Termination of Employment in Germany - What you need to know
by ZELLER & SEYFERT
It is a hard time for employees and employers alike. Despite the fact that businesses are beginning to reopen, following restrictions due to Coronavirus being eased, for many business’ and employees, the damage has already been done. The German government sought to mitigate the damage with the extension of Kurzarbeitergeld but, with many businesses bringing their employees back to work, the amount of cover available to employers will likely be reduced. This unfortunately means that many employers will be looking quite intently at their balance sheet, to see if they can retain their employees. The hope is, of course, that this happens but, as has already been the case for many, they may also choose to terminate the employment of the worker.
The rules regarding termination in Germany are very involved and depend on a multitude of variables, including family status, residential status and, of course, contract status. Over the course of a few articles, we will attempt to drill down on the most important aspects and which eventualities may be relevant to the worker here in Germany, especially to those in the expat community, who may not be so familiar with the rules surrounding German Employment Law. Should we not cover an aspect which you feel is relevant, or wish to get some advice on a specific scenario relating to your circumstance, please get in touch with our Employment Law expert Atty. Dr Christian Zeller. He can be reached via email (email@example.com) or telephone (+49 (0) 30-40 36 785-80).
The Kündigungsschutzgesetz (KSchG, Employment Protection Act)
The Employment Protection Act in Germany (or Kündigungsschutzgesetz in German) safeguards the rights of workers against unfair dismissal. This law is multifaceted and intricate but there are a couple of aspects which apply across the board.
- Any termination notice must be provided in written form (§ 623 Civil Code), be wet-ink signed by the employer or a duly authorized person and be in line with the law regarding the period (detailed below). Should a different and pre negotiated period of notice be stated in the employment contract, this will usually take precedence.
- Should an employee be with the company for more than 6 months, the employer must provide legitimate reasoning for the termination of the contract. These include the following:
- Conduct-related issues
- Person-related issues
- Operational issues
We will touch on both aspects in a bit more detail below.
The length of the notice period for termination will be determined by the amount of time you have worked for the company. If you are in your probationary period, for example, the employer only needs to give 2 weeks’ notice for termination. The legal period of notice then increases proportionality to the amount of time you have worked in the business, topping out at 7 months after 20 years of work in your company. The full list can be found here.
As above, a contractually stated termination period will generally supersede the legal rule but only if the termination agreement period is in excess of the legal stipulations. For example, the employer would not be able to insist that a person who has worked for 20 years in the company only works one-month notice, as this was part of their original contract.
Please note that the summary dismissals require no notice period.
Rules regarding termination
As above, there are generally 3 allowed causes or reasons for an employer to terminate your employment, namely conduct related (behavioral), person-related or business-related (operational) reasons. Technically, these rules apply to fixed term contracts as well as permanent contracts (unbefristete Arbeitsverträge), but it is fair to say that having a permanent contract gives you significantly more power in disputes regarding severance. The company’s liabilities, should they have been found to have unfairly dismissed their permanently contracted employee will likely be far higher than the same conditions with a fixed term contract.
In essence, the employee holds more cards with a permanent contract and the employer’s needs to ensure that their decision to terminate is entirely justifiable.
Person-related (personenbedingte Kündigung):
This relates to any personal circumstance which has prevented the employee fulfilling their contractually obligated duties. This can relate from anything to the personal situation at home to the loss of ones driving license or work permit. The vast majority of such cases, however, relate to instances of illness in the employee.
This is an important aspect to review, as many employers fail in the legally mandated rules around the termination of an employee in such cases. Before terminating an employee for reasons of long-term sickness, for example, the employer is obligated to offer rehabilitation services before considering termination (betriebliches Eingliederungsmanagement”, § 84 SGB IX).
Additionally, a dismissal will likely to be found invalid if the employee has been certified sick for six weeks or less on average during the last 5 years. Lastly, the employer is obligated to ensure and show that they have made every attempt possible to retain the employee. They are obliged to consider other positions within the company, reassigning duties, offering work from home or even relaxation classes or activities. The company must make every effort, and be able to show that they have made every effort, to retain the person before going forward with a personenbedingte Kündigung.
Conduct-related (Behavioural) (verhaltensbedingte Kündigung)
This reason for dismissal will generally be more clear cut but still requires some clarification. The employer may dismiss the employee should their workplace conduct be considered dangerous, problematic or unprofessional. The most common examples of such are as follows:
- Gross misconduct (Theft, abuse, sexual harassment, violence etc.)
- Breach of workplace standards (repeated lateness, unjustifiable refusal of assigned activities, repeat and constant failure to meet even minimal targets etc.)
- Confidentiality breaches (Failure to ensure safety of personal information, sharing sensitive information, distribution of private internal information to third parties etc.)
The first aspect will, of course, be treated differently from the following two (though, in some instances, confidentiality breaches would also be considered gross misconduct). Should there be grounds for dismissal based on gross misconduct, the employer is entitled to summarily terminate (außerordentliche Kündigung) the employee immediately and without prior warning. The company must, however, be able to provide incontrovertible proof of gross misconduct and must action within two weeks of the incident occurring or being reported.
Outside of gross misconduct, the company must observe a number of procedures before considering termination based on performance. Firstly, they must make the employee aware of the perceived poor performance or breech of conduct. Secondly, they are obliged to give the employee at least one formal written warning (Abmahnung). Should the poor performance/standards breach continue, the company is obliged to attempt to resolve the issue by means of additional training, coaching or organizational structure, before considering termination. Only when the company has exhausted all areas of development and the situation continues regardless, can the company justifiably consider termination.
Operation-related (Business Based Justification) (Betriebsbedingte Kündigung)
If the business is not performing well, restructuring or ceasing operations, the employer may attempt to terminate the employment of the worker by means of a Betriebsbedingte Kündigung. This, unfortunately, may be the reason provided should the company be struggling due to the effects of the Coronavirus.
Such a termination requires the company to prove that the position (not the employee) itself is no longer tenable and will no longer exist or its duties are being absorbed by other departments. This can happen quite frequently, as companies can quite easily argue that a reorganization or dismissal of a certain role was necessary due to poor performance or obsolescence.
Should the company be successful in this argument, and before proceeding with any Betreibsbedingte Kündigung, they are required to attempt to find another role in the company for the employee whose position has been made obsolete. This applies to all vacant positions within the company, including to a certain extent positions on a lower wage or positions which require further vocational training of up to 2-3 months. An offer of alternative employment within the company, should it exist, must be made before entering the process of a business-based termination.
The employee has the right to refuse this and may, at this stage, prefer to enter into discussions with their employer regarding a termination package. So, what are the options?
Termination Packages in Germany
The first important note to mention here is that there is no statutory severance payment in German law. An exception to this would be if the company has a Works Council (Betriebsrat) who have negotiated a separate collective bargaining agreement with the Executive Management (Geschäftsführung) which includes a set amount of severance pay.
Should there be a termination dispute based on the above scenarios which finds its way to court, the relevant court will only rule on the validity of the termination claim. I.e. if the court were to rule in the employee’s favour, the termination would be ruled invalid and the employee would remain employed by the company or get re-instated. Alternatively, should the court find in favour of employer, the employee would be terminated under the provisions of the applicable termination mentioned above.
In reality, however, most companies and employees will look to avoid such an impasse and negotiate some form of severance package. The company will likely ask you to sign a mutual disillusion of employment contract (Aufhebungsvertrag), stating that the termination of the employment is mutually agreed. They will likely “sweeten the pot” by offering a severance payment (Abfindung) and possibly a paid leave of absence (Freistellung) until the agreed upon termination date.
Though not directly enshrined in statutory law, there is a standard in Germany, based on which 0.5 monthly salaries per year of service are considered to be the minimum an employee could expect to receive in a regular case. Depending on the circumstances, however, with good legal representation it might be possible to negotiate factors between 1,0 and 2,0, sometimes even far beyond this up to a factor of 4,0.
Termination and severance package representation
The field of termination, severance and resignation packages is, to be quite honest, a bit of a minefield. There are a huge number of variables to be negotiated and an in-depth knowledge of German Labour Law is a necessity, should you wish your severance claim to be as lucrative as is possible. We at ZELLER & SEYFERT have multiple years of experience in the field of severance packages, with our Employment Law specialist Atty Dr. Christian Zeller having negotiated 7 figure and several 6 figure settlements. As above, he can be contacted on the following details:
Telephone: +49 69 58 80 972-40
As above, this is the first installment of a series of articles about termination, severance and redundancy packages. Should you feel that a specific aspect of this area requires clarification by means of a blog post, please do not hesitate to get in contact with with your suggestion. We look forward to hearing from you.
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