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Germany: Termination of employment

Updating author: Dr Viktoria Winstel and Dr Timo Karsten, Osborne Clarke, Germany

Original author: Karen Ullmann

Consultant editor: Dr Jan Tibor Lelley, Buse Heberer Fromm

Summary

  • Statutory minimum notice periods apply to the termination of employment contracts. (See Notice periods)
  • There are various rules regarding how employment may be terminated and for what reasons. (See Unfair dismissal - general)
  • If a specific job is eliminated due to a business decision, the employer may dismiss the employee on operational grounds. (See Unfair dismissal - operational grounds)
  • An employer must give a warning that it will no longer tolerate an employee's misconduct before dismissing on this ground, save in cases of gross misconduct. (See Unfair dismissal - conduct-related grounds)
  • If an employee is no longer able to fulfil the requirements of the job because of a deficiency in his or her attributes and aptitudes, the employer may dismiss the employee fairly. (See Unfair dismissal - grounds related to the employee's person)
  • There are various rules regarding dismissals on the ground of redundancy. (See Redundancy rights)
  • The statutory pensionable age is 67. However, for those individuals born prior to 1964, there are incremental stages of retirement up to the age of 67. (See Retirement)
  • On termination of an employment contract, the employee is entitled to receive a basic reference from the employer with certain information. (See References)
  • Employers are free to agree on post-termination confidentiality clauses, but they must take reasonable steps to protect trade secrets. (See Post-termination confidentiality clauses)

Notice periods

Statutory minimum notice periods apply to the termination of employment contracts. The minimum notice period for termination by either party is four weeks to the middle or the end of a calendar month, or two weeks during a probationary period. In the case of dismissal by the employer, the minimum notice period increases with the employee's length of service. The minimum notice period (always to the end of the month) is:

  • one month after two years' service with the employer;
  • two months after five years' service;
  • three months after eight years' service;
  • four months after 10 years' service;
  • five months after 12 years' service;
  • six months after 15 years' service; and
  • seven months after 20 years' service.

The European Court of Justice and the German Federal Labour Court have ruled that service years before the age of 25 count towards the calculation of the notice period.

Collective bargaining agreements may provide for different notice periods. The term of notice laid down for termination by the employee can never be longer than that for termination by the employer.

Any employment relationship can be terminated by either side without notice for a "serious reason" (wichtiger Grund). This means that circumstances are present (such as a fundamental breach of the employment contract) which, taking the entire situation of the individual case into account and weighing the interests of both parties, make it unreasonable to expect the terminating party to continue the employment relationship until the end of the notice period. Summary termination for a serious reason ends the employment relationship either immediately or after a short "expiration period". It must take place within two weeks of the terminating party becoming aware of the reason concerned.

Employees who have been given notice of dismissal are entitled to paid time off work to look for new employment.

Unfair dismissal - general

Notice of dismissal - and of termination of other kinds - must be given in writing (although not by fax, telegram or email) and signed by the employer or an official representative. Grounds for the dismissal need not to be given in the notice. If there is a works council in the company (see Germany: Employee representation > Works council's rights), the employer must inform it in advance about the employee who is to be dismissed and the reasons for the dismissal. The works council may oppose the dismissal on various specific grounds. If it does so, and the employee contests the dismissal in the labour court, the employer must continue to employ the employee until the court makes its ruling.

Employers with 10 or fewer employees (excluding vocational trainees) are free to dismiss any employee if the dismissal is not arbitrary and is for any job-related reason, although discrimination legislation (see Germany: Equal opportunities > General) applies in all cases. For the purposes of calculating the number of employees, a part-time employee working up to 20 hours per week is counted as half a full-time employee, and a part-time employee working up to 30 hours per week is counted as three-quarters of a full-time employee. Case law has established that some minimum dismissal protection rules also apply in small enterprises - for example, in dismissals on operational grounds (see Unfair dismissal - operational grounds), employees with longer service should generally have priority in keeping their jobs.

If the employer has more than 10 employees, unfair dismissal legislation applies to employees with at least six months' service with the employer. This provides for three categories of reasons that justify a dismissal:

In all circumstances, case law has established that dismissal may be used by the employer only as a last resort.

A claim of unfair dismissal has to be filed with the local labour court within three weeks after receipt of the notice of termination. In court, the employer has to prove that it had justifiable reasons for the dismissal on the three grounds listed above.

If the labour court finds in the employee's favour, it will in principle rule that the dismissal was null and void and thus never actually took effect. This entitles the employee to return to their job, with no break in their employment, and receive pay for the period since dismissal. Compensation may be awarded instead of reinstatement only if the court accepts a claim by the employer or employee that continuation of the employment would be unreasonable. In practice, in most unfair dismissal cases, the parties agree to terminate the contract, with the employer paying compensation in around half of cases, usually of around half a month's gross pay per year of service.

Unlike proceedings in other courts, parties to labour court cases have to pay their own expenses.

Labour court rulings may be appealed by the employer or employee to the Labour Court of Appeal (Landesarbeitsgericht), and from there on a point of law to the Federal Labour Court (Bundesarbeitsgericht).

Special protection against dismissal is granted by law to: pregnant women and mothers, for up to four months after giving birth (see Germany: Employee rights > Maternity and pregnancy rights); employees who have requested or are taking parental leave (see Germany: Employee rights > Parental leave), carer's leave and family care leave (see Germany: Employee rights > Carer's leave); people with severe disabilities (see Germany: Recruitment and selection > Employment of people with severe disabilities); and works council members and other statutory employee representatives (see Germany: Employee representation > Works council elections and membership). In these cases, ordinary (ie, non-summary) dismissal is prohibited unless the relevant labour authority gives its consent.

Rules on the termination of fixed-term contracts are summarised in Germany: Employee rights > Fixed-term workers.

Unfair dismissal - operational grounds

If a specific job (or jobs) is eliminated due to a business decision, the employer may dismiss the employee(s) concerned on operational grounds (essentially individual redundancy). In establishing if the dismissal is unfair, the business decision itself may not be contested, unless it is arbitrary or has the dismissal as its sole object. The elimination of the job(s) can also be caused by reasons beyond the company's control, such as a drop in orders. In this case, the employer has to prove the cause and its effect on the employees concerned.

Since dismissal is a last resort (see Unfair dismissal - general), a dismissal on operational grounds is unfair if there is a possibility of reassigning the employee to another job within the company. Depending on the "social protection" status of the employee (see below), it might also be considered reasonable for the employer to give the employee additional training if this can prevent the dismissal.

If a job or jobs has or have been eliminated and there is no way of reassigning the affected employee(s) to other vacant jobs, a "social selection process" (Sozialauswahl) must be carried out among all comparable employees within the establishment. Employees who are not covered by the unfair dismissal legislation, because they have been employed for less than six months, must be the first dismissed. If further dismissals are needed, the "social protection" status of all those in the group of comparable employees must be assessed, with those deemed to be least in need of protection dismissed first.

The criteria for assessing an employee's need for social protection are: service with the company; age; number of dependants; and severe disability. If numerous employees must be dismissed, "points tables" are often used to make the evaluation. At the employee's request, the employer must list the criteria used in the selection for dismissal. If the continued employment of a certain employee is justified due to the importance of his or her knowledge, skills and performance for the company, he or she may be excluded from the social selection process. It is also permitted to create subgroups of workers by age, within which the social selection process takes place, to ensure a balanced personnel structure in the establishment.

Unfair dismissal - conduct-related grounds

Conduct-related grounds for dismissal refer to misconduct such as being late for work, unjustified absence from work, failure to obey reasonable orders, sexual harassment, bullying, violence and theft. According to case law, the employer must give a warning that it will no longer tolerate the behaviour concerned before dismissing an employee on these grounds, unless the misconduct is gross (such as sexual harassment, violence and theft) or if it is obvious that the employee is not willing to change his or her behaviour. The warning must: cite the specific conduct that the employer is no longer willing to tolerate; demand that the employee ceases the conduct; and state that in the event of a repeated violation of the employee's contractual duties the employer is willing to terminate the contract. Only such repeated misconduct can make the dismissal fair.

The warning need not be given in writing, but the employer has to prove in court the existence of a warning prior to the dismissal if an unfair dismissal case is brought. There are no fixed requirements for how much time can pass between the warning and the dismissal. However, depending on the seriousness of the misconduct, a warning may be considered to lose effect with the passage of time.

Unfair dismissal - grounds related to the employee's person

If an employee is no longer able to fulfil the requirements of the job because of a deficiency in his or her attributes and aptitudes, the employer may terminate the employment contract fairly. Unlike conduct-related dismissal (see Unfair dismissal - conduct-related grounds), the lack of capability to perform need not be based on the employee's fault. The main type of dismissal on grounds related to the employee's person is dismissal due to illness. Alcohol and drug dependency are considered illnesses. There is a three-stage test for assessing the fairness of such dismissals, as follows.

  • For a dismissal on grounds related to the employee's person to be fair, case law has established that there must be a presumption at the time of dismissal that the employee will continue to be unable to fulfil the requirements of the job in the future. In the case of illness, this requirement is met if the employee has been absent frequently due to short-term illnesses in the past. If the employee is absent due to a long-term illness, the medical prognosis concerning this illness must be "negative", in the sense that the time of the recovery is uncertain. Since the employer usually does not have information about the kind of illness involved, in an unfair dismissal case it is sufficient for it to point out the times of absence and assert that the employee will continue to be absent. It is for the employee to prove that there is no negative prognosis concerning his or her health. Illnesses that by their nature are not chronic cannot be said to have a negative prognosis. If a drug addict has started therapy, he or she may be dismissed only if therapy has failed.
  • Dismissal on grounds related to the employee's person is not considered a penalty for the employee, but a way to protect the employer's interests, so the absence and uncertainty due to a negative medical prognosis must cause serious detriment to the employer's business interests, such as the disruption of business operations (eg loss of customers or excessive strain on remaining personnel) or a serious economic burden. Since the employer is legally obliged to provide paid sick leave for six weeks per illness (see Germany: Pay and benefits > Pay for employees not at work) an economic burden may occur in the case of a number of different illnesses resulting in sickness absences of more than six weeks.
  • The severity of the detriment to the employer's business interests must be weighed against the employee's interests in being kept in the job. The factors to be considered in this assessment are: the duration of the employment relationship; the employee's age, number of dependents, and other factors entitling him or her to "social protection" (see Unfair dismissal - operational grounds); and whether the illness is work-related or not.

Redundancy rights

A collective redundancy is defined as the dismissal or any other employer-initiated termination of employment contract (excluding summary dismissals) for redundancy reasons over any period of 30 consecutive days of:

  • at least five people in an establishment normally employing more than 20 employees and fewer than 60;
  • at least 10% of the employees or more than 25 people in an establishment normally employing at least 60 employees but fewer than 500; or
  • at least 30 people in an establishment normally employing 500 or more employees.

In collective redundancy situations, employers have to inform the Federal Labour Agency beforehand. A copy of this notice must be sent to the works council. The dismissals may not come into effect for one month after the Agency receives the notification, unless the Agency gives its consent - this consent can be given retroactively. The Agency can in individual cases determine that dismissals will not become effective until up to two months after it is notified. A new notification must be made if the planned dismissals do not take place within 90 days following the date from which they are permitted.

The works council must be given timely information about: the reasons for the redundancies; the employees affected; the criteria on which employees will be selected for redundancy; and whether or not severance payments will be made and how they will be calculated. The employers must discuss ways of avoiding redundancies with the works council. If the background to the collective redundancies is an operational change in the business, the employer must negotiate with the works council a "social plan" to mitigate the disadvantages for the employees, through means such as severance payments and retraining. There is no statutory entitlement to redundancy payments.

The employer must send the Labour Agency copies of the information provided to the works council and of the works council's comments.

Where employers reduce the working hours of at least one-third of their employees, resulting in a loss of earnings of more than 10%, the employees may claim short-time work benefit (Kurzarbeitergeld) from the Labour Agency. This applies where the hours reduction arises due to an unavoidable shortage of work because of economic conditions or unforeseeable accidents (but not because of strikes). Employers must obtain the agreement of the company works council before instituting short-time working and the reduction of working hours must be announced to the Labour Agency in advance. The benefit paid to the workers by the Labour Agency amounts to 60% (67% for employees with children) of the difference between the employee's normal pay and the reduced short-time wage. It is payable for up to 12 months. In exceptional labour market circumstances, the Ministry for Labour and Social Affairs (Bundesministerium für Arbeit und Soziales) can prolong this period to up to 24 months. The aim of the scheme is to give companies an alternative to making employees redundant.

Retirement

The statutory pensionable age is 67. However, for those individuals born prior to 1964, there are incremental stages of retirement up to the age of 67. For example, individuals born in 1963 can retire at the age of 66 years and 10 months, while those individuals born in 1947 can retire at the age of 65 years and one month. Individuals who were born prior to 1946 can retire at the age of 65.

Those individuals who have a standard old-age pension are allowed to receive earnings without deductions being made from their pension.

Individuals must make an application to the statutory pension insurance scheme to receive their pension. A delay in an application may lead to a delayed commencement of pension payments.

If an individual retires before reaching the statutory retirement age of 67, his or her pension will be reduced by 0.3% per month (or 3.6% annually).

Employment contracts usually require employees to retire at the statutory pension age of 67. If an employment contract continues beyond the statutory retirement age, the contract is deemed to be permanent. However, the employee and employer can agree to a fixed-term contract beyond the retirement age.

Those employees who choose to work beyond the statutory retirement age will continue to make social security contributions instead of receiving a pension, thus acquiring further pension rights that lead to an increase in the pension payments that they receive when they retire.

Employees who are seriously ill, chronically sick or disabled, who due to an accident are no longer able to work, or who are able only to work part-time, can apply for a pension due to their reduced earning capacity. These employees can request full or partial pension payments.

Semi-retirement exists to allow employees from the age of 55 a smooth transition from working life into retirement. Semi-retirement is supported by the Bundesagentur für Arbeit (The Federal Labour Agency) under strict conditions. If an employee semi-retires, he or she and the employer agree to halve the employee's weekly working hours. Models for semi-retirement are part-time employment, work and leave of absence in alternating days, working weeks or months as well as the so-called "block model", where employees initially continue to work full-time accepting cuts in their salaries and use their reduced working hours en bloc at the end of their working life with the appropriate pay. The Federal Labour Agency grants benefits to the employer if a job created by semi-retirement is reassigned.

An employee's decision to draw on an old-age pension is not a lawful reason for dismissal.

References

On the termination of an employment contract, the employee is entitled to receive a basic reference from the employer, detailing the nature and duration of the employment. On the employee's request, the employer must include additional information about the employee's accomplishments and conduct during the employment relationship. If there are legitimate reasons, the employee may demand an "interim" reference while still in employment. Such reasons include a change in the area of work, a change of supervisor, an expected transfer of the business, or the employee's wish to apply for another job.

The reference cannot be provided in electronic form. It must give the date of the end of the contract and must be hand-signed by the employer. The wording must be "benevolent" towards the employee and may not hinder the employee's further advancement without good cause.

Post-termination confidentiality clauses

Employers are permitted to agree on post-termination confidentiality clauses to protect business secrets, but the effectiveness of these clauses must be reviewed in light of the Trade Secrets Act, which came into force in April 2019. For a confidentiality clause to be effective, an employer must take reasonable steps to maintain the secrecy of its trade secrets. Employers must identify the most relevant and/or important confidential information that could be disclosed during the employment relationship and specifically mention them in a confidentiality clause. Any general clauses that refer to "all confidential information" will likely be considered void.

Sources/references

Notice periods are governed by s.622 of the Civil Code and dismissal by the Protection against Unfair Dismissal Act (Kündigungsschutzgesetz). Employees' rights to a reference are governed by s.630 of the Civil Code and s.109 of the Trade, Commerce, and Industry Code (Gewerbeordnung). Works council rights in this area are dealt with by the Works Constitution Act. Statutory pension insurance is governed by book VI of the Social Security Code.

For information on German statutory pension insurance see Deutsche Rentenversicherung for the English translation.