Germany: Employment & Labour Law (3rd edition)

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This country-specific Q&A provides an overview to employment laws and regulations that may occur in Germany.

This Q&A is part of the global guide to Employment & Labour Law. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/employment-and-labour-law-3rd-edition/

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

    In general, yes, if the Protection Against Unfair Dismissal Act applies, which is the case if:

    • the employer has more than ten full-time employees and
    • the respective employee has been employed at that employer for more than six months. In that case, the employer can only terminate the employment relationship for either operational reasons (e.g., reduction of number of jobs due to restructuring of business) – which is by far the most important category of dismissals – or person-related reasons (e.g., long-term illness or frequent short illnesses) or misconduct (e.g., misconduct at the workplace, theft or fraud to the employer’s detriment).

    If the Protection Against Unfair Dismissal Act does not apply, the employer can terminate at will 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 it is unacceptable for the employer to continue the employment relationship until the notice period has elapsed. This can be the case if the employee has committed a serious breach of contract (e.g., theft or other criminal offences, breach of confidence).

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

    Collective dismissals may trigger the obligation to issue a formal notification to the Federal Employment Agency.

    Furthermore, if a works council is in place, the employer has to inform and consult the works council. If the mass layoff is deemed an “operational change”, the employer is obliged to try to negotiate a so-called reconciliation of interest and a social plan with the works council. As a rule of thumb, a social plan is mandatory, when 10 % or more of the employees are terminated. While the reconciliation of interest deals with the question of describing the operational change in detail, the social plan states the amount of compensation for economic disadvantages that the employees are entitled to.

    When planning the operational change, the employer must 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 the business sale entails a transfer of undertaking (TUPE), which is generally the case for asset deals, 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 which is sufficiently separate from the transfer measure as such. Employees have a right to object to the transfer of their employment relationship. The employees objecting to a transfer can often be dismissed for operational reasons if the employer cannot offer other employment opportunities.

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

    The basic statutory notice period is four weeks to the 15th or the end of a month. This notice period increases depending on the seniority of the employee up to a maximum of seven months to the end of calendar month (after 20 years of service). If the parties agree to a probationary period of no longer than six months, the dismissal notice period can be shortened to two weeks.

    Collective bargaining agreements sometimes 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. The employee’s respective notice period needs to be considered in any case of an ordinary dismissal. However, the notice period may be shortened or waived completely by mutual agreement.

  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 say at home and not participate in any work?

    The employer can require the employee to be on garden leave against the employee’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 practice 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, describe the requirements of that procedure or procedures.

    First, the notice needs to be in writing, signed by the employer, i.e. (a) person(s) being legally entitled to represent the employer in this respect. 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).

    Furthermore, if a works council is in place, it must be heard before every dismissal. It is important that the dismissal is declared clearly and unambiguously in writing. The grounds for the dismissal generally do not need to be stated in the notice. Dismissals must be delivered in order to become effective and it is advisable to have sufficient proof of the delivery and its date.

  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 follow the works council consultation procedure properly (e.g., does not provide all the relevant information) the dismissal is invalid. The same consequence applies if the dismissal is not declared clearly or if it is not signed.

    The employee may then claim for continued employment which in practice in the vast majority of cases leads to an agreement or a settlement involving compensation (severance payment).

  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 relationships in many cases. Collective bargaining agreements may, e.g., prolong or shorten the notice period (cf. answer to question 4) or preclude the ordinary dismissal of elder employees with a certain length of service.

    Collective bargaining agreements 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.

    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 the stipulation of severance payments for employees affected.

  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?

    In general, 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.

    Furthermore, the Federal Employment Agency needs to be notified before a mass layoff (cf. answer to question 2).

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

    First, the principle of equal treatment prohibits the employer from treating comparable employees differently. Employees in Germany are protected against discrimination under the General Act on Equal Treatment which is based on EU Directives. The General Act on Equal Treatment expressly prohibits discrimination based on race or ethnic origin, gender, religion or belief, disability, age or sexual orientation.

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

    Legal remedies under the General Act on Equal Treatment include the right to withhold performance (only in cases of harassment or sexual harassment), damages and compensation (up to three monthly salaries).

    The termination of employment is not automatically void if it was based on discriminatory grounds. However, discriminatory termination decisions are usually also not “socially justified” and therefore breach the Protection Against Unfair Dismissal Act.

  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 employments cannot ordinarily be terminated unless a termination clause is included in the contract.

    Women 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. Furthermore, persons with a severe disability 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. In addition, some other employees given special tasks under relevant laws such as the Data Protection Officer (if an employee) enjoy special dismissal protection.

    Also, some collective bargaining agreements preclude the dismissal of elder employees with a certain length of service (cf. answer to question 9).

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

    The German legal system still does not have comprehensive provisions with regard to the protection of whistleblowers.

    A dismissal because of whistleblowing classifies as a dismissal for misconduct. Employees are in general required to take their suspicion of wrongdoing to their superiors before going to the authorities. Only if the employer does not take sufficient action regarding the issue or when an internal whistleblowing complaint would seem unreasonable (e.g. the information is of special public interest, involvement of legal representatives of the employer), the employee may blow the whistle externally. In such cases a dismissal due to permitted whistleblowing is invalid.

    It has to be noted that the EU Trade Secret Directive provides for a protection of whistleblowers. This Directive, however, still needs to be implemented in Germany.

  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?

    In general, 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: 0.5 * monthly gross salary * seniority years. 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 case 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, this is possible. However, the employee may have to use some caution as a termination agreement might limit the employee’s rights to unemployment benefits.

  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 this is necessary to safeguard a justified commercial interest of the employer and if it does not unfairly jeopardize the employee’s future career. This agreement has to be concluded in writing. The employer must compensate the employee with at least half of his/her former salary (including all bonuses and benefits). 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 or at least not enforced since 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, it is common understanding that it is part of the employees’ obligations not to disclose any confidential information even after termination of the employment. Covered by this obligation are trade and business secrets as well as 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 benevolent reference 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.

  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. And finally, there are quite numerous categories of employees enjoying special dismissal protection.

  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.

    Furthermore, in recent years the courts have raised the standards for valid mass dismissal notifications to the Employment Agency, so that preparation of such notifications now requires high levels of diligence.