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Impact of EU sanctions against Russia on employers in Germany – Commentary & More Breaking News

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Overview
How are German employers affected?
What are the consequences for a violation?
What are the options under employment law?
Comment

In early 2022, the European Union enacted several regulations in quick succession to impose far-reaching sanctions on Russia as a reaction to the conflict in Ukraine. This article provides an overview of the sanctions, the consequences of a violation and the options for employers in Germany if they are affected by the regulations.

Overview

Football Highlights

The sanctions concern, among other things:

  • the financial sector;
  • the energy sector;
  • the transport sector;
  • dual-use goods (ie, sensitive goods, services, software and technology that can be used for both civil and military purposes) and advanced technology items; and
  • trade-restrictive measures.

How are German employers affected?

The sanctions apply not only within the EU territory but also:

  • on board any aircraft or any vessel under the jurisdiction of a member state;
  • to any person inside or outside EU territory who is a national of a member state;
  • to any legal person, entity or body inside or outside EU territory that is incorporated or constituted under the law of a member state; and
  • to any legal person, entity or body in respect of any business done in whole or in part within the European Union.

On that basis, employers established in Germany and employees who are nationals of an EU member state (even if they are working in a non-EU (eg, Russia)) must comply with the sanctions.

The sanctions also provide for broad anti-circumvention provisions, according to which it is prohibited to knowingly and intentionally participate in activities that circumvent prohibitions in the sanctions. As a result, there is no loophole for deploying non-EU nationals in a third country to do business that would violate the sanctions. Employers that are found to have knowingly engaged such employees in sanctioned activities to any degree, instructed them or approved sanctioned transactions, even implicitly, will be penalised just as severely.

What are the consequences for a violation?

Violating the sanctions constitute criminal or administrative offences according to sections 18 and 19 of the Foreign Trade and Payments Act and section 82 of the Foreign Trade and Payments Ordinance. In general, prison sentences from three months to five years will be imposed for:

  • the (attempted) violation of export prohibitions;
  • the sale, supply or transfer of goods;
  • the provision of services or the making of investments, where this is prohibited; and
  • for violations of asset freezing measures.

Where the above violations are committed negligently (ie, without intent), this will constitute an administrative offence, which is punishable with a fine of up to €500,000.

Section 22 paragraph 4 of the Foreign Trade and Payments Act provides for the possibility of voluntary self-disclosure in case of negligent violations. If the violation is uncovered by in-house controls or audits and voluntarily reported to the competent authority, and if appropriate measures are taken to prevent a violation for the same reason, the administrative offence will not be prosecuted. A notification to the competent authority is considered voluntary if the authority has not yet started investigations into the violation.

Companies cannot be held criminally liable under the Criminal Code, which applies only to individuals. However, companies can be liable under section 30 of the Act on Regulatory Offences in the situation where a company representative commits a criminal or administrative offence, which leads to the violation of the company’s incumbent duties. The applicable administrative fines may amount to €10 million where the offence was committed with intent and €5 million where the offence was committed negligently.

What are the options under employment law?

In light of the far-reaching sanctions and serious consequences that follow violations, employers should carefully check whether their employees are engaged in any prohibited activities within the scope of their employment. If necessary, employee tasks must be adjusted. In some cases, this may be possible simply by giving directions in accordance with the job description in the employment agreement. In other cases, especially where a significant part of the job activities is prohibited under the sanctions, a reassignment or amendment of the employment agreement may be required. On that basis, the employer must also abide by certain participation rights of the works council, if it has one.

Given the broad application of the sanctions, employers established in Germany must not only monitor their employees’ activities within Germany or the European Union but also in a non-EU country, including Russia. Therefore, employers must check which employees they have posted to another country and whether their activities there are compatible with the sanctions. If the activities of employees posted to other countries are not compatible with the sanctions and it is not possible to adjust their tasks by giving directions or assigning other tasks while maintaining the posting, employers must terminate the posting, recall the employees and assign them to another job that does not violate the sanctions. If an employee is not willing to return to Germany, the employer should terminate the employment contract to avoid (further) violations of the sanctions.

Under German law, employers are also subject to certain fiduciary duties towards their employees and must mitigate any risks to the safety, health and other legal interests of their employees. Where there are active prohibited operations, employers are obliged to inform their employees about any pending legal risks and assign them to permitted activities. This also applies to employees posted to other countries.

If employers experience a significant loss of work due to the sanctions, it may be possible to apply for short-time work and a corresponding short-time work allowance with the relevant employment agency if the statutory requirements are met. The Federal Employment Agency explicitly states on its website that employers affected by sanctions against Russia may generally a receive short-time work allowance if they suffer a significant loss of work. Sanctions or a trade embargo against Russia are considered an unavoidable event if the employer’s business is directly affected by them. In their application for short-time work allowance, employers must explain what the effects of the sanctions on their business are and to what extent these cause the significant loss of work – for example, the activities that can no longer be carried out because they would constitute a violation of the sanctions.

To receive short-time work allowance, the other legal requirements must also be met. In particular, at least 10% of the workforce must experience a loss of pay of more than 10% in the respective calendar month. This minimum requirement is temporary until 30 June 2022. After that, one-third of the workforce must have a loss of pay of more than 10%.

Comment

Similar to the conflict itself, the political and legal situation is highly dynamic. Employers should stay current with developments, including possible changes to the legal framework. This not only applies to possible further EU sanctions on Russia but also to potential countermeasures that are currently being contemplated by the Russian government, which target companies and individuals that comply with EU sanctions against Russia.

For further information on this topic please contact Björn Vollmuth or Vanessa Klesy at Mayer Brown’s Frankfurt office by telephone (+49 69 7941 0) or email ([email protected] or [email protected]). The Mayer Brown website can be accessed at www.mayerbrown.com.

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