German firms grapple with tough bias law

MUNICH, Germany—German risk managers are expressing concerns over increased workplace lawsuits following the recent passage of an anti-discrimination law that they contend is even tougher than the European Union directives it is based on.

"You get some E.U. directive on some legal issue, and the Germans always manage to do it super extensive, super correct, and that is what happened to the anti-discrimination law," said Ralf Oelssner, chairman of the Deutscher Versicherungs-Schutzverband e.V.--the German commercial insurance buyers association--and director of corporate insurance at Cologne-based airline Lufthansa A.G.

"It could lead to a very different type of litigation, increased litigation," he added.

An immediate concern is that companies with a named perils liability policy may not be covered for violations under the anti-discrimination law, noted Herbert Palmberger, a partner and head of the German insurance and reinsurance law group at law firm DLA Piper U.K. L.L.P. in Cologne. "I would strongly advise (companies) to check that," he said.

Under the law, known as Allgemeines Gleichbehandlungsgesetz, employers are expressly prohibited from discriminating against job applicants or employees based on race or ethnic origin, gender, religion, disability, age or sexual orientation.

In effect since mid-August, the legislation transposed into national law four E.U. directives on equal treatment.

Christian Berg, a labor and employment lawyer in the Frankfurt office of Squire, Sanders & Dempsey L.L.P., a U.S.-based international law firm, said the German law went beyond the scope of the E.U. directives. For example, it imposed a higher burden of proof on employers than required under E.U. law, he said.

According to a primer on the AGG prepared by Mr. Berg, the law requires employers to protect their workers from discrimination and discriminatory harassment by co-workers or third parties, such as customers. In addition, a job applicant or employee can claim damages within two months after being discriminated against. Damages may include claims for non-monetary losses, such as pain and suffering, and compensation generally is not limited under the AGG, the primer notes.

Mr. Berg said it remains to be seen what amounts German courts will find adequate as compensation for discrimination.

The AGG will also have a major impact on insurers since it protects against discrimination in civil mass contracts, which includes insurance contracts, Mr. Berg added.

The law's impact was a topic of discussion at last month's DVS symposium in Munich, with members questioning whether the AGG would expose German companies to widespread U.S. style anti-discrimination lawsuits.

"The AGG could potentially lead to a U.S.-style situation, but we are working in a different legal culture," said Stephan Schramm, managing partner of Bremen-based broker Gebrüder Krose, in an interview. He addressed the topic in a speech at the DVS conference.

Germany currently has no punitive damage awards or class action lawsuits, he noted. "We won't have a final answer (on its impact) until our highest court has said: 'This is the way we want to look at the AGG,"' he said. "Yes, there is the potential to be concerned, but let's wait."

Some risk managers aren't waiting to protect themselves from the potential liability. Klaus Braukmann, managing director of Conti Versicherungsdienst in Hanover, part of tire and auto components maker Continental A.G., is already looking into employment practices liability insurance. Such insurance covers anti-discrimination lawsuits and is common in the United States.

"At the moment, you have to decide whether you want to buy insurance or not," said Mr. Braukmann. "If the risk pops up and you buy insurance, then it will be very expensive. It is like (directors and officers insurance). Fifteen years ago in Germany, everybody said, 'There is no risk here.' We bought the insurance at that time and got it for a relatively decent price, and could continue this decent price until today, so that is the idea behind it."

Other European companies, namely those with U.S. operations who are familiar with the risk, are now looking for worldwide coverage, added Johannes Jung, executive manager at Gebrüder Krose, who has had several requests from clients.