No right to work from home!

Even in times of COVID German labour law does not give employees an absolute right to work from home - this is what a recent decision of Augsburg's Labour Court maintained.

The employee had presented a medical certificate to the employer and demanded to be allowed to work from home. The Court found that it is the employer's duty to always grant a safe and healthy work environment to employees. In achieving such result the employer does however enjoy ample discretionary powers, allowing employees to work from home being just one of many possibilities.

In practical terms, employers may for instance address the issue by assigning employees individual offices, intriducting shifts to avoid overcrowding, adopting adequate safety measures in open offices etc. etc.

Expanding into Germany? Easier than you thought!

Debunking some common misconceptions about expanding your business into Germany.

1 Do I need an entity to employ staff?

No! In principle, you don’t need to establish a new legal entity in Germany to hire staff: you can hire employees based in Germany either directly from abroad (e.g. through your current company) or by establishing a simple “branch office” in Germany. Find out more in this article we posted some months ago.

2 Do I need a visa to form a legal entity in Germany?

No! Being the owner (shareholder, stockholder…) of a legal entity in Germany (alone or with others) is a bit like owning property: you don’t actually need to be in Germany for that, so you don’t need a visa.

3 Does the managing director of the German entity need to be in Germany?

No! There’s no requirement in that sense. The managing director could very well be spending some or most of her/his time elsewhere. She/he should, however, be abe to travel to Germany whenever needed.

4 Can I employ myself as a managing director (and get a visa)?

Yes. If you create a company formally it’s the company who’s hiring you as a managing director. That’s absolutely fine and common: you can also grant yourself a salary for your activity as an MD. On top of that, if all requirements are met, you can - if you need - also apply for a visa based on your employment as your own company’s MD.

Are you thinking about expanding into Germany? Get in touch with us, we’ll help you through!

Don't discriminate against my bank account!

In times of increased online business and online purchases Germany’s Supreme Court (BGH) delivers a decision that will have considerable consequences for online traders.

No geographic discrimination for direct debit payments

Whenever a trader accepts direct debit payments for the purchase of goods and services he may not limit this payment method to a specific geographical areas, such as by stating “only payments from a German bank account accepted”.

Instead, payments from any bank account within the SEPA-area (i.e. the EU) must be equally accepted. Traders are also not allowed to charge extra fees on payments processed from a bank account of a different EU member state.

This is because both the general principle of non-discrimination and of free movement of capitals and, more specifically, the reg. EU/260/2012 (“SEPA regulation”) - art. 9 par. 2 almost literally - require bank accounts an payments processed via such bank accounts to be treated equally throughout the EU.

Not limited to Germany

Although the mentioned decision technically only affects Germany, the underlying principle stems from European legislation and has already been, albeit indirectly, affirmed also by the ECJ in the Verein für Konsumenteninformation vs. Deutsche Bahn AG (C-28/18) case.

Therefore, it’s easy to predict that the same principle would be applied throughout the European Union, in particular since it’s echoed by the recent geoblocking reg. EU/302/2018.

Mask yourself!

The debate about whether wearing face masks can really help in preventing the spread of COVID-19 or not is ongoing and hot. Fact is that in many of the affected areas - such as Austria, just to name one - masks have been made mandatory. The problem is: often masks are simply not available and pharmacies do not get enough supplies.

Do it yourself

For this reason, many people have enganged in often rather pittoresque attempts at fabricating their own masks using diverse materials, ranging from scarves to female absorbents. Also companies in some of the COVID-19 hotspots, such as Italy’s Calzedonia group or Spain’s Zara, have partly reconverted production to face masks. But are there any requirements when distributing face masks to public?

Face masks are medical devices

As per art. 1 par. 2 of the European Directive on medical devices no. 93/42/EEC any instrument that helps in preventing a disease is considered a “medical device”. The EU member states have passed national legislation to implement the directive. In the case of Germany, most provisions are to be found in the Medizinproduktegesetz (MPG). All in all, however, the legal framework is broadly comparable in all EU states.

In brief, considering face masks as medical devices means that before being put on the market (regardless of whether this happens for free or at a cost) they must be clinically tested and approved by the competent authorities. In addition, they must comply with a long list of safety and compatibility requirements and bare the well-known “CE” seal.

Under German law, producers of medical devices are also obliged to declare their activity to the competent authorities.

Finding a workaround

Quite obviously, companies whose main business is not the production of medical devices will hardly be capable of meeting all those requirements in such a short time as to be still useful to face the current emergency. In some cases (e.g. in Italy), governments have temporarily easened the requirements to put masks on the market in order to allow for a quicker response.

But wherever governmental action has not been taken, the only option is a workaround: face masks may be produced and sold (or given out for free) as by making sure that they are not advertised as “medical face masks”.

Details matter

It’s however not sufficient to simply declare that a mask is no “medical device”, if the way it’s advertised, including wording, pictures, context, descriptions etc. etc. clearly suggest that it helps in preventing contagion - because that would be exactly what a medical device is defined by.

Therefore, the utmost care must be used when describing the masks: no element may mislead customers into thinking that they are buying a disease-preventing instrument. Definitions such as “protective face mask” or “protective device”, let alone “medical mask”, may very well be regarded as misleading, while simply defining the product as “mask” or “face mask” should prove legally safe.

The same reasoning must be obviously applied to descriptions, pictures and any additional documentation: masks must basically be treated as standard clothing accessories, without any medical purpose or function.

Risks

Given the circumstances, offering masks to public may easily land in the limelight of public health, competition and consumer protection authorities and result in audits, sanctions or, as the case may be, even criminal investigations.

In addition, in Germany (and in any other country with a similar legal framework), competitors are entitled to exercise unfair competition claims: medical devices producers may therefore sue such newcomer masks producers for misleading the market, if the above-mentioned conditions are not met.

Short-time work allowance (“Kurzarbeitergeld”)

Deadline for March: 31.03.2020!

As more and more startups are planning to apply for short-time work compensation (“Kurzarbeitergeld”) for all or part of their employees, we would like to help you with a handout describing the necessary step-by-step procedure that must be followed.

Step 1: Agreement on short-time work with employees

In case short-time work is not already allowed by your employment contracts, an applicable collective agreement (“Tarifvertrag”) or a general agreement between the works committee and the management (“Betriebsvereinbarung”), additional agreements on the permissibility of short-time work must be reached with all affected employees. Please reach out to us if you need a free sample for such an additional agreement with your employees.

Step 2: Informing employees about the introduction of short-term work

The affected employees must be informed of the extent to which they will have to reduce their individual working hours.

Step 3: Notification of short-time work at the employment agency (“BAFA”)

Short-time work allowance can be applied for retroactively as of 01.03.2020. Important: In order to apply for short-time working allowance as early as 01.03.2020, the notification of short-time work must be received by the responsible department of the Employment Agency (“Bundesagentur für Arbeit” = “BAFA”) by 31.03.2020 at the latest. The notification should be made by e-mail. The Employment Agency will send you a confirmation of receipt in response to your e-mail.

According to the new legal situation, proofs of reduction of overtime and the agreement on short-time work with the individual employees no longer have to be attached to the notification.

Step 4: Time sheet for all affected employees

The employment agency requires all affected employees to provide time sheets as proof of their hours actually worked. We will be happy to send you a sample of a sufficient timesheet. Alternatively, evaluation from certain time recording systems should be sufficient.

Step 5: Calculation of the short-time working allowance and payment of the reduced salary to the employees concerned

Calculate the reduced salary of the affected employees and pay it out to them.

Step 6: Applying for reimbursement of short-time work allowance

From the first day of the following month, you apply to the employment agency for reimbursement of the short-time working allowance. The reimbursement application must be submitted within three months. You must enclose time sheets for each employee concerned showing the work actually performed during the application period.

Step 7: BAFA-review at the end of short-work

After the end of short-time work, the employment agency checks whether all the conditions for short-time work have actually been met. If there are justified complaints, benefits that have been granted have to be paid back.

We are happy to answer your questions regarding short-time work allowance at any time.

Please reach out to thomas@startup-lawyers.de.

Take care!

Financial aid against Corona - KfW loans reloaded

Some days ago we informed about the fact that Germany’s state-owned development bank KfW had eased up considerably the requirements to apply for loans to help companies overcome the crisis resulting from the spread of COVID-19.

Now the requirements and the conditions applicable to the two loan programs, one intended startups and young companies, one dedicated to companies active since more than 5 years, have been amended yet again to allow for an even easier application.

broad coverage of personnel costs

The biggest news is that from now on, all the credit lines will cover so-called “Betriebskosten”, i.e. operational costs which include personnel costs, rents, energy supply, marketing, R&D etc. etc.

Particularly the coverage of personnel costs represent a huge relief for companies that are currently struggling to pay their employees while workload and, as a consequence, turnover have dropped dramatically virtually overnight, due to the spread of the epidemics.

In addition to this, the new programs include an indemnification of the participating banks up to 90% of the loan amount: this means if the loan becomes non-performing (i.e. the company is not able to pay back), KfW will indemnify the loan granting bank up to 90% of the amount. This makes it obviously easier for banks to actually grant the loans while facing a negligible risk.

Finally, KfW announced it would give up checking the creditworthiness of applicants entirely to speed up the procedure. This means, only the cooperating banks will check whether applicants meet all conditions and requirements to apply for a loan, while KfW will merely approve.

Further information (only in German) can also be found in a summary released by the Federal Ministry for Economic Affairs and Energy.

Force Majeure 3 - Italy

The Italian Government has just issued a new decree increasing security measures meant to contain the spread of COVID-19. The measures include a nationwide shutdown of all business activities except for a list of about 180 essential services specified in an annex to the decree.

One of the most peculiar aspects of the decree, which may have relevant consequences also for foreign market players, is that it explicitly establishes that governmental restrictions imposed on businesses must be taken into account when assessing the debtor’s liability according to artt. 1218 and 1223 of the civil code (art. 91 of the decree).

express recognition of a force majeure event

What this provision substantially does is that it grants debtors (or, more generally, obligors) that are unable to fulfil their obligation due the restrictions imposed by the government a solid and explicit legal basis to invoke a force majeure - event and be therefore exepted from liability for damages.

Practically speaking, if an Italian supplier is not able to deliver goods to a foreign purchaser because his business had to be suspended in compliance with the restrictions imposed by the Italian Government, it will be able to invoke a force majeure event and be exempted from paying damages to the foreign purchaser.

no general exemption

What this provision however does not say (quite understadably) is that any obligation that is not performed during the COVID-19 crisis automatically falls under a force majeure event: you always have to check carefully whether the obligation at stake can’t be performed because of an official governmental restriction directly and specifically affecting it.

After all, there are still services that may be performed as of the annex to the decree.

Force majeure 2 - in (German) practice

As the spread of the coronavirus continues to increase and to reach ever more European countries, companies and professionals are facing more often the problem of not being able to deliver goods or services as per the contracts they’ve closed.

We’ve already pointed out, that such exceptional circumstances may represent a “force-majeure” event, i.e. an event that makes it impossible to perform a contract, without implying any liability for either party. But is this always true? And what does that mean in practice?

We’ll have a look at the practical relevance of these principles in German law.

the question about liability

Let’s sort out one fundamental aspect first. Whenever two (or more) parties close a contract, it’s perfectly possible that one of them eventually isn’t able to fulfil the contractual obligation: think of a family that at some point stops paying the rent because both parents lose their jobs. Or an airline sells you a ticket but eventually doesn’t board you because they overbooked.

If such things happen, however, debtors are usually liable, i.e.: not only do they have to fulfil their contractual obligation, but they also have to compensate damages suffered by the other party due to their failure to fulfil the contractual obligations.

The airline that refused to board you because it (culpably) overbook the flight has to find an alternative flight at its own expenses and compensate the damage you've suffered because you were denied boarding (e.g. expenses for food and accomodation at the airport, cancellation of the meeting you were heading to, loss of vacation days etc.).

The exceptional aspect about a “force-majeure” event, is that it releases both parties from their obligations without resulting in any liability.

If we stick to the example above, let’s say the airline cancels your flight because a travel ban has just been imposed: that would be a force-majeur event.

“impossibility” and § 275 BGB

The German Civil code doesn’t mention “force-majeure” explicitly. Instead, § 275 states that, if the performance of a party’s contractual obligation becomes impossible or requires an effort which, taking into account the specific circumstances, is grossly disproportionate, the other party loses the claim, i.e. it cannot demand the obligation to be performed.

If a travel ban is imposed, which obliges the airline to ground the airplane and cancel the flight, passengers do not have a right to have the flight operated.

On top of that, as long as the event that’s causing the impossibility is not attributable to one of the parties (i.e. it’s nobody’s responsibility), the parties are released from the contractual obligations and must not compensate damages. However, if the obligation affected by impossibility has already been paid for, that price or fee has to be reimbursed.

The airline wouldn't have to pay damages (as in the overbooking-example), but it still has to reimburse the ticket price.

Is the COVid-19 spread a “force-majeure” event?

As we lawyers love to say, it depends. In some cases it’s pretty clear: if, due to the epidemics, a government has imposed restrictions (travel bans, closure of production plants, schools etc.) that make performance of a certain obligation impossible (airlines cannot operate flights, cleaning personnel cannot clean the school, etc.) such governmental action would be regarded as a force-majeure event.

But what about a dance school that decides to suspend lessons out of precaution? If there is no governmental act imposing the suspension, it’s the very risk of infection that could respresent a “force-majeure” event. If that might work for a dance lesson, where many people get together and have physical contact, it might not be applicable to - say - a language lesson, that could also take place via internet. In such a case, cancelling all lessons would not necessarily exempt the provider from liability for damages.

practical cases

Here are some examples of force-majeure cases under the current circumstances:

• companies that must deliver goods produced in one of the COVID-19 affected areas that have been put under governmental lockdown, such as Italy, Spain, some part of China: if factories are closed, transport is impossible and those goods cannot be retrieved elsewhere (or can only be retrieved elsewhere at disproportionate effort and cost), force-majeure will likely apply;

• companies that must deliver goods produced in one of the COVID-19 affected areas but those goods can be retrieved elsewhere at a higher price: in these cases - and as long as such higher price is not “disproportionate” - a force-majeure event will most likely be denied. Having to buy a somewhat more expansive good to resell it is simply part of the business risk.

• companies that cooperate in the organisation of events that got cancelled or postponed due to the spread of COVID-19 (e.g. teatre performances, festivals, trade fairs, the European Football Championship etc.). Unless the event could reasonably be adjusted to the circumstances (e.g. take place without live audience), these would be force-majeure cases, and all players involved would be affected the same way (organisers, sponsors, PR and advertising agencies, production companies, travel companies, broadcasters etc. etc.).

• companies that have to shut down entirely or massively reduce their activities and therefore have no use for most of the employees: in employemnt law, the force-majeure principle is applied even more restrictively (it actually hardly applies at all), since it would result in the employee losing its salary. § 615 BGB states clearly that the employer has to bear a broad “business risk”. Courts consider natural phenomena - such as floods - or governmental action - such are forced closure of a factory - to be part of such business risk. This means that employers have, practically speaking, no possibility to invoke a force-majeure event with respect to their employees. There is only a limited exception to the rule (set forth by § 616 BGB) in cases where it’s the employee him/herself to be affected by a force-majeure event (e.g. the employee is drafted to military service).
  There are, however, other solutions that employers can adopt to mitigate the effects of force-majeure events on employment contracts, such as the “Kurzarbeitergeld”.

what to do

If you think the contract you have closed cannot be performed because of a force-majeure event, first of all check if the contract includes a force-majeure clause: if that’s the case, the clause will most likely establish the procedures and consequences of such an event. If it doesn’t, you should communicate to the other contracting party without undue delay in writing, that your obligation cannot be performed, stating the reasons. Failure to notify this immediately could result in inapplicability of the force-majeure exception.

In most cases, there will be ample comprehension and possibly even the option of closing an alternative agreement or postponing performance. The other party is, however, also entitled to terminate the contract.
Feel free to reach out for us if you need assistance.

Financial aid against Corona

Alongside the dramatic effects of infections, deaths and the overload of public health systems on society, the coronavirus outbreak is already having a severe impact on the economy. This prompted the governments of the most affected countries to announce extraordinary measures to sustain businesses in overcoming the emergency.

Financial aid to businesses in Germany (and abroad)

One of the first emergency measures to be adopted by the German government is a set of business loans granted by the Kreditanstalt für den Wiederaufbau (KfW), Germany’s state-owned development bank, through cooperating banks. Technically, the conditions of some of the pre-existing loan schemes of KfW have been considerably eased up in order to be available to a greater audience. These programs are run through standard banks, which means that the respective application must be filed through them, which then cooperate with KfW in granting the loan. And here’s where one of the most decisive measures has been taken in light of the coronavirus emergency: KfW increased the indemnification of financing banks up to 80%. That is: in case of the borrower’s default KfW covers up to 80% of the bank’s loss, thereby making it decidedly less risky for banks to approve the loan.

The loan schemes

KfW has three loan schemes intended for established businesses (“business loan”), for startups (“startup loan”) and for growth (“loan for growth”). Note that both the business and the startup loans are available to companies and individuals, such as free-lance professionals or sole traders.

KfW-Unternehmerkredit (KfW business loan)

If you’ve already been on the market for more than 5 years, this is what you should look for. KfW lends up to 25 million EUR (and 100% of the total investment, i.e. borrowers are not expected to invest any own resources) at extremely favourable interest rates starting from 1% p.a. over a minimum term of 2 years. Costs covered by the loan include: investments in material and immaterial assets (machines, software, infrastructure, means of work, patents, licenses), office spaces, vehicles, operating resources (e.g. personnel costs, marketing measures, liquidity, consultancy etc.).

This programm is available to:

• in Germany: national or foreign companies or self-employed individuals active on the German market since more than 5 years

• abroad: foreign subsidiaries of German companies (or joint-ventures with a considerable German participation) for their activity in a foreign market

KfW-Gründerkredit (KfW startup loan)

The startup-version of the loan is basically equivalent to the above-mentioned business loan, with some peculiarities. First and foremost, it’s available to:

• in Germany:

  • founders (“Existenzgründer”), also in case of takeover of a pre-existing business (“Unternehmensnachfolger”)

  • self-employed

  • SMEs active on the German market since less than 5 years

• abroad: foreign subsidiaries of German companies (or joint-ventures with a considerable German participation) for their activity in a foreign market

Interest rates for loans in this category depend on various criteria and are finally agreed upon with the relevant bank.

KfW-Kredit für Wachstum (KfW loan for growth)

This is a different kind of loan that, unlike the other two, is thematically focussed on innovation and digitalisation. Several development projects, measures, investments and costs in these areas are covered by the loan, but it cannot be used to cover general and non innovation- or digitalisation-related expenditure (although: even this requirement has been somewhat softened-up given the current emergency).

This program is available to:

• national and foreign companies with a yearly turnover up to 2 billion EUR

How to get it

All loand must be applied for through one of the participating regular banks (commercial banks, cooperatives, savings banks), which include all most common German banks, such as Deutsche Bank, Sparkasse, Volksbank, Commerzbank etc.
Three days ago Germany’s Finance Minister Olaf Scholz declared that the government is willing to grant unlimited loans to companies and that applications for financial aid will be “approved a priori” - one more reason to give it a try!

Force Majeure 1 - Does the coronavirus infect contracts?

Amidst the general turmoil caused by the unforeseen spread of the coronavirus across Europe, many companies and individuals find themselves in the uncomfortable position of not being able to perform contracts already closed, because certain goods cannot be delivered or certain places cannot be accessed.

consequences on business operations

Letting aside those extreme cases getting most media coverage, such as impossibility to deliver disinfectants, mouth masks or even to operate commercial flights, there are many cases in which the coronavirus is having indirect albeit widespread effects.

Take for instance contracts about the organisation of events, such as trade fairs, summits, fashion shows, conferences. Many of such events are being postponed or even cancelled completely over the risk of contagion, leaving organisers with the problem of how to deal with all contracts and agreements closed in light of the event as originally planned: what to do about the catering, the security personell hired ad-hoc, the supply of diverse goods and services (e.g. rented furniture, shuttle services etc.)?

force majeure will save your… or maybe not?

At first sight, these situations remind of schoolbook examples of the so-called principle of “force majeure”.

Roughly speaking, due to diverse reasons it may be or become impossible for one of the parties to a contract to perform it: this scenario is addressed - to name examples - by art. 1256 of the Italian Civil Code (“impossibilità sopravvenuta”) or § 275 of the German Civil Code (“Ausschluss der Leistungspflicht”). However, this does not automatically mean that the party whose performance has become impossible is released from any obligation: typically, the nonperforming (or malperforming) party must compensate the other party’s damage.

And this is where the force majeure principle comes into action: if the obliged party can prove that the impossibility to perform depends on an unforeseen and unforeseeable factor lying completely beyond its control, then no damages are due to the other party. This principle is by the way recognised also at an international level by art. 79 of the United Nations Convention on Contracts for the International Sale of Goods.

what is unforeseeable, unforeseen and beyond control?

Typical examples of force majeure cases are natural phenomena, such as earthquakes, floods or - yes - epidemies. These events are certainly beyond control - but are they also unforeseeable? The typical lawyer answer is: it depends. If you build a house next to a volcano the fact that it might erupt and destroy it would certainly be beyond control, but not unforeseeable.

Similarly, the coronavirus spreading to Europe is substantially beyond control, but was it really unforeseeable, in particular since the epidemy started in China months ago? As ever so often, there is no general answer to this question, because the devil is always in the detail.

My best guess would be that one would have to distinguish: the spread of the coronavirus in Europe per se is certainly not an unforeseeable event: we knew it would come on any of the many direct flights from China. We knew that it would start to spread organically across Europe starting in those places that have most frequent links to China. However, I don’t think anyone could have predicted a specifically extreme situation as notably that of (Northern) Italy, which for reasons yet to be fully understood has experienced a contagion rate almost higher of that of the whole rest of Europe. Entire towns have been isolated, flights cancelled, schools and universities closed down for weeks, important trade events - such as Milan’s design fair Salone del Mobile - have been cancelled or postponed. If a contract is affected by these particular circumstances, there would probably be a good chance to “get out” over force majeure and avoid having to pay damages.

Feeling sick? Grab your smartphone!

Normally we’re used to hear and read about potential health risks connected to the excessive use of smarphones and mobile devices. But this time it’s the other way around: Germany recently passed a digital health act (“Digitale Versorgungsgesetz”) allowing doctors to prescribe to patients the use of certain health applications, whose costs will be covered by public health insurances.

apps medical devices

The explicit recognition of “software” as medical device directly derives from art. 2 of the European Regulation on medical devices (2017/745/EU), that - inter alia - divides medical devices in general in several classes based on their function and on their inherent risks. The German law allows for the recognition of software applications as medical devices (“health apps”) only if included in the two lowest risk-classes (i.e. I and IIa).

Practical examples of how an app could be implemented as a medical device are apps allowing for the tracking of certain health data (e.g. daily glucose values for diabetes patients, or general health data of pregnant women), apps providing psycological assistance, apps helping to measure reactions, such as sight or hearing etc. etc.

Also, the government’s goal is to improve the access to medical aid by allowing for online consultations via apps.

how to get an app approved

There are two aspects in the planned approval process for medical apps:

• just as any other traditional medical device, medical apps must in future be approved by the Federal Agency for Pharmaceuticals and Medical Devices (BfArM) in order to be marketed as such (i.e. as “medical”)

• once a health app has been approved, doctors may prescribe its use and the costs connected thereto are covered by the public (and private) health insurances

The approval process will consist in checking that the health app complies with a list of requirements of both medical, technological and legal nature.

From a legal perspective, the most important issue deinitely is protection and security of data , which has to be ensured in numerous ways. Also, consumer protection and liability (in particular in connection with the health claims the app is presented under) will play a major role. Currently, a draft regulation concerning the application process in being circulated: although this version is not final yet, it gives already a pretty specific insight into what the approval process will most likely look like, and already allows interested app owners to move into the outlined direction.

new opportunities

The development and approval of health apps represents a major opportunity both for established pharmaceutical enterprises and for smaller companies, that are often faster and more flexible in adopting new technology also in this branch. The approval process in Germany will be open app owners from all over the world, if the current regulation is not amended in that respect. In any case, due to the principle of non-discrimination, owners based elsewhere within the EU could hardly be excluded.

Personal data as currency

The administrative court of Lazio (“TAR Lazio”), the Italian region surrounding Rome, has recently issued a widely discussed decision (partly) upholding a 5-million sanction imposed to Facebook by the Italian Competiton and Market Authority (“AGCM”).

The following is very synthetic overview of some relevant issues debated during the case, which covered further aspects not commented here.

The facts

The AGCM contested that until april 2018, when new users registered an account on Facebook, they were confronted with a claim stating “It’s free and it will always be”. At the same time, users were not provided with an adequate notice about the processing of their data. Such notice was not precise: in particular it didn’t disclose clearly that Facebook would “sell” personal data gathered via its platform.

Facebook defended itself stating that the AGCM wasn’t even competent to impose sanctions in this case because, on one hand, Facebook’s services were “free” and therefore do not represent a “commercial practice” and, on the other hand, the issue revolved exclusively around the processing of personal data. Therefore, the only competent authority would be the Irish Data Protection Commission, since Facebook is based in Ireland.

The decision

TAR Lazio upheld the sanctions imposed by AGCM for two reasons:

1- There is a clear contradiction between stating that a service “is free and will always be” and exploiting the users’ personal data commercially, as Facebook does. The fact that the “price” of the service is not paid in a standard currency, but in personal data, doesn’t make it less a commercial transaction. Personal data as such are valuable and Facebook’s service cannot be seen as “free” (as in “free beer”) because users “pay” for it by making available their data.

2- An issue revolving around the protection of personal data is not automatically irrelevant with respect to other branches of law. A data protection issue may very well have negative consequences in terms of the protection of consumers, in particular if data is treated as a “currency” to purchase certain services. The protection of personal data resulting from personal data legislation doesn’t exclude that other branches of law - such as consumer law - award a different protection to scenarios that involve the processing of personal data. Different legal protections may coexist.

Takeaways

Considering personal data as a sort of “currency” to pay for services may seem odd at first sight, but it actually corresponds to a reality that’s not even new any more. In this respect, data-based business model cannot be considered free (as in “free beer”).

If that much is true, it triggers the applicability of a whole bunch of provisions that apply to commercial transactions, including those about unfair commercial practices or consumer protection, which would not be applicable if the business model were to be considered free of charge. From a data protection perspective, the reasoning couldn’t be more convincing: treating Facebook-like business models as “free” would otherwise result in a paradoxically lower protection of data subjects precisely in a context of massive personal data exploitation.

And yet, were this approach confirmed, it would have far-reaching consequences for any similar business model, for instance in terms of liability and guarantees (which are considerably higher if the service is provided against payment), consumer law compliance (just think of the right of withdrawal, to name one) etc.

On the other hand, it introduces a new variable in the data protection environment: so far, we know that personal data may be processed according to one of the lawful bases set foth in art. 6 GDPR. None of them mentions personal data as “currency” and, at least at first sight, none of the current lawful bases really apply to this specific scenario.

Paying with personal data belongs to normality nowadays: it’s therefore (already) time to rethink the respective legal framework.

Do I need a German company to hire employees?

This question is an all-time favourite of many foreign entrepreneurs planning to hire personnel in Germany. And you’ll be surprised to learn that the answer is: no!

There are a couple of options if you plan to expand your business to Germany and need to hire employees there. Each of them has its implications, therefore you should consider carefully which one is most suitable for your purposes.

Incorporating a company

Incorporating a company – and by that we mean limited liability or stock companies (i.e. GmbH & UG, AG, KGA) – means creating a completely new and completely German entity. No matter where the shareholders come from (they might be foreign or German natural or legal persons), the company is going to be just as any other German company: this means it can, inter alia, hire employees freely.

Of course, a company is much more than just a way to hire employees: it can close any kind of contract, may create revenue and get taxed independently, must be provided with an own capital, is subject to standard bookkeeping duties etc. etc.

Therefore, if you actually plan to extend your activity in Germany and/or Europe at least in a mid-term perspective, incorporating a company would mostly be the best choice. In particular, thanks to the limitation of liability, business done by the German entity in principle does not reflect on the shareholders. This means: if your expansion on the German market eventually fails and the German entity is indebted, those debts do not transfer to the foreign entity that might be the German company’s controlling shareholder.  

On the other hand, incorporating a company has some fixed costs and requires an investment in terms of share capital. Also, once you should decide to abandon the German market, you will need to go through a formal liquidation process to shut down the company.

Setting up an independent branch

This expression is kind of misleading: in fact, “independent” branches are not really independent. Instead, they serve as a German office of a foreign company. As such, they are listed in the German commercial registry and can hire employees or close any other type of contract.  

Independent branches can be set up pretty easily and do not need a major investment, since they don’t have to be provided with a share capital. Similarly, they can be closed easily simply by applying for erasure from the commercial registry. In terms of bookkeeping and taxation, there is no huge difference between a branch and a company.

However, unlike a proper “company”, branches are no legal entity of their own: they are just an appendix of a foreign company. This means any kind of liabilities incurred by the branch directly reflects on the foreign company’s assets. Imagine your expansion in the German market proves harder than expected: any losses or damages resulting thereof will affect your foreign company directly.

Also: consider that setting up and maintaining an independent branch involves a considerable effort in terms of bureaucracy, especially regarding sworn translations of records and documents referring to the foreign “mother” entity.

Do “nothing”

Sometimes the effort of setting up a company or an independent branch seems simply exaggerated for your purposes. Imagine you only need to hire an employee working from remote, for instance a developer, who by coincidence is based in Germany. You certainly wouldn’t want to set up a company in Germany just to hire him – unless you plan to enter the German market in general.

In such cases, you could hire the employee as a foreign entity directly. To do this, you will basically register with the German Employment Agency. This scenario has some implications in terms of taxation since taxes and welfare contributions that usually get deducted directly from an employee’s salary by their German employers need to be charged on the employee. For this reason, you’ll have to pay the employee also those contribution and taxes.

Also, as soon as you hire an office or desk for this employee to work for you or a warehouse to store stock, you will be subjected to German taxation as a company (or as an employer, more in general), for the part of revenue created in Germany. This because German authorities will consider you to have a permanent establishment in Germany. If, instead, the employee would work from home or from any other place of his/her choice, things might look differently.

Need to learn more? Feel free to contact us!

The EU’s new “marketplace” regulation

On July 12th, 2020 the EU’s new marketplace regulation no. 2019/1150 will become effective. Being a regulation, it will become immediately binding throughout the EU without need for any national implementation.

This regulation applies to any online intermediation service that allows business users based in the EU to offer goods or services to consumers based in the EU. One good example coming to mind is Amazon’s marketplace service, which allows EU businesses to sell their stuff to EU consumers via its platform.

Given the increasing dependence of small and medium market players from such intermediation services, “the providers of those services often have superior bargaining power, which enables them to, in effect, behave unilaterally in a way that can be unfair and that can be harmful to the legitimate interests of their businesses users and, indirectly, also of consumers in the Union.”  (recital no. 2 of the regulation).

The regulation’s goal is therefore to impose fair commercial practices and transparency in relationships and transactions between intermediaries and business users, while it does not intervene on the relationship with consumers.

Let’s see some of the most relevant provisions:

General terms and conditions

The regulation establishes a set of criteria that general terms and conditions of intermediaries must meet in order to be considered valid. Inter alia, they must drafted in plain language, be easily and constantly accessible and inform about

-       cases in which the service might be interrupted;

-       any additional distribution channels and potential affiliate programmes through which intermediaries might market goods and services offered by business users;

-       the effects of the terms and conditions on the ownership and control of intellectual property rights of business users.

Changes to the terms and conditions must be communicated to business users on a durable medium and may not be implemented before the expiry of a reasonable notice period of at least 15 days.

Termination

In an attempt to make it harder for marketplaces to simply kick out single users for purely strategic or economic reasons, art. 4 states that, in case an intermediation service plans to suspend or terminate the provision of its services to a specific business user, it has to motivate its decision extensively and to communicate such motivation on a durable medium.

Ranking

Goods or services offered on marketplaces are always displayed in a specific order tht is predetermined by the marketplace owner. Following the implementation of this regulation, intermediaries will have to disclose their ranking criteria, specifying in “the main parameters, which individually or collectively are most significant in determining ranking and the relative importance of those main parameters” (see art. 5).

Such description must be sufficient to enable business users to determine, whether and to what extent

-       the characteristics of the goods and services offered to consumers through the online intermediation services or the online search engine;

-       the relevance of those characteristics for those consumers; and

-       as regards online search engines, the design characteristics of the website used by corporate website users

are taken into account.

Complaint handling

Intermediation services must set up an internal complaint-handling system dedicated to business users, which must free of charge, easy to use and ensure a handling within a reasonable time frame.

Challenges to compliance

Intermediation service providers have 6 months left to comply with this new regulatory framework. Some of the provisions require an actual implementation, involving the creation of new structures and processes (e.g. for the handling of complaints), while others merely require adaptations of contracts and further documentation in the interest of greater transparency.

Reach out for us if you need assistance!