The Employment Law Review: Germany

Introduction

The German labour and employment law system is generally intended to protect the employee. The system is not codified separately but can be found in various (German and European) laws, regulations, collective agreements and works agreements. It is also very much determined by case law. Apart from on the European level, jurisdiction for labour and employment law is exclusively exercised by the local labour courts, regional labour courts and the Federal Labour Court.

A particular feature of German labour law is the dual system of employee representation: works councils elected by employees represent their operational interests at the entity or company level; and trade unions represent employees' overall interests at the industry level.

Year in review

i Effects of the covid-19 pandemic

During the current pandemic, an employer's duty of care includes taking adequate measures to prevent the spread of covid-19, such as:

  1. adhering to hygiene regulations; and
  2. asking employees if they have been in a high-risk area or whether they have flu-like symptoms (or both).

Furthermore, the employer must continue to pay remuneration if an employee is infected with the coronavirus, unless he or she has taken the risk of being quarantined for a suspected infection. This would be the case if, for example, the employee takes a holiday in a high-risk area while knowing that a mandatory period of quarantine is required when they return. If the employee stops paying the employee's wages, compensation for loss of wages can be sought under the German Infection Protection Act.

Additionally, employees are entitled to a short-time work allowance from the state if their employer has to reduce their regular working hours. For the duration of the covid-19 pandemic, the following changes have been introduced temporarily:

  1. a reduction in the requirements for introducing short-time work;
  2. an increase in the level of compensation for short-time work; and
  3. additional earnings up to the amount of the previous monthly salary are not deducted from the short-time allowance.

ii Remote working and working from home

Employees in Germany are not currently entitled to work from home or to work remotely. If employees request to work from home, the employer can refuse. At the same time, an employer cannot oblige an employee to work from home without the employee's consent, unless the employer is granted a corresponding right of instruction. This right of instruction can arise from an employment contract, a collective agreement or a works agreement. The Federal Ministry of Labour and Social Affairs and other parliamentary groups are currently considering how working from home should be regulated in Germany.

iii New whistle-blower directive

The new Directive on the protection of persons who report breaches of EU law (the Directive) entered into force in December 2019. Its purpose is to encourage reports of wrongdoings and to establish uniform protection for whistle-blowers throughout the European Union. In essence, the content of the Directive can be divided into three key aspects:

  1. regulation of the reporting procedure;
  2. establishment of reporting channels; and
  3. protective measures and prohibition of repressive discrimination and sanctions.

Although some EU Member States already have extensive whistle-blower regulations, this is not the case in Germany. Therefore, the Directive has a significant effect on German law. The legislature will have to implement a new set of regulations to comply with the Directive by December 2021. It also must decide whether the regulations should be implemented with only the Directive's content, or whether more far-reaching protective mechanisms should be introduced. The Ministry of Justice has already drawn up a first draft of a new Whistle-blower Protection Act, which is more far-reaching than the Directive. In addition to whistle-blowing regarding violations of European law, it also relates to violations of German law. Thus, companies in Germany have to assess their internal reporting and compliance systems and adapt them accordingly.

Significant cases

i Working from home and health insurance

In Germany, employees have special health insurance, separate from their social health insurance, which concerns injuries or accidents at the workplace, during working hours and on their way to work. Case law has long recognised that this insurance also applies when employees are working from home.

In a recent decision, the Federal Social Court stated that this insurance does not apply if the employee leaves his or her workplace at home to pursue private activities during working hours. Nothing else applies if the absence is only very brief. In the aforementioned case, an employee left the home workplace to drop off a child at nursery. The Court ruled that this activity was unrelated to the employee's work. Thus, the accident that occurred on the way to the nursery was not considered a workplace accident. The accident was also not considered to be insured as a journey to the employee's workplace and private residence were one and the same in this case.

ii Damages for non-compliance with the right to access personal data

According to Article 15 of the General Data Protection Regulation (GDPR), an employee (the data subject) has the right to know whether or not personal data concerning him or her is being processed, and the right to access to this personal data. If the employer does not fulfil a respective request, it can be liable to pay damages under Article 82, paragraph 1 of the GDPR.

In March, the Düsseldorf Labour Court decided that an employer had to pay damages of €5,000 for two reason. First, the employer had not provided information concerning the purposes for the data processing in a transparent, intelligible and easily accessible format according to Article 12, paragraph 1 of the GDPR. Instead, the employer merely provided a generalised overview without detailing the purposes any further. Second, the employer had not provided access promptly. To assess the amount of damages, the Court considered the degree of negligence by the employer, the sales revenue of the company and the duration of the delay in providing access.

This judgment illustrates the risks that employers face regarding requests pursuant to Article 15 of the GDPR.

iii No necessity to communicate in German

A works council requested that negotiations, meetings and discussions with personnel led by the employers' representative should be conducted in German. The works council argued that, because communication was exclusively in English, employees' participation rights were impaired.

The court dismissed the works council's claim, holding that the employer is not required to communicate in German if a sufficient and adequate translation can be guaranteed. This includes providing a German translation in writing or text for works council members who do not understand English well enough. A requirement to communicate in German would discriminate against a non-German employer and would be an infringement of an employer's freedom to conduct business.

iv Ban on temporary workers as strike-breakers

In Germany, strikes are important tools for unions to persuade an employer to negotiate a new collective agreement. As a defensive measure against strikes, many employers have relied on temporary workers as strike-breakers to replace striking employees at short notice. To regulate the balance of power between unions and employers, the legislature implemented a new regulation banning temporary workers as strike-breakers.

Notwithstanding the substantial criticism of this new regulation, the Federal Constitutional Court has now confirmed its conformity with the Basic Law for the Federal Republic of Germany (the Basic Law). The ban of temporary workers as strike-breakers is compatible with the freedom of association in Article 9, paragraph 3 of the Basic Law. The Court argued that the functioning of tariff autonomy is crucial for freedom of association and can exist only as long as there is parity between the parties. This parity, however, would be substantially affected if companies were allowed to use temporary workers as strike-breakers without restriction. Thus, in future, companies will have to resort to their own staff and find new ways to motivate them to work instead of joining the strike.

v Transparency in Wage Structures Act

The Transparency in Wage Structures Act provides for an employee to be able to request information concerning his or her colleagues' remuneration to verify compliance with the principle of equal pay.

In one case, a reporter who did not have employee status under German law, requested this information. The request was denied on the basis that the reporter was not an employee within the meaning of the Transparency in Wage Structures Act. The Federal Labour Court has now decided that the term 'employee' must be interpreted broadly, in accordance with EU law. This means that even those people who do not have employee status according to German law, but are comparable with an employee because of their economic dependency, fall under the Transparency in Wage Structures Act definition.

vi Preliminary CJEU ruling concerning expiry of annual leave entitlement

The preliminary rulings of the Court of Justice of the European Union (CJEU) concerning the expiry of annual leave entitlement are eagerly awaited. The CJEU has ruled in the past that annual leave entitlement will expire only if the employer has informed the employee and requested him or her to take his or her remaining annual leave.

The first question presented to the CJEU by the Federal Labour Court was whether EU law permits the expiry of annual leave entitlement after the expiry of 15 months or a longer period, even if the employer has not fulfilled its obligation to cooperate during the respective year. In spite of this, the employee could have taken at least part of the annual leave entitlement prior to the onset of his or her incapacity to work.

The second question the Federal Labour Court presented to the CJEU concerned the limitation of annual leave entitlement under German national limitation rules. Since annual leave entitlement cannot be forfeited if the employer has not fulfilled its obligation to cooperate, the question remains whether claims can be time-barred after three years, according to the general statutes of limitation in the German Civil Code.

vii Crowdworkers have employee status under German law

To have official employee status, a worker needs to be bound by instructions, has to be in personal and economic dependency and has to perform duties that are directed by the employer. In recent years, the gig economy has grown considerably and it has become more common for individuals to perform micro jobs using internet platforms (known as crowdworkers).

In December 2020, the Federal Labour Court decided that crowdworkers can be classified as employees, since crowdworkers:

  1. cannot decide how, where and when they will perform their duties;
  2. have to carry out their contractually prescribed assignments in person; and
  3. are only able to receive a higher payment by reaching a higher level over time.

Thus, the relationship between a crowdworker and an operator of an online platform is comparable to the standard employer–employee relationship.

Basics of entering into an employment relationship

i Employment relationship

An employment contract is not subject to any form. Although it may be concluded expressly or implicitly, orally or in writing, it is customary to put an employment contract in writing. The employer is nevertheless required by law to provide the employee with a wet-ink signed written statement that includes the most important terms and conditions.

German employment contracts usually contain very comprehensive agreements in respect of, among other things:

  • wages;
  • working hours (part-time or full-time);
  • position;
  • annual leave entitlement;
  • illness;
  • termination notice periods;
  • data processing; and
  • confidentiality.
  • If individual contractual conditions have not been specifically negotiated by the parties, they represent standard business terms. This leads to unclear, disproportionately disadvantageous or surprising clauses always being interpreted at the employer's expense or even being declared ineffective. Individual contractual agreements can only be changed by mutual consent.

    It is also possible to conclude fixed-term employment contracts. However, both parties must have received a written contract (wet-ink signed by both parties) for the fixed term to be effective before the employee starts working. The fixed term can be based on objective reasons or can be concluded without reasons. Fixed-term employment based on a reason can be extended indefinitely. The reasons (such as providing cover for another employee or working on a temporary project) are defined by law and subject to very high requirements. A fixed-term contract not based on objective reasons can be renewed only up to three times for a total of two years. Furthermore, the employee must not have been employed by the same employer before.

    ii Probationary periods

    Probationary periods are common in Germany. For this purpose, a fixed-term contract for evaluation reasons can be agreed. Alternatively, a contractual agreement of a probationary period for a maximum of six months is also possible. During this time, the employment relationship can be terminated on two weeks' notice without providing reasons.

    iii Discrimination

    According to the Basic Law and the General Equal Treatment Act, discrimination and preferential treatment against any individual on the basis of sex, parentage, race, language, homeland and (ethnic) origin, faith, religious or political opinions, disability, age or sexual identity are prohibited. This applies to direct or indirect discrimination against applicants and current employees. Violations can lead to claims for damages, among other consequences.

    Germany has adopted a new law on the equal participation of men and women in leadership positions (see Section XV). Additionally, male and female employees must receive equal pay for work of the same, similar or equal value, according to the Transparency in Wage Structures Act (see Section III.v).

    Restrictive covenants

    To protect valuable knowledge, employers will often require restrictive covenants from their employees. Because of their strict legal requirements, non-compete agreements can be very problematic since they are valid only if they adhere to the following legal requirements:

    1. the clause must be in writing;
    2. the restrictive covenant must serve to protect legitimate business interests;
    3. the clause must be limited to the extent necessary, so the employee is not unreasonably hindered in his or her professional career;
    4. the clause must be transparent;
    5. compensation of at least half of the most recent remuneration must be given; and
    6. the maximum duration is two years.

    Wages

    i Act Regulating a General Minimum Wage

    The German legislature has implemented the Act Regulating a General Minimum Wage. Each year, the minimum wage will be increased to ensure a minimum standard for every profession and to prevent disproportionate payment. As of 1 January 2021, the minimum wage is €9.50 gross.

    The Act only applies to employees, not the self-employed, trainees or apprentices. An employer who violates the Act by not paying the minimum wage will be subject to a fine.

    ii Working time

    According to the Working Time Act, the maximum working time is eight hours a day or 48 hours per week for a six-day working week. There are exceptions for certain professions, such as restaurants, hotels, hospitals and other healthcare institutions. An employee is entitled to 11 uninterrupted hours of rest after each working day, although certain exceptions apply.

    Special regulations also apply in respect of night work.

    Any contractual clauses that violate the Working Time Act are void.

    iii Overtime

    Employees are generally allowed to work overtime as long as the above-mentioned working time regulations are adhered to. As compensation, employees may receive extra remuneration or time off. This is often regulated by collective agreements, which depend on the respective industry. It is also common and legal to identify overtime of up to 20 hours per month to be compensated by the normal rate of pay. The only limitation is set by the minimum wage, which must be fulfilled despite this common practice. In the case of very high earners, no overtime compensation is required at all.

    Foreign workers

    Regarding foreign workers, two circumstances must be distinguished. There are no restrictions for EU citizens or citizens of the European Economic Area (EEA) and Switzerland. They are allowed to work in Germany without needing a work permit, whereas foreign workers from third countries generally need a work permit and a residence permit. The possibility of obtaining the necessary permits depends on the qualifications of the employee and the type of job. For example, the permit in the form of an EU Blue Card is the main residence permit for professionals with higher education from abroad. The EU Blue Card is granted in a simplified procedure if the applicant has a university degree and will be earning a minimum gross salary of €55,200 per year in the new job.

    Generally, the parties are free to choose whether German law (e.g., the Protection Against Unfair Dismissal Act) or the law of the worker's home country should govern the employment relationship. Nonetheless, mandatory regulations for the protection of employees in Germany apply, regardless of the choice of law.

    Foreign workers are also integrated into the German social security system. They are generally obliged to pay taxes and social security contributions.

    Global policies

    Companies in Germany can use an employee handbook or company policies (or both), for example in respect of whistle-blowing, monitoring at work or anti-corruption measures. To be binding, the handbook or policies (or both) must be incorporated in the employment contract by reference and must be signed by the employee. However, they are not customary and cannot be changed unilaterally by the company. There are no statutory disciplinary and grievance procedures in German labour law. Furthermore, there is no requirement for an employer to adopt a formal disciplinary or grievance procedure. Nonetheless, employers may sanction conduct that is contrary to the contract. Reprimands, warnings, fines and dismissal are all possible sanctions.

    Parental leave

    During the last six weeks of pregnancy and for eight to 12 weeks following the birth of the child, pregnant employees are entitled to paid maternity leave. Pregnant and breastfeeding employees are not allowed to work overtime and are entitled to extra breastfeeding breaks.

    After the birth, employees (both mother and father) are entitled to up to three years of unpaid parental leave, during which they can receive a state parental benefit for a maximum of 14 months.

    Employees on either maternity leave and parental leave are subject to special protection against dismissal. A termination may only take place in exceptional cases and with the consent of the highest state authority responsible for occupational safety.

    Translation

    Although international companies often use bilingual contracts, this is not a legal requirement. A contract in German is sufficient. If the employee signs a German employment contract, he or she accepts it. This is irrespective of whether he or she has sufficient command of the German language.

    Employee representation

    i Works council

    The main instrument for employee representation is the works council, which serves as a binding link between the employer and the employees. Therefore, the employer and the works council must work together in a spirit of mutual trust.

    The works council has a multitude of co-determination rights regarding the personal, social and economic decisions made by the employer in respect of the right to:

    1. comprehensive information;
    2. be heard;
    3. be consulted;
    4. lodge an objection (e.g., when an employee is dismissed); and
    5. refuse consent regarding individual staff measures.

    Compliance with co-determination rights by the employer can be enforced, for instance by establishing a conciliation committee.

    One of the main focuses of the works council is on negotiating works agreements with the employer that constitute normative rights and obligations between the employer and the employee. These agreements can concern every aspect of the employment relationship, such as annual leave entitlement or working time.

    Works council members are released from their duties to carry out council activities. In companies with more than 200 employees, members of the works council must be released from their duties full-time. Although holding office on a works council is an honorary position, council members must receive their normal wages.

    Since the works council itself does not have any assets of its own, the employer must cover any expenses that arise in the performance of the works council's duties (such as office supplies). This obligation is interpreted extensively by the labour courts.

    Works council members, former members and those employees who were candidates for election are subject to protection against retaliation by the employer. This particularly includes special protection against dismissal.

    A works council can be elected if there are at least five employees in the establishment. Nonetheless, no legal obligation exists for the employer or the employees to establish a works council. The number of members depends on the number of employees in the respective establishment. Once the works council is elected, the regular term of office is four years.

    If a company has more than one establishment in Germany, a central works council must be created. In a corporation, a group works council can be established.

    ii Unions

    Another instrument for employee representation is a union. The main purpose of unions is to be an equal counterpart to the employer and to negotiate collective agreements. Clauses in collective agreements may deviate from many otherwise mandatory laws; they also have normative effect. If an employer refuses to negotiate collective agreements, the union can force the employer to do so by calling on the employees to strike.

    Unions enjoy special protection under Article 9, paragraph 3 of the Basic Law.

    Data protection

    i Requirements for processing

    Article 88 of the GDPR provides for EU Member States to regulate nationally the processing of data in the employment relationship. Germany has exercised this in Section 26 of the Federal Data Protection Act, which regulates if and under which conditions an employer may process its employees' data. In summary, the employer is allowed to process employees' data:

    1. if an employee has explicitly given informed consent in written or electronic form (albeit the consent can be revoked);
    2. for employment-related purposes to carry out or terminate an employment contract; and
    3. for the process of hiring the employee.

    When processing an employee's data for employment-related purposes, the processing must be necessary. Therefore, it must be proportionate in relation to the infringement of the employee's right to privacy.

    Furthermore, the processing of data is permitted for the investigation of a crime. However, this is a very limited exception and is only permitted after extensive balancing of the employers' and employees' respective interests.

    When the regulations for data processing are violated, an administrative fine will be imposed by the competent supervisory authority. Fines have become much more common during the past year. For example, H&M (the globally recognised fashion brand) was fined €35.3 million for excessive monitoring of several hundred employees.

    ii Cross-border data transfers

    Two different sets of circumstances exist in respect of transfers of data to other countries.

    In respect of transferring data to another recipient within the European Union or the EEA, since the main purpose of the GDPR is to have a uniform data protection level, the same regulations for data processing apply in each EU Member State. Thus, no prior authorisation from the supervising authorities is required.

    Transfers of data to a third country is allowed only if there is an adequate level of protection in the country concerned. There are three main grounds for such a transfer:

    1. an adequacy decision by the European Commission according to Article 45 of the GDPR;
    2. the transfer is subject to appropriate safeguards according to Article 46 of the GDPR, such as the Standard Contractual Clauses (Paragraph 2, lit. (c)); or
    3. one of the conditions under Article 49 of the GDPR applies (e.g., explicit consent by the data subject).

    Additionally, in July 2020, the CJEU declared in its Schrems II ruling that the data protection agreement on the transfer of personal data between the European Union and the United States (the Privacy Shield) fails to meet the requirements of the GDPR.

    iii Sensitive data

    Data concerning health or racial or ethnic origin can be processed only if the extensive conditions of Article 9, Paragraph 2 of the GDPR and Section 26, Paragraph 3 of the Federal Data Protection Act are met. The processing must be necessary to exercise rights or comply with legal obligations regarding labour or social law (e.g., for continuing remuneration in cases of sickness). The employer also needs to consider whether the employee has an overriding legitimate interest to not process the data. Alternatively, the data subject can give explicit consent for the processing of data.

    iv Background checks

    Background checks on prospective employees also fall within the scope of the GDPR and Section 26 of the Federal Data Protection Act. They are allowed when the employer has a legitimate interest that is worthy of protection. For example, if the work is in respect of financial matters, the employer is allowed to collect data on a candidate's criminal record before entering the employment relationship.

    Concerning the question whether the employer may collect data through social media, two types of social media networks have to be distinguished from each other. If the employee has publicised his or her information on professional social media networks such as LinkedIn, the employer can use this information. Nevertheless, the employer should not use private social media networks such as Instagram or Facebook, unless the data subject has explicitly given consent.

    v Employee monitoring in the workplace

    In general, an employer is allowed to check regularly whether its employees are fulfilling their contractual obligations, for instance by enquiring about their progress, according to Section 26, Paragraph 1 of the Federal Data Protection Act. Secret monitoring or controlling, however, when an employee is purposefully left in the dark about the monitoring measures or their scope regularly constitutes an infringement of employees' right to privacy. These measures are allowed only in exceptional cases, such as to investigate a criminal offence at the workplace if less severe means have proven ineffective.

    Discontinuing employment

    i Dismissal

    In principle, extraordinary dismissals (without notice) and ordinary dismissals (with notice) are possible.

    In the case of extraordinary dismissals, there must be a serious reason (i.e., a fundamental breach of the employment contract) that makes it unreasonable for the employer to continue to employ the employee. This could be the case regarding assault in the workplace, insults, theft of employer property or working time fraud. Once an employer has knowledge of a serious reason for terminating an employment contract, it must declare the termination within two weeks. In principle, a warning must have been issued beforehand, but exceptions are possible.

    In the case of ordinary dismissal, the employee can only be dismissed with a cause, whether conduct, personal reasons or operational reasons. There are different requirements for each of these reasons:

    1. A conduct-related dismissal is based on breaches of contractual obligations. A prior warning is required and it must indicate the unlawful behaviour, that the employer will not tolerate it and that it can lead to dismissal if it is repeated.
    2. A termination for personal reasons is possible, for example, if the employee is unable to work because of sickness.
    3. An operational dismissal applies when an employee's job or position is redundant (see Section XIII.ii).

    In all these cases, dismissal must be the last resort and must be proportionate. Accordingly, if any suitable alternative employment is available, that must be offered first.

    The only cases when no cause is required for dismissal are during the probationary period or if the employer has fewer than 10 employees.

    Moreover, regarding an ordinary dismissal, there are statutory notice periods. These depend on the length of service. The shortest notice period is four weeks to the middle or the end of the month; the longest is seven months to the end of the month after 20 years of employment. Regarding dismissal by the employer, the notice period can only be shortened in exceptional cases, such as in the context of collective agreements or in a termination agreement. Nonetheless, the notice period can be extended by both parties. However, no longer period may be agreed for termination of the employment relationship by the employee than by the employer. Payment in lieu of notice is not permissible. If a works council exists, it must always be consulted before dismissals.

    There are many options for special protection against dismissal, with regard to severely disabled or pregnant employees, employees on parental leave, employee representatives, apprentices, among others.

    A severance payment is not generally mandatory in Germany. Nevertheless, a severance payment can be agreed in the form of a termination agreement or a settlement. Usually, the monthly gross salary multiplied by the number of years of employment multiplied by the factor 0.5 is paid. The severance payment can be higher or lower, depending on the respective agreement.

    ii Redundancies

    Redundancies are one of the reasons for termination of employment agreements mentioned above. If a company is shut down, a company reorganisation takes place or a job is outsourced, an employee can be dismissed for operational reasons. An entrepreneurial decision is required in this regard. In addition, comparable employees must be selected according to certain criteria, meaning that the employer has to consider each person's:

  • age;
  • number of dependants or family maintenance obligations;
  • seniority; and
  • disability (if any).
  • Only the employees least worthy of protection may be dismissed. Furthermore, a possible transfer to a different position or reinstatement must be considered beforehand. If redundancies for operational reasons are part of a restructuring and exceed certain thresholds, a social plan must be agreed by the existing works council and a reconciliation of interests must be attempted. In the case of mass dismissal, the works council must be involved and informed. Additionally, the employment agency must be notified, otherwise the dismissals are ineffective.

    Transfer of business

    If a business or part of a business is transferred to a new owner while maintaining its identity, this represents a transfer of business or undertaking (as provided for in the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)). If such a transfer takes place, the employment relationships are also transferred. This means that all previous regulations in the employment contracts remain in place in the new company. Either the previous management or the new company must notify the employees of the transfer. This notification is subject to strict requirements. Employees can prevent their transfer to the new employer by objecting within one month of the notification. If the notification requirements are not met, the employees can object to the transfer far beyond the one-month period. By objecting, the employees can remain at their original company, but the employer may have the right to dismiss them on the ground of redundancy. Nonetheless, the transfer of business itself is not a reason for termination of employment contracts.

    Special regulations apply in respect of the provisions of a collective agreement or a works agreement, which can lead to either continued individual or collective application.

    Outlook

    Currently, the legislature is working on the draft of a new corporate liability act, which is expected at the beginning of 2021. This new corporate liability act will contain regulations on compliance systems within a company and how they will be considered as mitigating or aggravating factors for liability. It will also contain regulations on internal investigations within a company. Hence, the act will bring significant changes to German employment law and companies will have to rethink and adjust their compliance systems accordingly.

    Attention should also be paid to the aftermath of the Federal Labour Court's decision on crowdworkers and its effect on the gig economy. This judgment is only the beginning of a new development towards ensuring that crowdworkers get employee rights. The Federal Ministry of Labour and Social Affairs has already announced that there will be a special emphasis on the protection of crowdworkers in the coming year.

    Furthermore, to promote gender equality, a new law on the equal participation of men and women in leadership positions has been adopted, which includes a mandatory quota of women for listed companies in Germany. In future, a management board with more than three members must include at least one woman. This mandatory quota will supersede the currently voluntary system.

    Footnotes

    1 Jan Tibor Lelley is a partner, Julia M Bruck is a lawyer and Diana Ruth Bruch is a trainee lawyer at Buse.

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