Termination of an Employment Contract in Germany
Due to their serious consequences, dismissals must be declared clearly and unambiguously. The will to end an employment relationship, and the point in time at which it should end, must therefore be stated with absolute clarity in the dismissal notice.
The termination of employment relationships by dismissal or termination agreement are required to be in written form to be valid. The statutory written form requirement cannot be waived by employment agreement, collective bargaining agreement or works agreement. A dismissal that has formal defects is void and cannot be remedied.
Here are the article sections.
- Notice Periods
- Works Council Involvement
- Severance Payments
- Dismissal for Cause
- Protection against Dismissal
- Protected Employees
- Termination Agreement
The employer must observe the applicable notice period when terminating the employment relationship. The basic dismissal notice period is four weeks counting back from the 15th or the last day of a calendar month. This notice period increases depending upon the seniority of the employee. The employment agreement can provide for longer notice periods. Collective bargaining agreements can provide for shorter notice periods.
If a works council exists, it must be notified and consulted before every dismissal. The notification made to the works council must contain the affected employee’s personal data, the type of dismissal, notice period and the grounds for the dismissal. As a rule, vague, generalized catchphrases will not do. This also applies to dismissals within the first six months of employment.
There is no statutory severance in Germany. Employees are only entitled to severance payments under a social plan with the works council (often agreed on in the case of mass layoffs) or under a collective bargaining agreement.
However, in practice, many employers and employees will agree on severance pay provisions to avoid lengthy court proceedings concerning the effectiveness of the termination. This severance will often amount to 50% of the monthly salary per year of service. However, this can vary significantly depending on the strength of the case for dismissal and the previous practice of the employer.
Dismissal for cause
In the case of a severe breach of the employment agreement the employer can give a dismissal and terminate the employment with immediate effect. This notice of termination must be served within two weeks of the employer gaining knowledge of the underlying facts causing the dismissal.
An ordinary dismissal ends the employment relationship after the expiration of the dismissal notice period. A dismissal for cause ends the employment relationship immediately without observing a dismissal notice period.
Protection against dismissal
In a business with up to ten employees there is no dismissal protection, so termination does not need to be justified. However, the termination must not be discriminatory or violate public policies.
In businesses with more than ten employees, the termination of employees that have been employed for more than six months must be "socially justified". "Socially justified" termination will usually be based on person-related reasons (for example, long-term illness), conduct-related reasons (for example, repeated breaches of employment terms after prior warning) or operational reasons (for example, the shutdown of a business).
The employer can respond to an employee's breach of contractual duties with a conduct-related dismissal. Generally speaking, this requires a breach of duty on the part of the employee. The German law requires that an employee receive at least one prior warning. A conduct-related dismissal undertaken without the previous issuance of a warning notice is invalid. It is therefore advisable to take the necessary precautionary measures of having the individual employee's violations documented and to discuss with the human resources department or management whether a warning notice should be issued in each particular case.
Dismissals on personal grounds must take into account the principle that an employment relationship has the character of an exchange. The primary duties of performance (work performance by the employee on the one hand and remuneration by the employer on the other hand) must be in a balanced relationship to each other. Above all, absence due to illness can seriously damage this exchange relationship.
A dismissal for operational reasons plays a central role in the termination of employment relationships. Unlike conduct-related dismissals or dismissals on personal grounds, the grounds for the dismissal do not lie within the control of the employee, but are based on a structural entrepreneurial decision on the employer's part. With a dismissal for operational reasons, the employer may adjust the number of personnel to the company's needs in the interest of profitability.
Dismissals for operational reasons must be based on compelling operational reasons. The employer must prove that the job position permanently ceases to exist and that there are no vacant positions in the company.
The employer must conduct a social selection among comparable employees, which is based on age, years of service, marital status, number of dependent children, and severe disability.
In addition, in the case of significant operational changes, the employer may be required to consult with the works council on a change of the operation. While the works council in the end cannot avoid the implementation of the measures, the works council can heavily delay the process.
A dismissal must always be the last resort. Therefore, it is necessary to assess if there are any other proportionate means.
The threshold for the effectiveness of a termination is quite high. The burden of proof is on the employer and employees can challenge a termination before the court. To be effective, the complaint must be filed within three weeks of receipt of the termination notice. If the case cannot be settled, the court can only rule that the termination is either effective (supported by sufficient reasons), or not effective. If the termination is effective the employment ends at the end of the notice period and the employee is not entitled to any severance (unless there is a social plan or collective bargaining agreement in place providing for severance pay). If the termination is not effective the employee must be reinstated in the previous position and is entitled to back pay starting from the end of the notice period.
In addition to the general termination protection, there are also special protection provisions against termination for certain groups of employees, including but not limited to:
- Pregnant employees and mothers after childbirth
- Employees on parental leave
- Severely disabled employees
- Candidates and members of the works council
- Data protection officer
As a rule, the termination of an employment relationship by way of a termination agreement makes the most economic sense. In many cases a mutual agreement to end the employment relationship with a termination agreement or court settlement is reached in or out of court. Termination agreements must be in written form. This means that both parties must sign the agreement in their own hand. In order to avoid errors that can often be very costly, a lawyer should be engaged before a termination agreement is concluded.
Essentially, a termination agreement can contain the following information:
- Date and type of termination
- Severance pay
- Continued payment of remuneration up to the end of the employment relationship
- Release from work duties
- Company pension plan
- Post-contractual covenant not to compete
- Duty to maintain confidentiality
- Return of company car
- General duty to return company property
- Discharge of obligations.
Article contributed by Peter Fürnthaler
This article is meant to provide an overview on the most important rules and provisions. It can, of course, not be a substitute for in-depth legal advice, but might serve as a starting point for those interested in the German marketplace and employment laws.