Extension of wage declare limitation interval below Labour Requirements Act
On April 1, 2020, the law to partially amend the Labor Standards Act came into force, which extends the limitation period for wage claims.
Before an amendment to the German Civil Code, which also came into force on April 1, 2020, the limitation period for wage claims according to the German Civil Code was basically 10 years from the time the respective right was exercised. However, in order to limit future disputes through early settlement, the German Civil Code also provides for a short limitation period of one year for employee claims to monthly wages.
Since the wage claim forms the livelihood of employees on the one hand, the one-year limitation period for such claims represents a deficiency in the legal protection of employees. On the other hand, a limitation period of 10 years is an excessive burden on employers and would seriously impair their legal capacity without fear of future claims . Therefore, the Labor Standards Act provides as a special provision in addition to the one-year limitation period of the Civil Code, a two-year limitation period for the right to any wage.
The Civil Code was amended with the intention of standardizing and simplifying the limitation period by abolishing the one-year limitation period and by maintaining the usual limitation period of 10 years from the time the right was exercised, a new limitation period of five years is set from the point in time, at which the obligee becomes aware that he can pursue the claim. The changes to the German Civil Code also stipulated that the limitation period ends at the earlier point in time.
Against the background of these changes to the Civil Code, the limitation period under the Labor Standards Act was further examined and the following changes were made through the Amending Act.
Content of the change
Extension of the limitation period for wage claims
The limitation period for wage claims has been extended from two years to five years; However, since the effects of the change must be carefully examined, a three-year transition period has been introduced for the time being to moderate the drastic change.
Extension of the retention period for records
In the past, employers had to keep important labor law documents (e.g. payroll accounting) for three years. This obligation has basically been extended to five years so that employers can keep records that may be relevant for future wages. Notwithstanding this, the retention obligation for important labor law documents has remained unchanged for the time being in order to reflect the currently applicable temporary limitation period.
Extension of the eligibility period for additional funds
If an employer does not pay wage supplements or the like in violation of certain obligations under the Labor Standards Act, the court is empowered to order an additional payment to the employee as a contractual penalty at the request of the employee. The period within which the court can order such additional payments from the employer (request period) was previously set at two years in connection with the limitation period for wage claims. In the course of the changes to the limitation period for wage claims, the application period has also been extended to five years, provided that an interim measure is effective that prescribes a three-year period corresponding to the aforementioned temporary limitation period.
The new limitation period for wage claims applies to wages that were due on or after April 1, 2020. In addition, the employer’s obligation to keep important labor law records is such that necessary records are to be kept until the expiry of the corresponding limitation period with regard to the employee’s claim to wages. In addition, the new application deadline for violations of the relevant obligations under the Labor Standards Act will apply from April 1, 2020.
Despite the fundamental change in the limitation period for the assertion of wage claims against employers, employees must wait until after April 2022 to assert wage claims that are more than two years ago. Only from April 2023 onwards will employees be able to claim lost wages up to three years ago. With that in mind, there is no immediate negative impact on employers. However, employers currently liable for unpaid wage claims should take steps to improve their business to prevent the possibility of an increase in the level of unpaid wage claims after April 2022 (i.e. if employer’s liability in this regard could be extended). from two to three years of unpaid wages). In addition, in transactions involving the acquisition of Japanese companies, unpaid wage obligations as a potential liability could impact the purchase price, and it should be noted that as of April 2023, the unpaid wage liability will be 1.5 times the Unpaid wages could be before March 2022.