: Commercial register extracts online and free of charge

Since 1 August 2022, all register content from the German commercial register (on the website Handelsregister.de) has been available without registration and free of charge. This change came with the entry into force of the law implementing the EU Digitisation Directive. This eliminated a nuisance for businesses and consumers thanks to the EU. It was simply difficult to see why tax-financed registers should also have to be paid for (again) for the information to be retrieved automatically.

Of course, this also applies to all other EU states as well as Iceland, Liechtenstein, Norway and Switzerland. In the meantime, the EU links the commercial registers in all languages on its e-Justice portal and also allows direct searches on the EU portal for most member states (where this does not yet work, links to the national registers are provided).

Since at the beginning of a business relationship there must be no doubt about the legal form, the company name and the persons in charge of the business partner, it is fundamentally important to easily obtain correct official commercial register data. An imprint (“Impressum”) from the internet cannot guarantee this. Also, the question of protection by guarantees against non-payment depends on this data, especially the legal form of the company and the beneficial owners behind it. The great importance of correct data continues when we have to take legal action.

The lawyers of Dr. Einhaus & Partner will be happy to provide you with further information.

 

P.S.: We are happy to report on EU law. On the one hand, this is because we apply it on a daily basis and want to inform our clients. On the other hand, it is important to us to put the EU in the right light. Because the EU strengthens the rights of businesses and consumers in Europe on a daily basis, simplifies life and work and protects fundamental freedoms as well as our democracy. It is often misunderstood that the much-maligned "Brussels", like no other state in the world, dynamically ensures that our lives become better and that Europe is in many respects a unique and exemplary association of peacefully united states acting together for their citizens.

 

Why Rechtsanwälte Dr. Einhaus & Partner can represent clients throughout the Federal Republic of Germany at no extra cost

In its decision of 14 September 2021 on the issue of reimbursement of costs by the unsuccessful opposing party, the German Federal Supreme Court held that the involvement of an external lawyer at a court hearing is regularly not necessary if the party is domiciled within the court district and does not mandate a lawyer working there but one domiciled outside the district. However, this does not exclude considerations relating to the individual case to objectively justify the appointment of a lawyer not domiciled at the seat of the trial court. This applies, for example, if this results from the complexity of the respective legal dispute.

The appointment of a specialised lawyer from abroad is also necessary by way of exception if a comparable local lawyer cannot be appointed.

The latter often applies to our lawyers, especially when international, european and foreign law or language skills are required.

 

Legal Consequences of a Refund Request by the Payer in the Case of the SEPA Core Direct Debit

The German Federal Supreme Court ruled on 12.5.22:

(1) If the credit to the creditor's account made on the basis of a SEPA core direct debit lapses as a result of a reimbursement request by the payment debtor and if there is a corresponding return debit to the creditor's account, the payment creditor may claim payment from its payment debtor under the original claim.

(2) In the insolvency of the payment creditor, its insolvency administrator may assert this payment claim from the original claim even if the payment creditor's account was in debit at the time of the reimbursement request and the compensation claim to which the payment creditor's credit institution is entitled is only an insolvency claim.

The new “Law on the further shortening of the residual debt discharge procedure”

The pandemic seems to be manageable and the economy is on the upswing again. Together with
you we want to look confidently into the future and master the challenges. The legislator also
remains active with the new “Law on the further shortening of the residual debt
discharge procedure”, as does Ministry of Justice with the plan to extend the suspension of
the obligation to file for insolvency until March 2021.

The government draft of a law to further shorten the residual debt discharge procedure
provides for a reduction of the procedure from currently six to three years in the future. The
fulfilment of special conditions such as the coverage of the costs of the proceedings or the
fulfilment of minimum satisfaction requirements is to be waived in future.

The three-year residual debt discharge procedure is to apply to all insolvency proceedings
applied for from October 1, 2020, in order to support those debtors who have become
insolvent as a result of the current situation in making a fresh start. The residual debt
discharge proceedings applied for between 17 December 2019 and 1 October 2020 are to be
gradually shortened.

The shortened procedure should in principle be open to all debtors, i.e. in particular, as
before, also to entrepreneurs.

In the event of renewed insolvency, the government draft proposes to extend the blocking
period for the renewed attainment of residual debt discharge from currently ten to eleven
years and the residual debt discharge procedure from currently three to five years.
Furthermore, debtors are to be more strongly encouraged to hand over acquired assets in
the so-called "good conduct phase". In addition, it should be possible in future to refuse
discharge of residual debt if inappropriate liabilities are created during the "good conduct
phase".

Finally, the government draft provides that bans on activities which have been issued solely
as a result of the debtor's insolvency will automatically cease to apply after granting residual debt discharge.

Obligation to file for insolvency is suspended for a longer period

An amendment to the COVID-19 Insolvency Suspension Act (COVInsAG) extends the suspension of the obligation to file for insolvency in cases of overindebtedness for the period from 1 October 2020 to 31 December 2020.

The Federal Ministry of Justice justifies this as follows: The pandemic has not yet been overcome and many companies are therefore at risk of insolvency. In order to continue to give companies the opportunity to restructure and finance themselves by making use of state aid offers and through out-of-court negotiations, the obligation to file for insolvency should continue to be suspended. The further suspension would only apply to companies that are over-indebted but not insolvent due to the pandemic.

As the Insolvency Code also offers opportunities to take advantage of a legal protection shield and to restructure the company, we are sceptical whether this is the right way forward.

INHERITANCE LAW (INTERNATIONAL/ EUROPEAN)

ECJ on the choice of law of a third country national

The European Court of Justice ruled on 12.10.2023 (case number C-21/22 - OP (Choix du droit d’un État tiers pour la succession):     

Article 22 of Regulation (EU) No 650/2012 of the European Parliament and of the Council of 4 July 2012 on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession must be interpreted as meaning that a third-country national residing in a Member State of the European Union may choose the law of that third State as the law governing his or her succession as a whole.                               

Article 75 of Regulation No 650/2012, read in conjunction with Article 22 of that regulation, must be interpreted as not precluding – where a Member State of the European Union has concluded, before the adoption of that regulation, a bilateral agreement with a third State which designates the law applicable to succession and does not expressly provide for the possibility of choosing another law – a national of that third State, residing in the Member State in question, from not being able to choose the law of that third State to govern his or her succession as a whole.

Interesting facts about inheritance tax

As an heir, you can usually look forward to a small or large increase in assets. But before you spend the money, you should think about inheritance tax.
In principle:
Heirs and donees must pay inheritance tax or gift tax. This is what the Inheritance and Gift Tax Act stipulates. At the same time, the legislator has provided for more or less generous allowances, depending on the degree of relationship. The closer an heir is related to the testator, the higher the tax-free amount. In this way, the legislator wants to ensure that heirs do not have to go into debt to accept the inheritance.
The allowances for inheritance tax depend on the degree of kinship.
The following general allowances apply:
- Spouses and registered civil partners
500,000 euros
- Children, stepchildren, adopted children
400,000 euros
- grandchildren
200,000 euros
- Parents and grandparents
100,000 euros
-Siblings, divorced spouses, nieces, nephews and all other heirs 20,000 euros.
In addition, special pension allowances can be claimed.
It is particularly interesting from a tax point of view if there is a house in the estate.
This is because if heirs continue to occupy a house used by the family for more than ten years, they can save further considerable tax sums.                                                                                                                                                                                                            
An exception to the 10-year period may apply if the heir is prevented from occupying the house for the full 10 years for compelling reasons, for example health reasons, so that the tax reduction is also granted in the event of early departure.

Our specialists in inheritance and tax law will be happy to advise you on tax-optimised inheritance and/or succession planning.                                                                                                                                                                                                                  

Violation of the "ordre public" in the case of the choice of English law

On 29.6.22 the German Federal Supreme Court found a (rare) violation of the "ordre public", namely in the case of the choice of English law of succession.

The application of the English law of succession chosen in accordance with the European Inheritance Regulation violates German ordre public at any rate if it leads to the fact that in a situation with a sufficiently strong domestic connection there is no claim to a compulsory portion of a child that is not dependent on need.

Gift

A gift made ten years ago is in principle no longer to be taken into account in the compulsory portion of an heir's estate.

However, with the 10-year period according to § 2325 III BGB, details are again important:

Does this also apply if a testator continues to live, for example, in the donated property? The answer to this question can be found in a recent ruling of the BGH (Supreme Court of Germany).

Decisive for the final execution of the gift is whether the testator formally relinquishes his legal status and does not remain in the "enjoyment" of the given object in economic terms either.

The testator must actually separate the given object from his or her assets. With the gift, he must have created a condition which means a real loss for him.

However, there must be a period of ten years between the gift and the death of the testator, so that a so-called right to a supplementary compulsory portion does not intervene after this death.

This right means that a person entitled to the compulsory portion can calculate his or her right to the compulsory portion as if the gift had not been made. If, for example, the estate consists of several houses, and one house was given away by way of a gift during the testator's lifetime, but less than 10 years before his or her death, the property is added to the estate in terms of value, even though it did not belong to the testator at all in the end.

In any case, when it comes to the 10-year period, it is always necessary to look closely at how far the testator really gave away the given-away property.

Even after the 10-year period has expired, those entitled to a compulsory portion can often still hope that a given item will be added to the estate and thus significantly increase their compulsory portion.

FAMILY LAW (INTERNATIONAL/ EUROPEAN)

Who owns the dog?

Many families have pets, but what happens to them when a couple separates and the family no longer lives together?

This regularly leads to considerable disputes, especially when it comes to the favourite pet, the dog.

The distribution of household items in the event of separation in accordance with Section 1361a BGB also applies to pets.

It has now been decided that further consideration must be given, as these are animals and not property.

The equitable decision to be made must take into account the fact that the household object is a living being and therefore animal welfare criteria are also decisive.

In the case of a dog, it is primarily relevant which of the spouses as a person or "pack member" is the animal's main carer, otherwise the dog must be allowed to remain in its previous familiar environment.

The claim for restitution pursuant to Section 1361a I sentence 1 BGB also includes the objects to be assigned to the pet.

Immediate effectiveness of the decision pursuant to Section 209 II sentence 2 FamFG may also be ordered by analogy if immediate surrender of the pet is in the best interests of the animal.

If the animal has already been brought into the marriage, inherited or given as a gift, it belongs to this spouse alone and remains their property even after the separation.

Jurisdiction, recognition and enforcement of judgments in matrimonial matters and proceedings concerning parental responsibility

The European Court of Justice ruled on 02.08.2021 (case number C-262/21):

Article 2(11) of Council Regulation (EC) No 2201/2003 of 27 November 2003 concerning jurisdiction and the recognition and enforcement of judgments in matrimonial matters and the matters of parental responsibility, repealing Regulation (EC) No 1347/2000, must be interpreted as meaning that a situation in which one of the parents, without the other parent’s consent, removes the child from his or her Member State of habitual residence to another Member State pursuant to a decision to transfer taken by the first Member State in application of Regulation (EU) No 604/2013 of the European Parliament and of the Council of 26 June 2013 establishing the criteria and mechanisms for determining the Member State responsible for examining an application for international protection lodged in one of the Member States by a third-country national or a stateless person, then remains in the second Member State after the decision to transfer has been annulled without the authorities of the first Member State deciding to take back the persons transferred or authorise their residence, cannot be considered wrongful removal or retention within the meaning of that provision.

Separation and divorce - the Cartabia reform in Italian family law

On the 1.st of March 2023, the reform of family law governing 'separation' and 'divorce' is entered into force in Italy with the aim of streamlining the duration of proceedings and reducing backlogs.

Thus, the face and soul of the so-called 'Italian divorce' have been changed. In fact, it will be possible to proceed with separation and divorce in a single proceeding; the two-phase structure, first before the President and then before the examining magistrate, will be eliminated in favour of a single proceeding. In addition, sanctions are provided for in the event of breach of agreements on custody and visitation of the child (in terms of time and manner) by one of the married couple.

In fact, an obligation is laid down for the married couple to give a detailed account of the children's daily commitments and activities to the court, so that the judge can have a timetable. When violated by one of the married couple, sanctions are triggered.

The first major novelty therefore lies in the single act, the introductory acts from the moment they are filed must contain the account of the facts and the means of proof (as well as being complete with every demand, objection, proof and counterclaim).

The criteria for proceeding with the new 'Italian divorce' are the final judgment on the separation and the termination of cohabitation between the two married. The objective required by the European Union and set out in the so called National Recovery and Resilience Plan (the so-called PNRR), i.e. the reduction of the length of proceedings, is realised in the fact that the judge's hearing must be held within 90 days from the filing of the appeal.

Jurisdiction is found in the court of the child's residence; or in the case of the absence of minor children, in that of the defendant's place of residence.

The second novelty lies in the possibility for the judge to order investigations into the assets and standard of living in the case of maintenance payments. The purpose is to assess whether one of the spouses has concealed part of the income.

The third novelty lies in the ample space and importance given to listening to the child, including children under the age of 12, who has "the right to express his or her views in all matters and procedures aimed at affecting his or her individual sphere". The couple's children, if present, must in fact always be heard by the court and their opinion will be decisive for the final judgment.

The judge will have to take into consideration the age and degree of maturity of the child; the latter may be heard directly or with the assistance of experts in child psychology.

This new rite applies to status actions (recognition, disavowal, judicial declaration of paternity), separation, divorce, dissolution of civil unions and related modifications; support administrations, interdiction and incapacitation and de potestate proceedings. Adoptability and immigration proceedings, which are the responsibility of the specialised sections of the Court, will remain excluded.

Finally, the last novelty envisaged by the Cartabia Reform, which will actually come into force by October 2024, concerns the so-called Court for Persons, Minors and Families. The aim is to put a stop to the current fragmentation of competences, dispersed between the Ordinary Court, the Juvenile Court (which remain operational, with specific competences and functions) and the tutelary judge.

The changes to the civil process envisaged by the reform, which bears the name of the former Minister of Justice, Marta Cartabia, are aimed at streamlining time. The aim is to shorten the duration of trials, which in Italy has always been a critical issue and far from the standards required by the European Union.

The reform, which should have come into force on 30 June 2023, has become a priority of the Meloni government, which has put its foot on the accelerator with the transitional provisions included in the Budget Law. This is not a detail, because the European Commission has linked the allocation of funds of the National Recovery and Resilience Plan (the so-called PNRR) to the achievement of the standards (a 40 per cent reduction in the duration of proceedings and procedures).

Dott.ssa Silvia Cormaci

Reform of the guardianship and custody law

The reform of the guardianship and care law of 12 May 2021 came into force on 1 January 2023 after a transitional period of almost two years and has the objective of realizing the (natural) will of a person in care.

In life, there are situations in which persons can no longer articulate their will and relatives are dependent on being able to make decisions.

For these reasons, the reform amended various aspects of guardianship and care law.

In guardianship law, the right of persons under guardianship to self-determination was significantly improved.

In matrimonial law, there is now an extraordinary right of emergency representation for spouses in the medical field.

In guardianship and custody law, the rights of children have been significantly strengthened and the rights of foster parents or foster children have also been strengthened.

In particular, the right of emergency representation under matrimonial law is an important improvement, as it has significantly expanded the possibilities of representing the other spouse in emergency health situations. In cases where one spouse is temporarily unable to manage the affairs of his or her health care due to unconsciousness or illness, the other spouse now receives a legal right of representation limited to three months. This includes, among other things, consent to examinations and curative treatment, consent to medical interventions, the conclusion of treatment and hospital contracts and the conclusion of contracts for urgent rehabilitation measures.

Doctors are released from the duty of confidentiality vis-à-vis the emergency representative for the duration of the right of emergency representation.

However, in the case of separated spouses as well as other existing representation orders, the above-mentioned regulations on the right of emergency representation do not apply.

Our specialists in family and inheritance law will be happy to advise you in this regard.

Child maintenance in case of rent-free living

When parents separate, the economic situation of a family also changes to a considerable extent.
Among other things, the obligation to pay child maintenance arises for the non-caring parent.
In cases where the parent providing care remains in the joint rented flat, but the rent continues to be paid by the parent moving out, this nevertheless has no influence on the calculation of child maintenance.
The amount of child maintenance is not affected by rent-free living.
The free provision of living space is primarily compensated for in the maintenance relationship between the parents. A compensation under maintenance law can also be seen in the fact that the parent providing care cannot assert a claim to separation maintenance, since after the attribution of the full value of the living space there is no longer any difference in income between the parents to be compensated.

Our specialist in family law, Att. Cutaia, will be happy to advise you on any questions in this regard.



Adoption of a stepchild

Nowadays there are more and more "patchwork" families. In some cases, the question then arises as to whether the adoption of a child by the new partner of one of the parents is an option.

In principle, an adoption can be pronounced if this serves the best interests of the child and it is to be expected that a parent-child relationship will develop between the adopter and the child. Particularly in the case of stepchild adoption, the child's interest in maintaining the family ties to its natural other parent, which is worth protecting, must be taken into account if this tie would be severed as a result of the stepchild adoption.

In favour of the adoption of the child by the step-parent may be the fact that there is no (longer) any relationship between the child and the natural parent who is stepping down as a result of the adoption, for example because the natural parent is deceased or unknown, or because the relationship has loosened to such an extent that the parent-child relationship existing between the child and the natural parent is only an empty legal shell.

In this case, the fact that the stepparent can legally exercise parental responsibility in the form of joint parental custody after the child has been adopted can prove to be an important advantage of adoption as a child.

Our specialists in family law will be happy to advise you in this regard.

Your contact person is Patrizia Cutaia, lawyer.

GENERAL CIVIL LAW

Important change in German law of obligations for 2022!

After 20 years, the German Civil Code is subject to profound changes in the General Law of Obligations, especially in the Law of Sales.

Fines

The Act on the Implementation of the so-called European Modernisation Directive or Omnibus Directive regulates general information obligations for online traders with effect from 28 May 2022. In order to enforce consumer protection, fine provisions are introduced for a culpable violation of consumer interests. This concerns, for example, the use of general terms and conditions clauses that are invalid according to the law, the non-fulfilment of information obligations or the non-fulfilment of certain obligations of the trader after an effective revocation of the contractual declaration by the consumer. 

Paying with data

As early as the beginning of 2022, the law implementing the European Digital Content Directive extends consumer-protective regulations to consumer contracts (B2C) in which the consumer does not pay a fee in return but provides personal data or undertakes to do so, unless this data is used exclusively for the performance of the contract.

This takes into account justified demands to attach a higher value to consumers' data.

The "Digital Products Contract”

The law implementing the European Digital Content Directive covers so called "contracts for digital products".

 These products are

  1. digital content, e.g. software (computer programs, apps), audio files and video files,
  2. digital services, social media services (e.g. Instagram, TicToc, Facebook etc.), messenger services, streaming services (e.g. Spotify), cloud storage, cloud computing services, sales, booking, mediation or rating portals.

It remains to be seen whether an independent contract type "digital products" will develop in practice or whether the regulations will be based on other contract types of the special law of obligations of the BGB.  Such a contract type is only conceivable for consumer contracts (B2C), because the legislator has created a regulation for contracts on digital products in the B2B area only for recourse issues.

Contract for goods with digital elements

The above-mentioned contracts on digital products are to be distinguished from sales contracts on "goods with digital elements". The implementation of the European Sale of Goods Directive creates changes in the sale of consumer goods (B2C). Goods with digital elements are movable goods that contain digital products. This includes electronic devices, especially so-called "smart" devices, such as smartphones, navigation devices, lawn robots or certain refrigerators.

Besides, the so called "package contract" is regulated, if a consumer purchases e.g. both a Playstation and various digital games, and the "other contract for goods with digital elements".

Update and upgrade obligation

The new law for consumers provides for an update and upgrade obligation of the trader. If this obligation is not fulfilled, a product defect is said to exist, also in the case of sales contracts for goods with digital elements.

In practice, especially security updates are of great importance for the buyer. The obligation to update exists either for the agreed period or for the period in which the consumer can expect an update according to the type and purpose of the digital product.

Right of amendment of the trader

The trader has a limited right of modification in contracts for the permanent provision of a digital product.

There must be a valid reason for this, in particular necessary adaptations of the digital product to a new technical environment, increased user numbers or operational reasons. The consumer must not incur any costs as a result of the change and must be informed about it in a clear, comprehensible and timely manner.

All new regulations should be urgently taken into account by businesses that contract with consumers in the above-mentioned areas in their contracts and conduct. Compliance is being expanded to include further important elements.

The lawyers Dr. Einhaus & Partner are prepared for you.

INTERNATIONAL AND EUROPEAN LAW

Jurisdiction and the recognition and enforcement of judgments in civil and commercial matters

The European Court of Justice ruled on 22.12.2022 (case number C-98/22 -Eurelec Trading):

Article 1(1) of Regulation “Brussels recast” ((EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters) must be interpreted as meaning that the concept of ‘civil and commercial matters’, within the meaning of that provision, does not include an action of a public authority of a Member State against companies established in another Member State seeking a declaration of the existence of restrictive practices, an order penalising those practices and an order that they cease in relation to suppliers established in the first Member State, where that public authority exercises powers to bring proceedings or powers of investigation falling outside the scope of the ordinary legal rules applicable to relationships between private individuals.

Facilitating cross-border debt recovery in civil and commercial matters

The European Court of Justice ruled on 20.04.2023 (case number C-291/21- Starkinvest SRL): Article 7(2) of Regulation (EU) No 655/2014 of the European Parliament and of the Council of 15 May 2014 establishing a European Account Preservation Order procedure to facilitate cross-border debt recovery in civil and commercial matters must be interpreted as meaning that a judgment that orders a debtor to make a penalty payment in the event of a future breach of a prohibitory order and that therefore does not definitively set the amount of that penalty payment does not constitute a judgment requiring the debtor to pay the creditor’s claim, within the meaning of that provision, such that the creditor who requests a European Account Preservation Order is not exempt from the obligation to provide sufficient evidence to satisfy the court before which an application for that order is brought that he or she is likely to succeed on the substance of his or her claim against the debtor.

Service of documents in the EU

The European Court of Justice (ECJ) ruled in its judgment of 07.07.2023 (C-7/21 - LKW WALTER): Article 8(1) of Regulation (EC) No 1393/2007 of the European Parliament and of the Council of 13 November 2007 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters (service of documents), and repealing Council Regulation (EC) No 1348/2000, read in conjunction with Article 47 of the Charter of Fundamental Rights of the European Union, must be interpreted as precluding legislation of the Member State of the authority which issued a document to be served, pursuant to which the starting point of the one-week period referred to in Article 8(1) of that regulation, within which the addressee of such a document may refuse to accept it on one of the grounds set out in that provision, is the same as the starting point for the period within which a remedy is to be sought against that document in that Member State.

Freedom of establishment in Europe

The European Court of Justice (ECJ) ruled in its judgment of 07.07.2023 (C-50/21 - Prestige and Limousine, S.L. v Área Metropolitana de Barcelona and others):

1. Article 107(1) TFEU does not preclude legislation applicable in a conurbation which provides, first, that a specific licence is required in order to carry on the activity of hiring out private-hire vehicles in that conurbation, in addition to the national licence required for the provision of urban and interurban private-hire vehicles, and, secondly, that the number of licences for such services is limited to one thirtieth of the taxi service licences issued for that conurbation, provided that those measures are not such as to involve a commitment of State resources within the meaning of that provision.

2. Article 49 TFEU does not preclude legislation, applicable in a conurbation, providing that a specific licence is required in order to carry on the activity of hiring out private-hire vehicles in that conurbation, in addition to the national licence required for the provision of urban and interurban private-hire vehicles, if that specific licence is based on objective, non-discriminatory criteria which are known in advance, exclude any arbitrariness and do not duplicate controls that have already been carried out as part of the national licencing procedure, but meet the particular needs of that conurbation.

3. Article 49 TFEU precludes legislation applicable in a conurbation which provides for a limitation of the number of licences for private-hire vehicles to one thirtieth of the taxi service licences issued for that conurbation, where it is not established either that that measure is suitable for ensuring, in a coherent and systematic manner, the attainment of the objectives of sound management of transport, traffic and public space in that conurbation and of the protection of its environment or that it does not go beyond what is necessary in order to attain those objectives.

(INTERNATIONAL) TAX LAW

Inheritance tax

If a domestic heir acquires under Italian inheritance law, domestic inheritance tax arises at the time of the decedent's death and not only upon the heir's acceptance of the inheritance as required under Italian law (according to the German Federal Fiscal Court in its ruling of November 17, 2021).

FOUNDATION LAW

The reform of the German foundation

There are almost 24,000 foundations with legal capacity in Germany. 92% of all German foundations are charitable, the rest are predominantly family foundations with the purpose of providing for their relatives.  

A reform of the law on foundations has now come into force in Germany, which really deserves the name "reform".
The foundation law previously contained in the BGB and in the foundation laws of the federal states has been merged in the BGB (German Civil Code). This eliminates some legal uncertainty. 

With a foundation under German law, a founder can permanently determine the purpose for which the assets he has endowed are to be used. There is no form of asset management in German law where the will of the "founder" (the endowment) is as formative as with the foundation. Subsequent adjustment is difficult, so that the founder endows his assets with a great deal of reassuring security with regard to their use, but also with little scope for intervention.

The establishment of a foundation must therefore also be considered in business succession or generally in succession planning in inheritance law. The lawyers of Dr. Einhaus & Partner also pay attention to this when giving advice, especially because the transfer of assets is often free of inheritance and gift tax.

Foundations have neither shareholders nor association members. The foundation deed and the articles of association lay down the rules.  The foundation supervisory authority oversees that the executive bodies act in accordance with the provisions of the statutes, preserve the assets and fulfil the purposes. 

The new law will come into force on 1 July 2023, so that it can still be used as a basis for action in asset and succession planning in 2023.

Important disputes and case law were clarified or implemented in the course of the reform. These include the so-called "business judgement rule", which is also generally applicable in company law, according to which a breach of duty does not exist if the member of the foundation body, when managing the foundation in compliance with the legal and statutory requirements, could reasonably assume to act for the benefit of the foundation on the basis of appropriate information. In other respects, too, the new legal regulations often reflect unwritten law from case law and literature, so that the new regulations can also be applied to existing foundations before the reform comes into force.

The regulations on the newly introduced, long overdue foundation register will come into force on 1.1.2026. This is of course very slow and in this respect unfortunately corresponds to the snail's pace of current digitalisation in Germany.

Overall, the reform is a success, as it gives more legal certainty and clarity to founders and all those affected.

Dr Einhaus & Partner also has lawyers who are admitted to practice abroad, particularly in Italy and the USA. Therefore, in the case of cross-border assets, we always have an eye on whether the establishment of a foreign foundation is the better way. Overall, however, German foundation law has become more attractive.

Ask us for details!

AI (ARTIFICIAL INTELLIGENCE), DATA PROTECTION LAW, INTERNET LAW, COMPLIANCE

Artificial intelligence (AI): What is happening and what we need to do

State of play:

The media is currently turning the topic of AI into the next big crisis. As lawyers at Dr Einhaus & Partner, we agree with the assessment that AI can pose a threat or entail major risks. However, we now also have extensive experience with AI and take a much more objective view of it.

We have been using AI in the legal databases we use for decades. The lawyers who work for us have already used AI extensively during their studies, legal traineeships, specialist lawyer training and when writing their dissertations and other academic publications. This benefits our further training, the quality of our services and ultimately our clients. AI can bring many other benefits, such as better healthcare, safer and cleaner transport, more efficient manufacturing and a cheaper and more sustainable energy supply.

The fact that an exponentially increasing amount of data is now triggering a "tsunami" through the internet and harbours risks does not mean that we are helplessly exposed to it.

The EU in particular has often proven in recent decades that it can respond to dynamic and dangerous developments just as dynamically. E-commerce and data protection are just two examples. In data protection law in particular, the EU was once again accused of overburdening citizens and companies with too much bureaucracy. It turned out that the careless and generous handling of data, which is one of the most valuable things we possess, can become a major problem in countries such as the USA, with the potential for conflict between states and enormous political explosive force. The EU is now seen as a role model. The EU is also on such a path when it comes to AI. As part of its digital strategy, the EU wants to regulate AI with an AI regulation, the "AI Act", in order to create better conditions for the development and utilisation of this innovative technology. After two years of deliberations and some last-minute changes, the European Parliament approved the new compromise text on 14 June. An agreement is expected by the end of the year. Once adopted, the regulation will contain the world's first legal provisions for AI.

We believe it is exaggerated that large companies such as Meta or Google are already announcing that they see restrictions with a deterrent effect and disadvantages for the European market. Based on recent political developments, we assume that other countries, especially the USA, will follow suit. The EU market is also too interesting for the big tech companies. It is important to take a confident stance here. A secure legal framework is better than no legal framework and better than legal uncertainty when applying existing general, insufficiently specific standards. This also provides security for investors and AI companies in particular. The outcry from the business community, especially from the AI start-up scene, also seems exaggerated. The economic potential of using AI will probably quickly make the initial investment and necessary measures worthwhile. Start-ups in particular should seek advice from experienced entrepreneurs and consultants, including lawyers and tax advisors. Otherwise, in our many years of experience, even the best idea will not lead to success.

Who is the addressee of the AI Regulation?

The regulation applies not only to all providers of AI-based products or services that are placed on the market or put into operation in the EU, but also to all users of AI systems in the EU. As with data protection law and consumer protection law, all those whose activities extend to the EU are therefore covered.

What does the AI Regulation cover?

The regulation categorises generative AI applications, such as the well-known chatbot "ChatGPT", into different risk groups. These range from "minimal" to "high" to "unacceptable". This is associated with graduated security and transparency requirements. The different risk levels are subject to more or less regulation. This is a good risk-based approach for dynamically adapting regulations to requirements.

AI systems pose an unacceptable risk if they are considered a threat to humans. These AI systems are banned. This group includes cognitive behavioural manipulation of people or certain vulnerable groups, for example voice-controlled toys that encourage dangerous behaviour in children. Social scoring, i.e. the classification of people on the basis of behaviour, socio-economic status and personal characteristics, is also prohibited. The biometric real-time remote identification systems that already exist in less democratic countries, such as facial recognition, are also prohibited in principle. Exceptions can be made, for example, in the case of subsequent remote biometric identification for the prosecution of serious criminal offences and only with judicial authorisation. AI systems that pose a high risk to the health and safety or fundamental rights of natural persons are considered high-risk and are divided into two main categories. On the one hand, AI systems that are used in products that fall under EU product safety regulations. These include toys, aviation, vehicles, medical devices and lifts. On the other hand, AI systems that fall into eight specific areas and must be registered in an EU database: Biometric identification and categorisation of natural persons; Management and operation of critical infrastructure; Education and training; Employment, management of workers and access to self-employment; Access to and use of essential private and public services and benefits; Law enforcement; Management of migration, asylum and border control; Support for the interpretation and application of laws. These AI systems in the "high risk" category are assessed before being placed on the market and throughout their life cycle.

Generative AI, i.e. foundation models such as ChatGPT, must fulfil additional transparency requirements and disclose: - that the content was generated by AI; - the design of the model to prevent it from generating illegal content; - publication of summaries of copyrighted data used for training.

AI systems with only "limited" risk should fulfil minimum transparency requirements that enable users to make informed decisions. After interacting with the applications, users can then decide whether they wish to continue using them. Users should be made aware of this when they interact with AI. This also applies to AI systems that generate or manipulate image, audio or video content (e.g. deepfakes).

What should you do?

Violations of the provisions of the AI Regulation can result in significant penalties. We want to inform our clients in good time so that they are not surprised when it comes into force, but are well prepared and do not suffer any damage. Companies should take early action to ensure that their AI systems comply with the new regulations and meet ethical standards at the same time.

Our recommendations for companies to prepare for the EU's AI Act:

Adherence to the regulations must become part of corporate compliance: Companies should review their existing and planned AI systems for their classification in terms of high-risk or low-risk AI to ensure that they fulfil the requirements of the AI Act.

Comprehensive records must be kept of the development and use of your AI systems. This includes the documentation of training data, algorithms and decision-making processes. This sounds very difficult and time-consuming. However, anyone who has systems delivered or installed as a pure user will ideally make these measures part of the supplier's or service provider's contractual obligations.

Risk assessment and management: Carry out a thorough risk assessment for your AI systems and develop appropriate measures to minimise risk. Create contingency plans for dealing with failures or problems related to AI systems.

Training and awareness: Train your team on the requirements of the AI Act and the ethical principles that apply to AI development and use. Sensitise employees to the importance of compliance.

If necessary, seek legal advice from experts to ensure that your AI systems comply with the requirements of the AI Act.

If you do all this carefully, it will be like data protection: The great fear and panic are not justified and together we will ensure that revolutionary developments do not become a threat. Above all, we see regulation as an opportunity to provide legal support for revolutionary technical developments for the protection and benefit of all, always in line with our guiding principle of "don't panic".

 

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