Germany: Employment & Labour Law

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This country-specific Q&A provides an overview to employment and labour law in Germany.

It will cover termination of employment, procedures, protection for workers, compensation as well as insight and opinion on the most common difficulties employers face and any upcoming legal changes planned..

This Q&A is part of the global guide to Employment & Labour. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/employment-labour-law/

  1. Does an employer need a reason in order to lawfully terminate an employment relationship? If so, what reasons are lawful in the jurisdiction?

    Generally, the Protection Against Unfair Dismissal Act applies. It states that if an employee has worked for the employer longer than six months, the employer can only ordinarily terminate the employment relationship for reasons relating to either the employee’s person (e.g long-term illness or frequent short illnesses), misconduct (e.g misconduct at the workplace, theft or fraud to the employer’s detriment), or operational reasons (e.g reduction of number of jobs due to restructuring of business).

    Only in small businesses with less than ten full-time employees, no reason is necessary to ordinarily terminate the employment relationship (ordinary dismissal) as long as the dismissal is not arbitrary.

    An immediate dismissal without notice by the employer (extraordinary dismissal or dismissal for cause) can only take place when circumstances render it unreasonable to expect the employer to continue the employment relationship until the termination period has elapsed. This can be the case if the employee has committed a serious breach of contract.

  2. What, if any, additional considerations apply if large numbers of dismissals (redundancies) are planned?

    The Employment Agency must be notified by the employer if mass layoffs are planned.

    Furthermore, if a works council is in place, the works council has to be heard (this applies to every dismissal regardless of the number of employees to be made redundant).

    Besides, the economic committee has to be informed about economic affairs of the company.

    If the mass layoff constitutes an operational change, the employer is obliged to try to negotiate a reconciliation of interest and to negotiate a social plan with the works council. While the reconciliation of interest deals with the question if an operational change should take place at all, which scope the operational change is going to have and when the operational change is going to take place, the social plan states the amount of compensation for economic disadvantages that the employees are entitled to.

    When planning the operational change, the employer has to consider the time (negotiating with the works council) and the costs (compensation).

  3. What, if any, additional considerations apply if a worker’s employment is terminated in the context of a business sale?

    In case of a transfer of business the employment relationships automatically transfer from the seller to the acquirer. This is based on the EU directive 2001/23/EC. In general, dismissals made because of the transfer of business are invalid. The new employer can, however, dismiss employees afterwards for operational reasons if that is necessary for the implementation of an entrepreneurial decision.

  4. What, if any, is the minimum notice period to terminate employment?

    The basic statutory dismissal period is four weeks to the 15th or the last day of a calendar month. This notice period increases depending on the seniority of the employee. If the parties agree to a probationary period of no longer than six months, the dismissal notice period is two weeks only.

    Collective bargaining agreements sometime provide for shorter or longer notice periods.

  5. Is it possible to pay monies out to a worker to end the employment relationship instead of giving notice?

    Generally, that is not possible. A notice period needs to be considered in any case of an ordinary dismissal. However, the employment relationship can be terminated (with immediate effect) by mutual agreement. In this case, the written termination agreement mostly contains severance pay.

  6. Can an employer require a worker to be on garden leave, that is, continue to employ and pay a worker during his notice period but require him to stay at home and not participate in any work?

    During the notice period or after a conclusion of a termination agreement the employer can require the worker to be on garden leave against the worker’s will only if the employer’s interests regarding the garden leave prevail. Provisions stating the employer’s right to make the employee go on garden leave are often found in employment contracts. Such a provision is valid, if it concerns dismissals for cause (with phasing-out period) or dismissals due to conduct. In cases of dismissal for operational reasons or for reasons of illness the employer can only require the worker to be on garden leave under certain conditions. However, sending employees on garden leave after a dismissal is common practise and employees seldom object.

  7. Does an employer have to follow a prescribed procedure to achieve an effective termination of the employment relationship? If yes, what are the requirements of that procedure or procedures?

    In Germany, a lot of formal requirements need to be fulfilled.

    If a works council exists, it must be heard before every dismissal. It is important that the dismissal is declared clearly and unambiguously in writing. If the employer is a legal entity (e.g a limited liability company) the dismissal needs to be signed by a representative. The representative must present his or her power of attorney (unless he or she is authorized pursuant to the commercial register or is the head of personnel). The grounds for the dismissal generally do not need to be stated in the notice. Dismissals must be delivered in order to become effective.

  8. If the employer does not follow any prescribed procedure as described in response to question 7, what are the consequences for the employer?

    If the employer does not hear the works council or does not provide the works council with all the relevant information the dismissal is invalid. The same consequence applies if the dismissal is not declared clearly and in writing or if it is not signed.

  9. How, if at all, are collective agreements relevant to the termination of employment?

    Collective bargaining agreements can be relevant to the termination of employment in many cases. Collective bargaining agreements may e.g prolong or shorten the notice period (c.f answer to question 4). They are applicable if the following requirements are met: both employer and employee are members of the union or employer’s association respectively or a collective agreement has been declared to be generally binding or the application of the collective agreement has been agreed upon in the employment contract. Collective bargaining agreements sometimes stipulate a special protection for elderly employees with a certain seniority.

    Apart from collective bargaining agreements, works council agreements can be relevant for the termination of employment. They may even set up a ban on dismissals for operational reasons for a certain time period. In cases of an operational change the social plan with the works council regularly contains severance pay for the employees.

  10. Does the employer have to obtain the permission of or inform a third party (e.g local labour authorities or court) before being able to validly terminate the employment relationship? If yes, what are the sanctions for breach of this requirement?

    Generally, the employer does not need to obtain permission by a third party. However, if a person falls under maternity protection or is taking parental leave they can only be dismissed if the competent state authority agrees. Also, with respect to persons with disabilities dismissals require the prior consent of the competent authority.

    Moreover, the Employment Agency needs to be notified before a mass layoff (c.f answer to question 2).

  11. What protection from discrimination or harassment are workers entitled to in respect of the termination of employment?

    Generally, the employer does not need to obtain permission by a third party. However, if a person falls under maternity protection or is taking parental leave they can only be dismissed if the competent state authority agrees. Also, with respect to persons with disabilities dismissals require the prior consent of the competent authority.

    Moreover, the Employment Agency needs to be notified before a mass layoff (c.f answer to question 2).

  12. What are the possible consequences for the employer if a worker has suffered discrimination or harassment in the context of termination of employment?

    If the employee can prove that in the case of a dismissal for operational reasons the employer did not carry out a social selection or made a mistake carrying out the social selection, then the dismissal is invalid.

    In case of discrimination under the General Equal Treatment Act, the employer is obliged to pay compensation for the damage resulting therefrom.

  13. Are any categories of worker (for example, fixed-term workers or workers on family leave) entitled to specific protection, other than protection from discrimination or harassment, on the termination of employment?

    Fixed-term workers cannot ordinarily be dismissed unless a termination clause is included in the contract.

    Woman during a pregnancy and in the first four months after delivery enjoy special protection. The same applies to employees (men or women) during parental leave. Moreover, persons with severe disabilities are protected and the employer requires prior consent of the competent authority. Other people who enjoy special protection against dismissal are works council members and other officials under the Works Constitution Act. They cannot be dismissed ordinarily but only for cause and only if the consent of the works council has been granted or been replaced by a court decision.

  14. Are workers who have made disclosures in the public interest (whistleblowers) entitled to any special protection from termination of employment?

    A dismissal because of whistleblowing classifies as a dismissal for conduct-related reasons. A dismissal due to permitted whistleblowing is always invalid. In many cases internal compliance guidelines regarding whistleblowing have to be followed first before alarming a supervisory authority or the police or a public prosecutor's office is permissible.

  15. What financial compensation is required under law or custom to terminate the employment relationship? How do employers usually decide how much compensation is to be paid?

    Generally no compensation is to be paid for a valid dismissal. However, if the employment relationship is terminated by a mutual agreement or before court by a settlement agreement severance pay is common practise. A usual formula is: factor of 0.5 * monthly gross salary * seniority. However, the factor can vary, depending on the area of business, the economic performance of the company, and the prospects of success of the dismissal.

    Also, a social plan in cases of operational changes regularly contains a formula according to which the compensation for each employee who leaves the company is calculated.

  16. Can an employer reach agreement with a worker on the termination of employment in which the employee validly waives his rights in return for a payment? If yes, describe any limitations that apply.

    Yes, he can. This is especially common in cases of mass redundancies due to operational reasons. The employer pays an extra sum and the employee waives his right to sue for dismissal protection.

  17. Is it possible to restrict a worker from working for competitors after the termination of employment? If yes, describe any relevant requirements or limitations.

    It is possible to restrict a worker from working for competitors after the termination of employment for a max. period of two years if the agreement is concluded in writing, if this is necessary to safeguard a justified commercial interest of the employer and if it does not unfairly jeopardize the employee’s future career. However, the employer must compensate the employee with at least half of his former salary (including all bonuses). If the employee earns money during the period, the compensation is reduced if earnings and compensation together exceed 110% of the employee’s previous remuneration (125% if the employee had to move to another place due to the non-competition obligation). In practise, competition clauses are only seldom used due to the fact that the costs are usually higher than the employer’s interest in the employee not working for a competitor.

  18. Can an employer require a worker to keep information relating to the employer confidential after the termination of employment?

    Yes, employees are obliged not to disclose any confidential information after termination of the employment relationship. Covered by this obligation are trade and business secrets and also confidential information which the employer has marked as confidential for the company’s interest.

  19. Are employers obliged to provide references to new employers if these are requested?

    Employees have a statutory right to be provided with a written report by their former employer. The report must include the length of service and a description of the employee’s job and can include an assessment of the employee’s performance. A framework has been developed by employers and courts which provides standard rating clauses for certain aspects of the employee’s performance from “very good” to “poor”. The employee can sue if the employer fails to provide a report or if the employee has the impression that he was assessed inaccurately. Usually a new employer will not contact a former employer and ask for references.

  20. What, in your opinion, are the most common difficulties faced by employers in your jurisdiction when terminating employment and how do you consider employers can mitigate these?

    Difficulties result from the formal requirements that need to be fulfilled, from the fact that the burden of proof for the grounds of termination generally lies upon the employer and from the general high level of protection for employees. For example, the dismissal for operational reasons only stands up in court if the employer can prove that he has made an entrepreneurial decision resulting in a reduction of the volume of work or personnel needs. The dismissal itself cannot be the sole subject of the entrepreneurial decision. Furthermore, the dismissal is invalid if there is a vacant position in the company to which the dismissed employee could have been reassigned even if the working conditions are less favourable. Moreover, the employer must carry out a “social selection” which is subject of many disputes in court.

  21. Are any legal changes planned that are likely to impact on the way employers in your jurisdiction approach termination of employment? If so, please describe what impact you foresee from such changes and how employers can prepare for them?

    A legal change recently occurred with respect to dismissals of severely disabled employees. The employer is now also obliged to consult the council of employees with disabilities within the operation before terminating an employment relationship with a severely disabled employee (with the prior consent of the relevant state authority). Otherwise the termination is invalid only because the consultation is missing.