On 12 August 2021, new German legislation came into force entitling executive board members to three months family leave in cases of maternity, paternity, sickness, or of needing to care of an ailing family member.
German employees have, of course, been entitled to this kind of leave for decades. But, German law draws a clear distinction between employees, who are worthy of protection, and of board members, who are under a civil law contract and have typically not been covered by many employment protection laws.
I was part of this legal initiative from the very start and am happy to give a brief overview on how we managed to change German law in less than one year.
It all started with a press release from German furniture manufacturer Westwing on the family leave of its founder Delia Lachance. The company announced that Delia had to step down from her role after the birth of her child since German law did not give any other option to avoid liability during her parental leave. This was indeed the legal situation in 2020.
In the past, there were few cases of a pregnant board member of an Aktiengesellschaft (corporation) – the average age of a board member of German's largest corporations is 53, and they are 85 % male. The few cases of pregnant board members were resolved based on informal agreements with the supervisory board, which, in the German two-tier board system, is in charge of contract negotiations with executive board members.
Well-known Berlin entrepreneur, Fox & Sheep founder, and mother of three, Verena Pausder, raised the question of how, in 2021, board members still have to resign if they are pregnant and want to take parental leave. This triggered a public discussion in which I took part.
In April 2020, while Germany was still in lockdown, we formed a group of activists. We, that is Verena and two labour lawyers, three corporate lawyers, and one professor of civil law. We drafted a memorandum describing the issue and created our own website, www.stayonboard.org. With the help of a PR agency and our own contacts, we won numerous supporters across politics and business, including several members of the German parliament, the former CEO of car manufacturer Daimler, Dieter Zetsche as well as Sigrid Nikutta, board member of the German public railroad system Deutsche Bahn.
Based on a first Bill proposed by a non-governing party, the FDP, in the summer of 2020, the legislative process began, accompanied by a critical discussion of the content, not only between the various German political parties, but also in legal literature and on social media with #stayonboard.
Renowned labour and corporate law experts argued that the amendment was superfluous. That it was already possible to agree on time off based on existing law. We, the initiators, argued that the current legal situation does not provide an enforceable entitlement to time off and that, in the event of an informal agreement with the supervisory board, it remains unclear whether an executive board member will be reappointed (in the event of dismissal) or to what extent liability will continue during any time away.
There were some phases when even we, as the activists, did not know whether the amendment would be successful in the ongoing legislative period. The final four-year period under German Chancellor Angela Merkel of the CDU, in a coalition with the SPD, will be coming to an end now that federal elections are due on 16 September 2021. But, on 11 June 2021, the time had come. The draft law was passed as part of larger legislation regarding a binding female quotas for some of the largest German corporations.
Changes under the new law
The legal right to family leave has been slightly changed over the course of the legislative process. The legal situation is now as follows:
- The provision only applies to management boards consisting of at least two members. It applies to German corporations (Aktiengesellschaft), Societas Europeae (SE), and German limited liability companies (GmbH). Revocation and reappointment must be published in the public commercial register (which is similar to the UK's Companies House);
- Time off for maternity leave of six weeks before and eight weeks after the birth, without a right of the supervisory board to reject this demand.
- In the event of parental leave, care of a family member or the executive board member’s own illness: entitlement to up to three months’ time off, which may only be refused by the supervisory board for good cause;
- At the request of the executive board member, the supervisory board may grant a longer time-off period of up to 12 months for parental leave, care of a family member, or own illness at its own discretion, without the need to state reasons in case of a refusal;
- From a corporate law point of view, the new statutory right to a time-off period has been structured as a revocation of the appointment with simultaneous assurance of reappointment at the end of the time-off period. The alternative would have been a dormant status of the contract during the time off. The originally agreed end of the term of office and contract will remain unaffected by the time off, which means, for example, a three months’ educational leave will not change the contractual end date. German CEO contracts are typically concluded for a fixed term; and
- Most important, during the time off, the board member is now relieved of all duties and all liability.
In practice, there will be follow-up issues that should be addressed in an agreement between the board member and the supervisory board, such as the question of continued payment of compensation during the time-off period (if any, as there is no legal claim – in that aspect still differing to the situation of an employee), the effect of the time-off on bonus entitlements or employee stock option programmes, as well as questions around access to business e-mails, to business premises, and any availability during the time off.
We, the initiators, are very happy the initiative has been so successful so quickly. We hope that it will lead to a greater variety of work-life models in the boardroom of companies, and that these role models will also influence all other levels within the companies.