Compliance & Investigations
Sanction list screening of employees is permissible without the participation of the works council
In order to avoid possible sanctions due to violations of the European Union provisions on embargoes directed against certain persons or countries (including counterterrorism provisions), many companies are implementing an automated check of their employees’ data against the relevant sanction lists. Up to now there had been some dispute over whether the works council (Betriebsrat) also had to be involved in the introduction of such data checks. The Federal Labour Court (Bundesarbeitsgericht, BAG) has now provided clarity on this point with a leading case of 19 December 2017 (Case no. 1 ABR 32/16).
Background: EU Regulations on combatting terrorism / country-specific embargoes
Since the terrorist attacks on the World Trade Center in New York in September 2001, the European Union (EU) has issued a number of regulations to prevent terrorists or suspected terrorists from obtaining the means to support terrorist activities through a participation in economic life (counterterrorism regulations). At the same time, the number of embargos imposed by EU Regulation which are directed against certain countries has increased in recent years (country-specific embargoes). Both types of regulations are frequently based on resolutions adopted by the United Nations Security Council. The most important regulations are:
- Council Regulation (EC) No 2580/2001 of 27 December 2001 on specific restrictive measures directed against certain persons and entities with a view to combating terrorism
- Council Regulation (EC) No 881/2002 of 27 May 2002 imposing certain specific restrictive measures directed against certain persons and entities associated with Usama bin Laden, the Al-Qaida network and the Taliban
- Council Regulation (EC) No 36/2012 of 18 January 2012 concerning restrictive measures in view of the situation in Syria
- Council Regulation (EC) No 267/2012 of 23 March 2012 concerning restrictive measures against Iran
These Regulations contain a so-called “prohibition of provision” (Bereitstellungsverbot). They stipulate that no funds or economic resources may be made available, directly or indirectly, to or for the benefit of certain natural persons who are named in the sanction lists in the annexes to the Regulations. This includes the payment of salaries to employees, since with the payment they gain the power to dispose over their wages. Even non-monetary salary components could fall under this prohibition of provision. The term “economic resources” includes any and all assets which can be used for the acquisition of funds, goods or services without themselves being money.
The prohibition also affects existing employment agreements; the prohibition of provision is not restricted to new commitments that have been made, but also covers existing contracts insofar as they provide for the performance of a continuing obligation.
Penalties for violations
The Regulations, as directly applicable law, are binding for all companies in the territory of the EU. Violations of the prohibition of provision can, under national law, lead to substantial penalties for the company involved and its representatives. For example, section 18(1) no. 1 lit. a of the Foreign Trade Act (Außenwirtschaftsgesetz, AWG) provides for the imposition of a prison sentence of three months to five years for, inter alia, a violation of one of the prohibitions of provision which are stipulated in an EU Regulation. Moreover, a fine of up to EUR 1 million can be imposed under section 130 Administrative Offences Act (Ordnungswidrigkeitengesetz, OWiG) for failure to take the necessary supervisory measures, as well as a company fine of up to EUR 10 million under section 30(1) Administrative Offences Act. Section 35(1) Trade Regulation Act (Gewerbeordnung, GewO) additionally provides for a ban on engaging in commercial activities due to unreliability and an entry in the Central Trade Register (Gewerbezentralregister), with negative consequences for the company with regard to the tendering of public contracts.
Automated sanctions checks for employees
In order to avoid sanction risks, many companies feel compelled to check their employee data against sanction lists on a regular basis. Although they are not directly legally obliged to carry out such screenings, the legal penalties involved give rise to a de facto duty (in order to avoid organisational culpability).
Since a manual data check is not feasible for most companies, many of them opt for automatic screenings implementing special software solutions. In this process, the master data of the employees are compared electronically with the entries in the sanction lists. There had been some dispute in this connection as to whether the introduction of such an automated data check triggers a codetermination right of the works council due to control of conduct pursuant to section 87(1) no. 6 Works Constitution Act (Betriebsverfassungsgesetz, BetrVG).
Ruling of the Federal Labour Court
In its order of 19 December 2017 (case no. 1 ABR 32/16), the Federal Labour Court found that such cases do not fall within the scope of application of the codetermination right under section 87(1) no. 6 Works Constitution Act. As worded, this provision is only applicable if the measure involves the introduction and use of technical equipment which is specifically designed to monitor the conduct or the performance of employees. As the Court stated in its order, from a formal standpoint, by checking the data the employer does not obtain any insights into the conduct of the employee. Rather, the information obtained from the check only indicates whether a prohibition measure in the sense of a prohibition of provision is directed against that individual, which means that no payments may be made to him or her. However, this does not comprise a statement as to the employee’s actual conduct within or outside of the company’s operation. The mere possibility that this information could serve as an occasion for further investigations or measures on the employer’s part, which in turn might allow for inferences to be drawn regarding the affected employee’s conduct, does not make it information within the meaning of section 87(1) no. 6 Works Constitution Act.
With the Federal Labour Court’s decision, companies have now obtained clarity on the duty to give the works council a codetermination right upon introducing an automated check of employee data against sanction lists. While the introduction of almost any other kind of software would result in a mandatory codetermination of the works council because, as a rule, work procedures are recorded thereby, automated sanction list screening is not subject to codetermination. This makes it easier for companies to introduce such software solutions quickly in order to protect themselves against sanctioning risks. However, it should be noted that this decision by the Federal Labour Court pertains only to codetermination under the Works Constitution Act, and not to the data protection law aspects of employee screening (cf. on this subject Gleiss Lutz Newsletter Compliance & Investigations, Issue 1/2017). This question has still not been completely clarified.