Employment and Labour Law: 2nd edition

CMS Hasche Sigle Dr Barbara Bittmann

1. SOURCES OF EMPLOYMENT LAW

German labour law is divided into individual labour law, concerning the individual relationship between the employer and the employee, and collective labour law, dealing with the representation and organisation of employees through trade unions, works councils and membership of the company’s supervisory board.

German labour law is based on the following hierarchy of sources:

• European law;

• Constitution;

• statutory law;

• collective bargaining agreements;

• agreements between works council (Betriebsrat) and employer (works agreements);

• employment contract;

• company practice; and

• employer’s right to give instructions (employer’s directive). Within its legitimate scope, the primary source takes precedent over the subordinate, unless the latter is more favourable to the employee (‘favourability principle’).

Employment law in Germany is ‘protectionist’. An employee is strongly protected by such laws. The most important one is the Protection Against Dismissal Act (Kündigungsschutzgesetz). Under the Protection Against Dismissal Act, the dismissal of an employee requires a justifiable reason. If the dismissal is unjustified, the employment relationship continues. The employer has no right to terminate the relationship merely on the basis of a severance payment (see 10.2 below).

Other than the Protection Against Dismissal Act, the most important employment protection laws are as follows:

• Part-Time and Fixed-Term Employment Contracts Act (Teilzeit- und Befristungsgesetz);

• Working Hours Act (Arbeitszeitgesetz);

• Federal Vacation Act (Bundesurlaubsgesetz);

• Civil Code (Bürgerliches Gesetzbuch);

• Continued Remuneration Act (Entgeltfortzahlungsgesetz);

• Maternity Leave Act (Mutterschutzgesetz);

• Federal Parental Benefit and Parental Leave Act (Bundeselterngeld- und Elternzeitgesetz); and

• Enhancement of Company Pension Schemes Act (Gesetz zur Verbesserung der betrieblichen Altersversorgung).

In spite of the numerous protection laws, the employee is additionally protected by the decisions of the labour courts. They can either interpret statutes or create new law, for example, the rule of company practice (see 5.4 below). The decisions of the Federal Labour Court (Bundesarbeitsgericht) play an important role in the day-to-day running of a business, almost developing into a type of ‘case law’.

The employment relationship is also influenced by social security law, for example, concerning social security contributions, unemployment benefits, employer insolvency, registered disability, etc. These regulations are contained in different Social Security Codes

(Sozialgesetzbücher).

2. PRINCIPAL INSTITUTIONS

The Federal Ministry of Labour and Social Affairs (Bundesministerium für Arbeit und Soziales) is responsible for employment law. Many of the employment law’s statutory provisions originate from its parliamentary bills. According to its own objectives, its policies are guided by achieving a high level of employment and social security. The Federal Labour Court and the Federal Employment Agency (Bundesagentur für Arbeit) are other major institutions.

The Federal Labour Court is at the apex of employment matters. It guarantees a unique employment jurisdiction and development of the law. The main duties of the Federal Employment Agency and its local agencies are to place the unemployed into jobs and pay unemployment, insolvency and short-time work benefits.

3. ROLE OF THE NATIONAL COURTS

All disputes between employer and employee are (without any preliminary proceedings) resolved in labour courts. Neither the criminal courts nor the civil courts are responsible for employment disputes. The labour courts are exclusively responsible for employment matters, meaning that they are also responsible for disputes between the employer and the works council and the employer or employer’s associations and the trade unions. Appeals of a labour court decision may be made to the Regional Labour Court (Landesarbeitsgericht) and thereafter and under restricted conditions to the Federal Labour Court. The national courts may refer a point of law to the European Court of Justice (ECJ), if European law is involved.

Managing directors and members of the board of management are normally not defined as employees under the meaning of German labour law (see 4.4 below). Therefore, the labour courts are not competent to resolve disputes between the company and the managing director or the members of the board of management. Such disputes must be resolved in the civil courts.

4. EMPLOYMENT STATUS AND CATEGORIES OF WORKERS

4.1 Contract of employment or contract for services?

The employment status of an individual influences not only the applicability of the employment protection laws, it is also relevant for social security and tax purposes. Therefore, the distinction between employees and the self-employed is of great importance.

In contrast to employees who are subject to the control of their employer, the self-employed perform services on an independent basis. Whether the individual is an employee or self-employed cannot be determined by a contractual definition. To identify the individual’s status, one has to consider the degree of control exercised by the employer within the scope of the employment relationship. The status of an employee is above all determined by the extent to which the individual has to comply with the employer’s directives regarding time, place, duration and content of the services. The Federal Labour Court focuses on all the circumstances in the individual case. If the employment relationship in practice diverges from the (written) contractual conditions, the former is decisive.

Typical factors that may indicate the relationship of employer/employee are:

4.2 Legal consequences of the distinction

Generally, none of the employment rules apply to the self-employed. The employer does not have to pay social security contributions for the self-employed, and the tax regime applicable to the self-employed is more favourable. As a result of those ‘advantages’, the status of the self-employed became very popular. In recent years, a category of so-called ‘hidden employees’ has developed and has become an important labour law issue. A ‘hidden employee’ is a self-employed person who in reality has the status of an employee. The hidden employee can claim all rights under the mandatory provisions of German employment protection laws, especially the right to be protected against dismissal under the Protection Against Dismissal Act. In particular, the employer is deemed liable for unpaid social security contributions (regarding both the employer’s and the employee’s shares of the contributions). Recourse to the employee is ultimately not possible. Furthermore, the employer and the hidden employee are jointly liable for unpaid income tax.

4.3 Categories of employees

Based on the different types of contracts, there are three main categories of employees:

In Germany, most employment contracts entered into are for an indefinite period of time. Thus, the contractual relationship continues until the contract either ends by mutual agreement or is terminated by one party giving notice.

Employment contracts may also be entered into for a fixed term. The employment relationship can be terminated upon the:

• expiry of a specified period;

• achievement of a specified purpose; or • occurrence or non-occurrence of any specific event.

Unlike a dismissal under the Protection Against Dismissal Act, a fixed-term contract expires without any reason having to be given. As a result, fixed-term contracts can be used as a means to avoid the protection provided by the Protection Against Dismissal Act. To maintain employment protection, the Part-Time and Fixed-Term Employment Contracts Act establishes substantial restrictions on the use of fixed-term contracts. Generally, it is permissible to conclude a fixed-term contract for up to two years without the employer having to give any special reason. The law requires that there may not have been a previous employment contract with the same employer. Apart from that, a contractual limitation will only be effective if it is justified by an objective reason, for example, a probation period for a new employee, replacement of a temporarily absent employee or specific needs of the employee. The most common objective reason to justify a fixed-term contract is the attainment of the statutory retirement age. Special rules apply during the first four years after the establishment of a company.

Pursuant to the Part-Time and Fixed-Term Employment Contracts Act, it used to be permissible to conclude a fixed-term contract with an employee older than 52 without any specific reason, but on 22 November 2005, the European Court of Justice held that this section of the Part-Time and Fixed-Term Employment Contracts Act constitutes a violation of Community law since it is unequal treatment directly based upon the age of the employee. In response to this decision, the Federal Labour Court held in its decision of 26 April 2006 that this section of the Part-Time and Fixed-Term Employment Contracts Act should not be applied by national courts.

The Part-Time and Fixed-Term Employment Contracts Act does not only provide for substantial restrictions on the use of fixed-term contracts. It also entitles employees to reduce their contractual working time, provided that the employer has more than 15 regular employees and the employee has worked with that employer for more than six months. The employer has the right to reject the proposed reduction of working time only for good business reasons. Special conditions apply to employees on parental leave in accordance with the Federal Child-Raising Benefit Act.

4.4 Managing directors and members of the board of management

In their capacity as legal representatives of a company, managing directors and members of the board of management carry out their duties as employers and, therefore, are normally not employees within the meaning of German labour law.

In principle, employment protection law, especially the Protection Against Dismissal Act, is not applicable to managing directors and members of the board of management. In general, to some extent the terms and conditions in the service contract compensate for this lack of protection. The service contract governing such employment is mainly determined by the Civil Code. This contract has to be strictly distinguished from the appointment as representative of the company in corporate terms. Thus, appointment as a managing director does not in itself create a contractual relationship between the director and the company. Termination of the directorship does not automatically terminate a concurrent service agreement, and vice versa.

4.5 Executives

Employees working in senior management positions, such as the head of the personnel department, might be considered as executives. However, there are only few employees who can be qualified as executives in the legal sense. Executives basically enjoy the same protection as other employees, but certain exceptions to the general employment law rules apply. Executives are not represented by the works council. Thus, works agreements and social plans in the event of restructuring measures (see 8.3 below) normally do not apply to executives. Furthermore, their employment contract can rather easily be terminated by a judicial cancellation of employment. The status of an executive – as well as the status of a managing director or a member of the board of management – can therefore be seen as legally less favourable.

5. CONTRACT

5.1 What constitutes an employment contract?

Agreement by an employee to work for an employer in return for a salary or wage is fundamental in forming an employment relationship.

5.2 Formal requirements

An employment contract can be oral and/or in writing. However, there is a statutory obligation to provide written particulars of employment (see 6.1 below). Usually, the employment agreement is signed by the employer and the employee. But it is also possible to send a letter offering employment to the applicant and ask for his/her acceptance. In any event, it is preferable to confirm the terms and conditions of employment (and any subsequent amendments or arrangements) in writing. Fixed-term employment contracts must be agreed in writing to be valid. In this case, an agreement by fax or exchange of letters is not sufficient.

There are no specific requirements as to the language used in an employment contract. However, to avoid future disputes on the construction of its wording and/or difficulties in a possible lawsuit it is advisable to draft the employment contract in German.

5.3 Implied terms

Statutory provisions will apply to the employment relationship without reference in the employment contract. Collective bargaining agreements or works agreements might also apply without express incorporation.

Statutory law

Even in the absence of express terms, statutory law guarantees a minimum standard of employment conditions, for example, in terms of annual leave, working time, notice periods (see 6.2 and 10.2 below).

Collective bargaining agreements

A collective bargaining agreement is a contract between a trade union as an employees’ representative body and either the employer or an employers’ association. It governs the rights and duties of the parties to the agreement and the determination of legal standards, especially with regard to entering into employment contracts, contractual terms and conditions and the termination of employment relationships. Both the employees and the employers are usually organised according to their branch of industry. There is a plethora of collective bargaining agreements in Germany. As a rule, collective bargaining agreements exist for a geographical area of a particular branch of industry.

The relevant collective bargaining agreement is only applied to an individual working relationship if one of the following requirements is met:

For practical reasons, employers who are bound by a collective bargaining agreement usually apply the agreement to all employees by including a reference clause in the individual employment contracts, stipulating that the collective agreement applies.

Works agreement

In business units where a works council exists, employers and works councils can agree on further terms and conditions by so-called works agreements. They apply in addition to statutory provisions and collective bargaining agreements.

Additional duties

Both parties to an employment contract have additional duties apart from the main contractual obligations. These so-called implied obligations are based on the principles of loyalty and good faith. Examples of implied terms are:

• reasonable care in performing duties;

• fidelity, loyalty and good faith;

• confidentiality, at least during the employment relationship;

• to handle the employer’s property with care; and

  • to comply with the employer’s instructions as long as they are lawful and in compliance with the provisions of the employment contract.

  • 

• to provide work;

• to care about the employee’s health and safety;

• trust, good faith and reasonableness; and

• no discrimination without a reason permitted by law.

5.4 Company practice

Employees can also acquire rights which do not arise from statutory law, but are created perhaps unintentionally - by company practice if the regularity of the practice may lead an employee to conclude that it will continue for the duration of the employment relationship.

For example, for the past three years, an employer has granted its employees an additional Christmas bonus without any reservation. The amount of the bonus has been the same each year. This practice has become incorporated into the employment contracts, thus entitling the employees to the payment of a Christmas bonus.

6. TERMS AND CONDITIONS

6.1 Mandatory express terms

The following written particulars must be provided to an employee not later than one month from the agreed date of commencement of employment:

6.2 Typical contractual terms

Working hours

The parties to the employment contract can agree on a weekly working time according to the Working Hours Act. The maximum number of working hours per week is basically 48 hours based on a six-day working week. The daily average working time must not exceed eight hours, but can temporarily be extended to up to ten hours a day. Rest breaks are not counted as working time. The contract normally provides for a weekly working time between 37 and 40 hours based on a five-day working week. Unless stipulated in the contract or a collective bargaining agreement, the employee is not obliged to work additional hours.

Remuneration

Remuneration can be defined in different ways and frequently consists of various items. The employment contract normally provides for a certain sum to be paid as basic salary. The law itself does not provide for any minimum salary, but collective bargaining agreements generally establish minimum standards. It is also very common to pay an additional bonus on a special occasion (eg Christmas, annual leave, certain anniversaries of service, etc.) or a 13th monthly salary. A bonus can also be paid according to the achievement of personal and/or company goals. It is very common for highly qualified employees to receive bonus payments based on target agreements.

As part of the remuneration, the employment contract can also provide for a company car which the employee is also entitled to use for private purposes. In this case, the employee has to pay income tax on the private use. The employer has to make the necessary tax deductions.

The employment contract can also provide for a pension.

Reimbursement of expenses

The employee may incur expenses in the course of performing his/her work. If the expenses can reasonably be considered as necessary, the employer is obliged to reimburse such expenses under statutory law. The parties can also agree on a fixed lump sum to cover all of the reimbursements during a specified time period.

Paid leave

In accordance with the Federal Vacation Act, the employee is entitled to an annual leave of at least 24 working days based on a six-day working week, which would be 20 working days based on a five-day working week. The contract normally provides for longer leave periods, such as 25 to 30 working days based on a five-day working week. During the leave, the employee will receive his/her normal salary.

Sick pay

After the fourth week of employment, the employee is entitled to claim full salary payments (excluding payments for overtime) for a period of six weeks in the event of sickness. Generally, the employer is not obliged to continue paying sick pay if the illness lasts longer than six weeks. Executives’ contracts often exceed the statutory period as stated above.

Confidentiality

It is an implied term, but more commonly expressly stated, that an employee must not breach the duty of confidentiality towards his employer. That also applies after termination of the employment contract, at least if expressly provided for in the contract.

Non-competition

During the employment relationship, employees must not compete with their employer, according to statutory law. However, there is no general post-employment obligation implied by law which would prohibit employees from competing with their former employer. The parties can, if they wish, agree on a post-termination restrictive covenant restricting competition after termination of employment. This agreement must be expressly included and is only valid if certain statutory requirements are fulfilled (section 74 of the Commercial Code – Handelsgesetzbuch). One of those conditions is the employer’s obligation to pay monthly compensation for the duration of the prohibition in the amount of at least 50 per cent of the average remuneration and other benefits earned by the employee. Such compensation is payable at the end of each month on a pro rata basis. Moreover, the parties can only agree on a restriction of up to two years, and the covenant must be reasonable, in consideration of the interests of the contracting parties.

Temporary inability to work

In the event of a temporary inability to work, such as marriage, death of a close relative, consultation of a doctor that cannot be delayed, removal of residence, etc, the salary of the employee is continued, under statutory law. The contract or collective bargaining agreements may contain additional provisions.

Exclusion period

Exclusion periods are very common under German employment law. They oblige the parties to claim any right in writing and/or by filing a suit within a defined period of time. If the party concerned does not so claim, he/she/it will lose the right.

7. EMPLOYEE REPRESENTATION

7.1 Works council

The works council represents the employees of a business unit vis-à-vis their employer. The employees of a company have the right to establish a works council for a business unit if at least five regular employees being at least 18 years old and eligible to vote in works council elections are employed in this business unit. The works council has several rights to participate and to codetermine in social matters, for example, the layout of the workplace and organisation of work, staff matters and commercial matters. The rights are ruled by the Works Council Constitution Act (Betriebsverfassungsgesetz).

7.2 Other representative bodies

Apart from the works council, the employer may have to deal with a number of other representative bodies:

7.3 Trade unions

Trade union representatives do not play a role in a company’s day to day business. It is the trade unions’ main function to conclude collective bargaining agreements. Trade union representatives also support employees or the works council (eg by giving legal advice and in court). These services are linked to the membership of the trade union. The number of employees who are members in the relevant trade union varies. Works council members are often members of the trade union. The law determining the conditions for collective bargaining agreements and the trade unions is codified in the Collective Bargaining Agreements Act (Tarifvertragsgesetz).

7.4 Employee representation on the supervisory board

Codetermination in Germany has a dual concept – employees are not only represented by the works council at the level of the particular business unit, but also participate in the supervisory board of the company. This so-called enterprise codetermination aims to give employees a direct voice in the formulation of the company’s business policy. Under certain conditions the representation is mandatory. If and how the employees are represented in the supervisory board mainly depends on the legal structure of a company, the number of employees (more than 500 or 2000), the branch of industry and the purpose of the company. The main conditions are stipulated in the so-called One-Third Participation Act (Drittelbeteiligungsgesetz), the Codetermination Act (Mitbestimmungsgesetz) and the Codetermination in the Coal, Iron and Steel Industry Act (Montan-Mitbestimmungsgesetz).

8. INFORMATION AND CONSULTATION

Information and consultation of employee representatives may be required in terms of:

The various provisions do not exclude each other, but rather supplement each other. Therefore, all of them must be observed where applicable.

8.1 Staff matters

In several cases related to personnel matters, the works council has the right to be consulted. The most important right to be heard is the obligation to consult the works council before any notice of termination of employment (section 102 of the Works Council Constitution Act). The employer is obliged to inform the works council about all the facts and circumstances that justify the intended notice of termination. If the works council is not or is insufficiently consulted prior to the notice of dismissal being issued, termination of employment will be invalid.

With regard to other individual personnel measures, for example, the hiring, classification and transfer of employees, the employer must even obtain the consent of the works council. The works council may only refuse to give its consent for specific reasons. If it objects to the individual measure, the employer must apply to the labour court to obtain the necessary consent. Without such consent, the employer must not carry out the intended personnel measures.

In addition, under certain circumstances, termination is only allowed in extraordinary cases and only permissible with the prior consent of the relevant public authority. Lack of consent will automatically result in an invalid dismissal. The most important examples are: pregnant women, employees on maternity or parental leave, disabled employees and trainees (apprentices). Members of the works council and of other employees’ representative bodies may only be dismissed for good cause and only with the consent of the works council. If the works council objects, the employer must apply to the labour courts to obtain the necessary approval.

If the employee is an executive, the representative body for executive staff, instead of the works council, must be involved prior to the dismissal or other measures (section 31 of the Representative Bodies for Executive Staff Act, Sprecherausschussgesetz).

8.2 Social matters

Furthermore, the works council has extensive rights to be involved with respect to social matters, including:

The employer can only act in respect of the abovementioned matters if an agreement has previously been reached with the works council. Without the consent of the works council, the measure is unlawful and void. If the employer and the works council do not reach an agreement, the employer has to apply to a conciliation committee (Einigungsstelle) comprising a chairperson (often a judge at a labour court) and an equal number of representatives from both sides. A decision of the conciliation committee is binding on both parties.

It is not only the employer who can initiate negotiations on social matters, but the works council also has the right to require the employer to commence talks and, if necessary, to bring the matter in front of a conciliation committee.

8.3 Commercial matters

In terms of commercial matters, including reorganisations, collective dismissals and transfers of undertakings, a set of rules applies with regard to information of and consultation with employees and employee representatives.

Reorganisation

If the employer intends to carry out a so-called change in operation (Betriebsänderung) such as these:

It is obliged to involve the works council unless the company employs 20 or fewer employees entitled to participate in the elections of the works council. The employer must negotiate a so-called reconciliation of interests (Interessenausgleich) and a social plan with the works council (section 111 and 112 Works Council Constitution Act). Both the reconciliation of interests and the social plan are agreements between the employer and the works council and therefore binding on both parties. A reconciliation of interests fixes more or less in detail the measures intended to be taken. In other words, it stipulates if, how and when the intended changes are to be made. The social plan deals with the consequences of the restructuring measure. It is designed to compensate or reduce the economic disadvantages of the employees. Therefore, in particular, the social plan provides for compensation payments to employees who are to be dismissed or who are seriously disadvantaged.

The works council may request proper information and serious negotiations, if necessary before a conciliation committee (see 8.2). Upon request by the employer and/or by the works council, it may decide on the drafting and the details of a social plan. Contrary to the social plan, a reconciliation of interests cannot be concluded against the will of the employer. However, if the employer does not try or does not seriously try to find an agreement with the works council or if it deviates from an existing reconciliation of interests without good cause, the employees who suffer economic disadvantages from it can claim for compensation (section 113 Works Council Constitution Act). Some Regional Labour Courts even go beyond this. They penalise conduct of the employer which is not in conformity with the laws by handing down injunctions following motions of the works council, prohibiting the employer from carrying out the operational changes before a reconciliation of interests has been seriously sought. Therefore, if a works council is active and demanding, it can significantly delay the reorganisation.

In addition, if the reorganisation involves a merger, a spin-off of a business or a transfer of assets by way of universal legal succession (Gesamtrechtsnachfolge), the Reorganisation Act (Umwandlungsgesetz) requires the employer to send the corresponding corporate law agreement (merger agreement, spin-off or transfer agreement), or a draft of it, to the works council at least one month before the date of the shareholders’ meeting which will resolve on its consent. Informing the works council is one of several prerequisites for the required register entry.

Should an enterprise have a so-called economic affairs committee because it employs more than 100 employees and its works council established such a committee, it must also be informed (section 106 Works Council Constitution Act).

If the enterprise is active throughout the European Union or if it belongs to a corresponding group of enterprises and a European works council has been set up, this works council must generally also be involved with regard to restructuring measures if these measures affect businesses or enterprises in different member states of the European Union (sections 31 ff European Works Councils Act).

Collective dismissals

Dismissals for operational reasons often concern a large number of employees. There are special rules regarding collective dismissals if the following numbers of employees are to be dismissed within 30 calendar days:

• more than five employees, in businesses which usually have more than 20 and fewer than 60 employees;

• ten per cent of the employees or more than 25 employees, in businesses which usually have at least 60 and fewer than 500 employees; or

• at least 30 employees, in businesses which usually have at least 500 employees.

These rules rather relate to procedural requirements than to the legal requirements for its justification. The required procedure includes the obligation to disclose certain information in writing to the works council and to send a copy of the notification to the Employment Agency (for details see 11).

Furthermore, collective dismissals are often the consequence of major changes in operation, as outlined above (see 8.3). This means that the employer is required to negotiate with the works council a reconciliation of interests and a social plan unless the enterprise employs 20 or fewer employees entitled to vote. Irrespective of any further restructuring measures being taken, according to the case law, the mere reduction in staff also constitutes a change in operation if a minimum of five per cent of the personnel is affected and if the number of employees to be dismissed exceeds the abovementioned thresholds.

Transfer of undertakings

The central statutory provision in Germany to protect employees in the event of a transfer of undertakings is section 613a of the German Civil Code. Whether or not there is such a transfer depends, in particular, on the following seven criteria established by the European Court of Justice:

• the type of company or business concerned;

• whether or not material operating resources (eg buildings, machines, raw materials) are transferred;

• the value of the immaterial operating resources, such as know-how and the existence of intellectual property rights existing at the time of transfer;

• whether or not the core personnel are assumed by the new owner;

• whether or not the customers are transferred;

• the degree of similarity between the activities carried out before and after the transfer; and

• the duration of any interruption of activity.

Where a business or part of a business is transferred within the meaning of section 613a of the German Civil Code, the employment relationships of the personnel allocated to the business or part of a business are transferred to the purchaser by operation of law. The employment relationship is transferred retaining all rights and obligations. As a result of the transfer of the business or part of the business, the purchaser takes the place of the former employer and becomes liable for all claims of the employees arising from the employment relationship.

If the transfer of business or part of a business qualifies as a so-called change in operations, the employer is obliged to negotiate a reconciliation of interests and a social plan with the works council (if one exists). In addition, the employer has to inform every single employee affected by the transfer of business or part of business in writing about the following issues:

• the date or intended date of the transfer;

• the reason for the transfer;

• the legal, economic and social consequences of the transfer for the employees; and

• the measures intended to be taken with regard to the employees.

Every employee has the right to object to the transfer of his/her employment relationship within one month of receipt of notification. The objection must be made in writing. It may be declared vis-à-vis the former employer or the purchaser. The deadline for the objection will only begin to run once the employee has been properly and fully informed.

9. EQUAL OPPORTUNITIES

9.1 Discrimination

To date, discrimination has not been of any great significance in German law. Until recently, German law guaranteed equal opportunities only in the following two ways:

Firstly, there was – and still is – the principle of equal opportunities based on article 3 of the Federal Constitution (Grundgesetz). It prohibits discrimination on the grounds of sex, birth, race, language, national origin, religious or political views or disability. Through the instrument of case law, this principle has been incorporated into employment law as a general rule. It protects employees from being generally treated differently from other employees in a comparable situation, unless the employer can show a justifiable reason for such different treatment. This principle of equal treatment of comparable employees under comparable circumstances still is one of the basic tenets of German employment law.

Secondly, German law reflected the European directives prohibiting discrimination based on sex, part-time or fixed-term employment and disability in different provisions, spread over various statutes

On 18 August 2006 the new General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz) came into force, finally implementing the following European directives on the principle of equal treatment, and even going further than these: Directive 2000/43/EC (covering discrimination based on racial or ethnic origin); Directive 2000/78/EC (establishing a general framework for equal treatment in employment and occupation covering discrimination on grounds of religion, disability, age, and sexual orientation); and Directive 2002/73/EC (amending Directive 76/207/EEC and extending the protection of employees against sexual discrimination and harassment). The General Equal Treatment Act has laid down common provisions for the areas of employment law, general civil law, civil service law and social law. Although the extent of its impact is still unclear, discrimination issues will certainly play a bigger role in German law than previously.

Scope of the new rules against discrimination

The General Equal Treatment Act covers discrimination on the grounds of race or ethnic origin, sex, religion or worldview (Weltanschauung), disability, age or sexual identity.

The employer is under the obligation to refrain from, prevent or eliminate any such discrimination at all stages of the employer-employee relationship, from job advertisement until termination of the contract.

Discrimination means any form of direct or indirect discrimination as well as (sexual) harassment and instruction to discriminate.

According to the wording of the General Equal Treatment Act, its rules are, however, not applicable in the case of termination of employment, which is supposed to be solely governed by the statutory provisions concerning protection against dismissal. However, it is discussed in legal commentary, whether and to what extent this constitutes a violation of Community law.

Justified unequal treatment

In certain cases (section 8 of the General Equal Treatment Act), unequal treatment can be justified if the discriminatory criterion is an essential requirement of the job in question, its purpose is legitimate and the requirement is adequate. Customers’ expectations alone will, however, normally not fulfil these conditions, unless the very existence of the employer’s business is endangered.

Sections 9 and 10 provide additional specific justifications for unequal treatment because of religion/worldview or age. Harassment and sexual harassment are excluded from any possible justification.

Apart from reasons of justification, unequal treatment is also allowed if any disadvantage because of race, ethnic origin, etc is prevented or compensated by adequate positive action.

Duties of organisation

The employer has to fulfil a number of duties in relation to the organisation of his business (sections 11 and 12 of the General Equal Treatment Act). It may not advertise jobs in a manner which constitutes discrimination. It has to implement necessary action – also pre-emptively – to protect employees against discrimination. The provision of adequate training for employees about discrimination issues will be sufficient to fulfil this obligation. If employees are discriminated against by third parties, the employer has to take steps to protect them.

Although not required to do so by the statute, the employer should carefully document decisions in personnel matters because the employer eventually bears the burden of proof of non-violation.

Consequences of violations

Any legal act in violation of the prohibition of discrimination is null and void. A violation also constitutes a breach of contractual obligations of the employment contract.

Employees can sue for cessation of the discriminatory behaviour or for injunctive relief. They are entitled to compensation for pecuniary damages suffered as a result of the violation, unless the employer can prove its lack of fault. The amount of compensation cannot exceed the hypothetical damages sustained until the first possible date of termination. Employees also have a right to compensation for non-pecuniary damages, which does not depend upon the employer’s fault. Claims, in or outside court, have to be asserted within a period of two months.

Within the company, employees can complain to the person in charge of complaints in relation to discrimination. If the employer does not implement adequate measures to stop harassment or sexual harassment, the employees concerned can refuse to work without losing their remuneration if that is necessary for their protection. For the other forms of discrimination, the general right of retention can apply (section 273 of the German Civil Code) if certain conditions are met.

9.2 Maternity leave

Pregnant women are protected by the provisions of the Maternity Leave Act. Besides the protection against dismissal (see 8.1), there is further support. An employed woman is entitled to take six weeks time off work before the birth and eight weeks time off work after the birth of the child. During this latter period, the woman is even prohibited from working. The mother’s salary is partly paid by the government. The employer has to pay an additional allowance.

9.3 Parental leave

On 1 January 2007 the Federal Parental Benefit and Parental Leave Act (Bundeselterngeldund Elternzeitgesetz) came into force. It replaces the former Federal Child-Raising Benefit Act (Bundeserziehungsgeldgesetz). As it used to be the case under the Federal Child-Raising Act, female and male employees are also entitled to parental leave for a child for whom they have the right of care and custody, of their spouse or companion, whom they are fostering full-time or prior to adoption, provided they care for and bring the child up themselves under the new law. Parental leave may extend up to 36 months and is usually taken before the child is three years old. A period of 12 months may be taken before the child is eight years old. During the parental leave, the employment relationship continues, but the mutual obligations are suspended, which means that the employee does not have to work and the employer does not have to pay. During parental leave, the employee is entitled to enter into a special part-time agreement. In addition, the employee enjoys special protection against dismissal (see 8.1). After parental leave, the employment relationship revives.

The new parental benefit is a parental allowance paid by the government to parents whose child is born after 31 December 2006. It replaces the so-called child-raising benefit (Erziehungsgeld), a minor allowance which, in addition, was only paid to parents with lower incomes. The new parental benefit will basically be paid for 12 months, and it has been developed as an income substitution benefit. Thus it will replace 67 per cent of the net earnings of the parent who stays at home for the period of one year after birth (up to a maximum of €1,800).

10. DISCIPLINE AND TERMINATION

10.1 Disciplinary measures

Under German law, there are no statutory provisions with regard to disciplinary procedures. If an employee does not or does not properly fulfil his/her contractual duties, either in terms of performance or in terms of trustworthiness and reliability, there is a full range of actions which the employer can take, including:

The employer must always observe the principle of proportionality. If an employee’s breach of contract is sufficiently serious, the employer may be entitled to terminate the contract either with notice or with immediate effect, see 10.2. However, usually a warning which includes the threat of termination is required before the dismissal. This is especially true in terms of non- or misperformance. Only if a warning has no prospect of success or if the violation of the contractual duties is particularly severe is a warning in advance unnecessary.

If an employee does not fulfil his/her contractual duties properly, an employer can sue the employee for damages for breach of contract. However, this happens only rarely, principally because an employer’s loss is hard to quantify. Furthermore, the employee is only fully liable in the event of gross negligence and intentional misconduct. In the event of slight negligence, the employee is not liable at all. If the employee acted with ‘normal’ negligence, he or she is only liable to a certain extent. Special rules apply if colleagues of the employee were injured.

If an employee does not fulfil his/her contractual duties at all, the employer can also take legal action. The judicial decision would not be enforceable, but it is necessary to be able to claim compensation for further inaction if the employer wishes to do so (section 61 para 2 of the Labour Court Act, Arbeitsgerichtsgesetz). In urgent matters, the employer may also apply for an interlocutory injunction if there is reason to believe that the employee will breach the contract and cause considerable damage to the employer, for example, to prevent the employee from disclosing confidential information or to enforce a restrictive covenant.

10.2 Termination of employment

An employment contract can be terminated either mutually or unilaterally. The most important ways of terminating a contract of employment are:

• termination by agreement;

• expiry of a fixed-term contract; and

• notification of termination (either with immediate effect or with a notice period).

Termination by agreement

In principle, employer and employee are free to agree on the termination of the employment relationship at any time. The benefit of such an agreement is that those statutory provisions protecting the employee against dismissal or providing for further requirements do not apply. Furthermore, the employer is able to calculate precisely the economic effects of the termination, whereas it is usually more difficult to estimate the financial risk of a notice of termination which is subject to legal proceedings. However, the employee must be aware of possible disadvantages in terms of unemployment benefits if he/she should not be able to find a new job immediately after the termination.

In order to be valid, the termination agreement must be in writing (section 623 of the German Civil Code). This means that there must be:

• a uniform document;

• signed by both parties to the agreement; with

• one original of the signed document sent to the employer and the employee. A termination agreement concluded by fax or e-mail is invalid.

Expiry of a fixed-term contract

In the event of a fixed-term contract, the employment relationship ends without further notice at the time of expiry, provided that the agreement as to the time limit is valid, see 4.3 above. Prior to the expiry of the fixed-term contract, it may only be terminated without the consent of the other party if such an option has been included in the employment contract. Otherwise, a unilateral termination of employment is only valid for good cause, see below.

Summary dismissal

In principle, both the employer and the employee can terminate the employment contract only with notice, see 10.2. Even then, the employer (not the employee) needs a special reason for the dismissal. However, under certain circumstances both employer and employee may be entitled to terminate the employment contract unilaterally with immediate effect (section 626 of the German Civil Code). There are two prerequisites for such a termination to be valid:

• good cause for dismissal; and

• issuance of the notice within two weeks of the terminating party becoming aware of the good cause.

After expiry of the two-week period, the termination without notice is void even if the case has been strong enough against the employee. The termination must be supported by severe facts (eg serious misconduct) which make it unreasonable to expect the terminating party to continue the employment relationship until expiry of the regular notice period or, in the event of a fixed-term contract, the expiry date of the contract. The Federal Labour Court sets very strict standards when it comes to a termination without notice. Basically, the onus of proof is on the employer, which makes it even more difficult to enforce a summary dismissal.

Like a termination agreement, the notice of termination must be in writing (section 623 of the German Civil Code). As to the procedure to be followed, please see 10.2 below.

Termination with notice

The employee can terminate the employment contract with notice at any time. If the employer wishes to terminate the employment contract and cannot or does not want to terminate the employment with immediate effect, the legal requirements depend on the Protection Against Dismissal Act if both of these conditions are met:

• the employee has been employed for more than six months; and

• the employer regularly employs more than five or more than ten employees excluding trainees (depending on the date of appointment).

The threshold for the applicability of the Protection Against Dismissal Act was increased with effect from 1 January 2004. The new threshold of ten employees only applies to new appointments commencing after that date. Those already employed in a business with more than five but no more than ten employees continue to be protected under the Protection Against Dismissal Act.

The Protection Against Dismissal Act does not apply to employees working outside Germany and to members of a company’s board of management or managing directors of limited liability companies.

Reasons for dismissal

If the Protection Against Dismissal Act applies, a termination of the employment contract requires ‘social justification’. In general, the employer has no right to terminate the relationship merely on the basis of a severance payment. The employer must rather have a reason which is recognised by law. In addition, the employer must observe the principle of proportionality. Therefore, it must consider in advance whether it can take alternative steps, for example, if a warning would be sufficient or if there are vacant jobs which could be offered to the employee in question.

There are three different types of valid reasons for a dismissal:

• reasons relating to the person of the employee (eg illness, lack of capability or qualifications);

• reasons relating to the conduct of an employee (eg breach of contract); and

• urgent operational reasons (redundancy).

The primary area of dismissals for person-related reasons is the inability to work due to illness. The Federal Labour Court held that a termination due to a long-term illness may be justified if it lasts at least 18 months and if it is unpredictable whether the illness will end in the near future. A termination can also be valid in the event of short-term illnesses if the employee’s short-term illnesses last considerably longer than six weeks per calendar year for at least three subsequent calendar years. The minimum duration of absence pursuant to court rulings varies from at least 14 per cent to about 25 per cent of the total working time. No fixed reference values exist in this respect. In any case, the employee can argue that the illnesses are cured and that his future short-term illnesses will not exceed an average level.

An employer may also dismiss an employee due to misconduct, for example, dishonesty, harassment of fellow employees, inexcusable absenteeism, failure to obey lawful and reasonable orders, persistent and intentional refusal to work or to work properly, and working for a competitor. As a general rule, it should be noted that the less fundamental the breach of contract, the more important is its repetition to justify a notice of termination. Usually, the employer has to give the employee at least one warning to document a former breach of contract in connection with a reminder that termination of employment will be considered unless the employee changes his or her behaviour and properly fulfils his or her contractual duties, see 10.1.

A dismissal can also be valid if it is a result of urgent operational reasons which preclude the continued employment of the employee (eg reorganisation, closure of a business, diminishing need for the employee to do work of a particular kind). A job becomes obsolete when the company cannot or no longer wishes to continue its business as it has in the past. The employment courts will not consider the justification for, or reasonableness of, the decision to restructure the business itself, but will only intervene where a decision is obviously subjective, illogical or arbitrary (misuse control).

The employer is obliged to show and to prove:

• the management’s decision in question;

• if intended, the restructuring of the company or the plant including its reason; also

  • how the management’s decision will be realised and what the consequences are in

  • respect of the quantity of work.
    In addition, the employer must:

• select the employees to be made redundant on the basis of social criteria (so-called social selection).

The issues to be considered and balanced are the years of service, the age, the maintenance obligations and possible disability of the employees. Employees whose continued employment is justified in the interest of the operation, especially due to their know-how, skills and performance or with respect to the preservation of a balanced staff structure, may be excluded. However, the Federal Labour Court sets very strict standards in this respect. The court’s review of the social selection is restricted to gross errors if the names of the employees to be dismissed become known in a reconciliation of interests agreed between the employer and the works council or if the employer observed the selection guidelines of a collective bargaining agreement or a works agreement.

Notice period

The law provides for a minimum notice period which must be observed in any case (section 622 of the German Civil Code). The length of this minimum notice period depends on the employee’s length of service. In the event of a notice by the employee, this is, however, only true if the employment contract stipulates that the statutory notice periods apply not only to the employer but to both parties (what is usually the case). It ranges from four weeks notice effective as of the 15th day of a month or the end of a calendar month in the event of less than two years continuous employment up to a maximum of seven months effective as of the end of a calendar month after 20 or more years continuous employment. The notice period during an agreed probationary period of six months or less is 14 days and can expire on any day. Often, the employment contract or the collective bargaining agreement stipulates a longer notice period or an expiry date which is more favourable to the other party.

If the minimum statutory notice period is not observed, the dismissal is valid, but will not come into effect until the end of the notice period.

Procedure

A notice of termination must be in writing to be valid (section 623 of the German Civil Code). It only becomes effective when it is delivered to the employee. The date of delivery is decisive for the question whether or not the notice period was observed and whether or not the employee took legal action in time (if at all, see below).

Before the dismissal, the employer must consult with the works council (see 8.1 above). The consent of the works council is not required. If the employee belongs to a group which is specifically protected by law, it might be necessary to meet additional requirements. The consultation with the employee prior to the dismissal is only required if the termination is to be based on the mere suspicion of misconduct.

An employee who does not want to accept dismissal has to file an action with a labour court within three weeks of receiving notice of termination. If he or she does not file an action within that period, the termination will be deemed to be valid, which means it will become binding even if the dismissal did not comply with the legal requirements (section 4, Protection Against Dismissal Act).

11. COLLECTIVE DISMISSALS

The legal requirements for the ‘social justification’ of collective dismissals do not differ from the principles outlined above. However, there are a number of procedural rules which apply if the number of dismissals exceeds certain thresholds, depending on the size of the business concerned (sections 17 and 18 Protection Against Dismissal Act).

11.1 Definition

The layoff of several employees qualifies as collective dismissal if the following numbers of employees are to be dismissed within 30 calendar days:

• more than five employees, in businesses which usually have more than 20 and fewer than 60 employees;

• ten per cent of the employees or more than 25 employees, in businesses which usually have at least 60 and fewer than 500 employees; and

• at least 30 employees, in businesses which usually have at least 500 employees.

The reason for the dismissal is irrelevant. Not only dismissals for operational reasons, but also dismissals owing to misconduct or incapacity are to be included in the count. The same applies to employees who resign on the basis of termination agreements.

Until recently, not the time that notice is given, but the actual enforcement of the dismissal (eg expiry of notice period) was decisive with regard to the question of whether or not the above-mentioned thresholds were exceeded. In its decision of 23 March 2006, the Federal Labour Court – for the first time and in response to the European Court of Justice’s decision of 25 January 2005 – held that the issuance of the notice of termination is decisive. Thus, the number of notices of termination issued within 30 calendar days is now essential, not how many notice periods expire within such a period of time.

11.2 Information and consultation procedure

In the event of a collective dismissal in the sense of the Protection Against Dismissal Act, the employer is required to inform the works council in writing about the details, in particular:

• the reason for the planned dismissals;

• the number and the occupational groups of the employees to be dismissed;

• the number and the occupational groups of the employees regularly employed;

• the period of time over which these dismissals will actually take place;

• the intended criteria for the selection of the employees to be dismissed; and

• the intended criteria for calculating any severance payments. Also, the employer is required to discuss with the works council the possibilities for avoiding or limiting dismissals or alleviating their effects.

Furthermore, the employer has to notify in writing the Employment Agency about the planned collective dismissals before giving notice of termination. Pre-printed forms for this are available from the Employment Agency. Any comments of the works council must be attached to the notification, otherwise it is invalid.

Only after valid notification and expiry of a one-month waiting period beginning with the receipt of the notification can the dismissals become effective. The waiting period can be extended by the Employment Agency to a maximum of two months. Before expiry of the waiting period, dismissals are only valid with the express approval of the Employment Agency. In addition, the dismissals must be made within 90 days of expiry of the waiting period; otherwise, a further notification will be required.

11.3 Consequences of non-compliance

Statutory law does not expressly provide for the consequences of a violation of the notification and/or the information and consultation obligation. According to recent decisions of the Federal Labour Court, failing to make any collective dismissal notification or making an incorrect collective dismissal notification leads to the invalidity of the dismissal as a purely practical measure, but not to the invalidity of the notice of termination itself. Until now, the Federal Labour Court has not rendered a decision on the consequences of a violation of the obligation to inform and consult with the works council. However, there is much to suggest that a notice of termination is void if no information or insufficient information has been provided.

In order to claim that the dismissal is void, the employee is required to file an action against the termination within three weeks after receipt of the notice. Otherwise the termination is valid.

12. USEFUL REFERENCES

Statutes and statutory instruments

• Federal Ministry of Labour and Social Affairs (Bundesministerium für Arbeit und Soziales): www.bmas.bund.de/BMAS/Navigation/Arbeitsrecht/gesetze.html

• Federal Ministry of Justice (Bundesjustizministerium): www.gesetze-im-internet.de

General bodies

• Federal Labour Court (Bundesarbeitsgericht): www.bundesarbeitsgericht.de

• Federal Employment Agency (Bundesagentur für Arbeit):
  www.arbeitsagentur.de