What are the essential features of labour law in your country? Labour law in Germany is strongly influenced by the idea that the employee, because he/she is personally and commercially dependent from the employer, needs protection by law. This aim shall mainly be achieved by a limitation of the contractual freedom of the parties to a contract of employment, prescribing minimum social standards concerning certain stipulations and prohibiting others. Like in other countries, many labour law regulations in Germany are the result of the economical development of the recent years. For example, quite a lot of recent regulations take into consideration that employees have to be more "flexible" to save their employment from being exported into countries where the wages are lower. On the other hand, many protection rules have become stricter, often because of directives of the European Union or because of the jurisdiction of the European Court of Justice which have to be applied or transformed in all member states of the European Union.

Another characteristic of German labour law is the important role of co-determination of employees' representatives in the supervisory boards of stock corporations and of limited liability companies with more than 500 employees.

Notwithstanding the importance of labour law, it must be stated that in spite of many efforts, Germany hasn't yet got one uniform code of labour law which unifies the relevant regulations. The labour law and social law regulations are spread over at least 50 codes. Additionally, the jurisdiction of the German Federal Labour Court plays an important role, not only in interpreting the statutory law but also in closing gaps that were left in the statutes.

Two categories of German labour law have to be distinguished:Individual labour law (often in connection with social law)Collective labour law
The individual labour law regulates the relation between the individual employee and the individual employer, for example minimum standards for the working conditions, continuation of salary payment in case of illness, part-time employment, permanent or temporary contracts, statutory notice periods, protection against unfair dismissal.
The collective labour law regulates the rights and duties of employers and employees if organized in a group (employers' association/trade union/works council) as well as the effectiveness of agreements entered into by these bodies, like collective agreements or shop agreements.

Of course, there are a lot of intersections between individual and collective labour law, often causing complicated legal problems.What are the legal sources of labour law? The highest-ranked national source of labour law is the German constitution, which sets forth various liberties for the employee and the employer and protects the freedom of association in trade unions. Another high-ranked source of labour law is the European law, comprising of European ordinances and directives as well as of the jurisdiction of the European Court of Justice. However, as most directives and the court judgements do not provide regulations that are directly applicable, it is more important to observe the national regulations which govern the employment relationships in everyday life. Most European ordinances and directives relating to labour law have been transformed into national German statutes over the last years.

Of the more than 50 German codes dealing with labour law, the following are the most fundamental in terms of the employer's and employee's rights and duties:The Civil Code (which contains the basic rules for contracts of employment and general provisions on employment contracts)The Protection against unfair Dismissal ActThe Continuation of Pay ActThe Part-Time and Temporary Employment ActThe General Equal Treatment ActThe Works Constitution ActThe Collective Bargaining ActThe Act on Labour LeasingPHow can a contract of employment be established, and in what form can a contract of employment exist? A contract of employment doesn't necessarily have to be concluded in writing in order to be legally effective. An employment relationship which has been established by oral agreement imposes mutual duties on the parties, which are in such case governed by the statutes and by the orally agreed terms. But the employer has to confirm in such case the terms of the employment contract in writing. In case of non-observance of this rule, the employer may suffer disadvantages in a lawsuit if the employee asserts the existence of favourable terms.

In order to avoid legal disputes in this regard, it is strongly recommended conclude written employment contracts, so that the terms of the contract can be proven easily. The same applies to every modification to the employment contract which should always be made in writing as well.

Employment contracts exist in various forms.

a) "usual" permanent, full-time contracts

The most commonly found type of contract is the usual permanent, full-time employment contract. But within this type, there are various differentiations. For example, the remuneration can consist of only a fixed remuneration, or of a combination of a fixed and a variable part (bonus). The benefits to which an employee is entitled vary very much, depending on the position of the employee, on whether the employer is a small or a big company, on the branch of business, or on whether or not collective agreements on tariffs apply to the employment contract.
 
b) Part-time work contracts

The particularities of part-time contracts are regulated in the "Part-time and Temporary Employment Act". Part-time means that the employee doesn't work on a full time basis but only fewer hours per week. The most important rule which has to be observed is the prohibition of a discrimination of an employee due to his part-time work, for instance in relation to his remuneration, fringe benefits, paid holiday etc. Under specific conditions, employees working full-time are entitled to request a reduction of their full-time employment to a part-time employment unless significant management requirements can be opposed to their request.

c) Fixed-term contracts (Temporary Employment)

The Part-Time and Temporary Employment Act allows part-time work and fixed-term employment contracts. Temporary employment contracts, which expire automatically after the agreed date without termination protection and without a compensation owed to the employee are according to this Act permissible for a certain period of time, as explained below, or if the employer has a justified operational reason due to which there is only a need for a temporary employment (for details, see question 9.).

Fixed-term contracts end without notice at the agreed date, or at a time resulting from the kind or the intended purpose of the work, unless the parties stipulate expressly the continuation of the contract or they continue performing the contract. Fixed-term contracts cannot be terminated by a notice of termination unless they reserve the right to do so in the contract. The time limitation must be agreed in written form, otherwise it is ineffective and the contract is concluded for an unlimited period of time.

Without substantive grounds, a contract can be limited to up to two years. Fixed-term contract with shorter duration can be prolonged three times up to this total duration of two years. For start-up companies, this regulation applies for four years instead of two years. This possibility of prolongation does not exist if the employee has been working for the same employer already beforehand.

The conclusion of fixed-term contracts is not restricted to two years if the employer can assert substantial grounds justifying the limitation.

d) The "400 Euro"-job (mini-job)

A "mini-job" with a monthly salary of at maximum 400 Euro is not subject to the normal social insurance contribution. The employee doesn't have any social security or tax withholdings deducted from his salary, but the employer has to pay a monthly lump-sum for the social insurance contribution and withholding tax in the amount of 30,1 % of the salary, of which 15% are for the pension insurance, 13% for health insurance, 2% income tax and 0,1% as insurance contribution for the continuation of payment in case of illness. These special mini-job benefits apply only if the employee doesn't earn more than 400 Euros per month, or the employment regularly does not exceed two months or 50 days per annum.

e) The temporary employment from employment agencies

It is very common in Germany that companies who need employees only temporary hire them on a temporary basis from employment agencies. This form of temporary employment allows a lot of flexibility. The supply of temporary workers requires an official license.

f) The contract of partial retirement (early retirement scheme)

The partial retirement allows the employee to retire earlier than determined by law. To achieve this aim, the mostly practised scheme is to divide the period up to the possible retirement into two equal periods, with the obligation to work during the first period and being released from work during the second period. During both periods, the employee is paid at least 50 percent of his remuneration by the employer. The halved remuneration is increased by an amount of 20 percent of the original remuneration that is paid by the Federal Employment Office. This scheme with support from the state allows the employer to reduce the personnel costs and headcount of elderly employees, but can also be attractive for the employee because he gains an earlier retirement during which he still receives 70% of his salary. The missing 30% are partially compensated by the lower income taxes which he has to pay on his lower salary, because the 20% paid by the state are tax-free and only the 50% paid then by the employer are subject to taxation. The early retirement scheme provides also that 80% of the social security contributions to the pension insurance will be continued during that time, so that the employee doesn't lose any significant parts of his pension entitlement after expiry of the scheme. The early retirement scheme is only possible if the early retirement is commenced at the latest on 31st December 2009.Is it possible to agree on a probationary period?

In German employment contracts, normally the parties agree on a probationary period. According to the law, the probationary period can be up to six months, with a notice period for both parties of at least two weeks (instead of four weeks to the 15th or to the end of the month).

The probationary period can also be agreed by starting with a temporary contract of up to six months, which elapses on expiry of this period if the parties do not agree to prolongate the contract. The probationary period means that any notice of termination, or expiry of the temporary contract in the latter mentioned case, takes effect without any reason being necessary therefore. In particular, the employee doesn't have termination protection, based on the "Protection against unfair Dismissal Act". Under this law, there applies also a statutory probationary period: the Act does not apply to employees who are less than, or up to six months employed. Which mandatory provisions of labour law in your region have to be observed at least in a contract of employment? In principle, an employment contract wouldn't need to stipulate more than the designation of the parties, the work that shall be done and the salary which is to be paid for the work (essentialia negotii), because there are statutory provisions which can fill any gaps of an employment contract. There are however statutory provisions which have to be observed and which overrule contrary provisions in the contract. For example, the notice period for a termination stipulated in a contract can be overruled by the statutory provisions of Sec. 622 of the German Civil Code, which provides in mandatory form that, after many years of service, the notice period for a termination given by the employer to the employee is extended to a certain numbers of months, depending on the years of service. Also the provisions of the Termination Protection Act, if applicable, cannot be excluded by any provisions in the employment contract.

Therefore, mandatory provisions become important where contractual provisions are missing on the respective subject, or where the contract provisions deviate from mandatory statutory provisions, or if the employer acts contrary to them.

The following regulations which prescribe minimum social standards have to be observed:the minimum vacation entitlement of four paid weeks per annumthe continuation of remuneration for six weeks in case of incapacity for workthe Work Time Act prescribing a work time of at maximum 48 hours per week in the average of 24 weeksminimum notice periods for notices of dismissal given by the employer, which are depending on the elapsed years of service, four weeks to seven monthsprotection against unfair dismissal and "social choice" among employees who are being dismissedmaternity and parental leaveprotection of disabled people
In many cases, these mandatory provisions are modified by collective bargaining agreements.

Since January 2002, standardized terms in employment contracts are also equated with other general terms and conditions if not negotiated in the individual case, meaning that they are subject to a validity control, likewise general terms and conditions. Under the regulations concerning general terms and conditions, any standardized contractual term which deviates to the disadvantage of the employee in an unreasonable manner from the statutory rule is deemed to be void. The strictness of the validity control restricts the employers' freedom of contract considerably, in addition to the limitations established by mandatory statutes.

Furthermore, the general equality principle, which applied to contracts of employment for a very long time, has been amended and sharpened in August 2006 by the so-called Equal Treatment Act, which now explicitly prohibits unjustified unequal treatment with regard to certain distinctive features (race, ethnical origin, gender, religion or philosophy, disability, age and sexual identity).Which working conditions should be regulated in a contract of employment? The number of working conditions being sensibly regulated in a contract of employment of course varies depending on the kind of work that shall be done. Envisaging an average permanent and full-time contract of employment to which collective bargaining agreements do not apply, the contract should regulate:a precise description of the work that shall be done (precise enough in order to avoid discussions about the duties, but broad enough to allow the employer to give other tasks to the employee)the place of workthe employers' right to modify the kind or the place of work, and the limitations or conditions thereforeall parts of the remuneration (gross) and additional benefits if grantedvacation entitlementmutual duties in case of illnessa probationary periodnotice periods
Depending on the kind of work to do, it is usually advisable for both parties to regulate the employment conditions in a much more detailed way. The following additional terms are often also stipulated in employment agreements:bonus entitlement or bonus schemescompany car entitlementtravel policy and cost reimbursementconfidentiality obligationno side-engagementnon-competition obligation during and sometimes also after employmentregulations for employee inventionsparticipation in a company pension scheme
It is most important to note that this catalogue does not give information about how to formulate the mentioned points in the individual case, which has to be done thoroughly and can sometimes be a very delicate decision. How do collective bargaining agreements with trade unions impact the terms and conditions of employment? Collective bargaining agreements are concluded between employers' associations and trade unions. Normally, their applicability is limited to the case that both the employer and the employee are a member of the employers' association and the trade union respectively, as the case may be. Very few collective bargaining agreements are declared by the Federal Ministry of Labour and Social Affairs to be universally binding, e. g. binding for every employment in a certain industrial sector.

Often collective bargaining agreements are applicable because of a reference in the employment contract.
 
Company agreements (on tariffs and work conditions) are concluded between an individual employer and a trade union and apply to the employees of the company being member of the trade union. An individual employer and a trade union also agree on the applicability of an already existing collective bargaining agreement or of parts of it.

The applicability of a collective bargaining agreement has disadvantages and advantages for the employer. The disadvantage for the employer is that the collective bargaining agreement sets forth minimum tariffs, vacation entitlements, maximum work time etc. On the other hand, the employer gains planning reliability because the employees are not allowed to go on strike during the term of the collective bargaining agreement. The employees are entitled to all the rights in the collective bargaining agreement; deviations from the agreement are only possible if the employees benefit from them.

The applicability of a collective bargaining agreement also releases the employer and the works council from regulating questions the agreement already deals with.

In many industries, it is common in Germany that the framework employment conditions are regulated by collective bargaining agreements. Often, there are industry-wide framework "coat collective bargaining agreements" dealing with the most common questions like the remuneration, the continuation of payments in case of holiday and illness, working times etc. They are often supplemented or amended by collective bargaining agreements regulating special questions.How can the employer or employee otherwise introduce favourable provisions into the contract?
Subject to the limitations/minimum standards which are set by the compulsory law, collective bargaining agreements on tariffs and shop agreements, the parties are free to agree on conditions which are favourable to one or the other side. For example, it is very common that employees in higher positions are paid "above tariff" and receive additional benefits. On the other hand the employer can also try to demand more flexibility form the employee than owed under the law by introducing respective terms into the contract. The employee can request that terms which are favourable for him will be stipulated in the contract. If his bargaining power is too weak for this, he can become a member of a trade union and thereby achieve the applicability of a favourable collective bargaining if the employer is bound to it as well.

Many employers either standardize their employment contracts in most terms or they decide to introduce general terms and conditions into the employment contract. The advantage of this is that the employer has got standardised terms of employment instead of many different employment contracts, and he can argue vis-a-vis future employees that he doesn't wish to deviate from the general terms and conditions in individual cases. Both aspects weaken the bargaining power of the employee. On the other hand, standardized terms bear the risk that clauses which are disadvantageous to the employee might be regarded void by a court, because such non-negotiated terms are subject to validity control pursuant to section 305 ff. BGB. Which unusual clauses can be used and which would be deemed void in case of a dispute should be checked in consultation with a German lawyer.Does labour law in your region allow temporary employment contracts? a) Direct temporary contracts
As mentioned above under question 3, paragraph c), the Part-Time and Temporary Employment Act allows temporary employment contracts, which expire automatically after the agreed date and have then neither to be terminated by a dismissal notice, nor applies any termination protection.

Temporary employments are according to this Act permissible for a certain period of time, or if the employer has a justified operational reason which require only a temporary employment.

Without substantive grounds, a temporary contract can be concluded once for a term up to two years. Shorter temporary contracts can be prolonged three times without grounds up to this total duration of two years.
Start-up companies can, within the first four years after their formation, employ employees on the basis of temporary contracts which may for such companies be limited to a fixed term of up to four years (instead of two years).

A temporary contract is not permissible if the employee has been working for the same employer already beforehand. In such case, a newly concluded temporary contract will be deemed to be a normal continuing employment relationship which is subject to the contractual or statutory notice periods and to the termination protection regulations.

Fixed-term contracts are also possible in excess of two years if the employer has substantial operational grounds which justify the limitation. Justified grounds are the:The operational need for the employment is only temporary;The employee remains in the company after an apprenticeship or other training for a limited period of timeThe employee is only employed as temporary substitute of a regular employee who is temporarily prevented to work (illness, maternity leave)The nature of the job allows only temporary employment (e.g. harvesting) The employment is entered into as probationary employmentThere are reasons in the person of the employee which justify the temporary employmentThe employee is only employed in the framework of a subsidised employment projectThe temporary employment was agreed in a court settlement

Temporary employments are also permitted without operational ground for employees who are newly employed and at least 58 years old

b) Indirect Temporary contracts through employment agencies

German labour law allows temporary employment contracts ("Arbeitnehmeruberlassung"). The main conditions are regulated in a special law, which is called the Law on Temporary Employment, also called Law on Labour Leasing.
The characteristic of temporary employment in German labour law is the triangle arrangement between the employer (agency for temporary work), the employee (worker on temporary loan) and the third party (hirer), who has a temporary need for labour.

The worker on temporary loan is employed by the agency. The worker has a conventional employment agreement with the agency, containing the conventional employees' rights. The employee fulfils his job performance not like in a "regular" employer-employee relationship on the premises of the agency. He is rented out to another company (hirer), where he fulfils his job duties. Despite of the fact that the temporary worker is not directly employed by the hirer, the hirer is disciplinarian for the authority of the employee and he responsible for the employment protection.
There exist no direct contractual obligations between the worker and the hirer. Moreover the hirers save the costs for the human resources department and the personnel handling.

Temporary employment contracts are common in all industrial and commercial areas in Germany, independent from the level of qualification of the concerned labour, which is temporarily needed.

In general, the employer, who is commercially renting employees to third parties has to seek for a concession of the German Labour Administration (Section 1 Temporary Employment Act). Such concession requires the proof of trustworthiness and the ability to accomplish correctly the common responsibilities of the employer. For example, if an employer is not capable to discharge taxes and social contributions, his application for a concession would be denied.

For the time of the temporary employment the employees on temporary loan may, from the first day of work, claim to his employer (not the hirer) to be employed under the same working conditions (including the wage) as the employees, who are working in the company in a regular employment relationship and are comparable with the loan worker. This is called Principle of Equal Pay.

The loan workers remain in an employment relationship with the agency for temporary work. Thus, they are actively and passively eligible to vote for the election of the works council of the agency. The temporary employees have the additional right to vote in the election for the works council in the hirer company, if hired by this company for more than three months. However, a temporary worker may not be elected into the workers council of the hiring company.

The workers council of the hiring company has the right of co-determination before the loan worker starts with the job performance (Section 99 Works Constitution Act).What happens to the employment contracts if a company or a business is bought by a purchaser? Which employment rights and procedures does the purchaser has to observe?
In this context Section 613 a German Civil Code (BGB) is the most important regulation of employment law in Germany. The legal consequences of the transfer of a company ownership for the employees are governed by Section 613 a German Civil Code.

Section 613 a BGB assures that in cases where a business or a part of a business is transferred to a new owner (for example if the business is sold by means of an asset-deal or if a division is outsourced to a third company), the employment relationships in the transferred business will be continued and the employee's rights are respected. Para. 613a BGB is a transformation of the EU directives 77/187/EWG, 98/50/EG and 2001/23/EG which regulate that the employees have to protected in the case of a business transfer. Similar national laws which have implemented these directives exist also in the other EU countries, for example the TUPE regulations in England.
Section 613 a BGB applies for example if a company sells its business or a partial business unit to a buyer by means of an asset deal. The employment relationships will then pass over to the new owner together with the acquired business. This passing over takes place under the law, unless employees concerned by it object to the passing over of their employment.

Section 613a BGB applies also to outsourcing measures. For example, if a company which used to have in-house cleaners decides to outsource the cleaning services, the company which takes over the cleaning services may employ the same cleaning personnel. If it does so, the transfer of undertaking will make it likely that the new employer will have to employ the cleaners subject to the same terms and conditions they used to have under their origin employer (Section 613 a I German Civil Code).

Only if the preconditions of Section 613 a German Civil Code are fulfilled, the employees reap the benefits of the protection that their employment relationship is taken over and pursued under the same conditions by the purchaser.

The following prerequisites have to be fulfilled for a so-called business succession in terms of Section 613 a of the German Civil Code:

(1.) Company or business unit is passed to the transferee by virtue of a legal transaction

The term "business" has been defined by rulings of the Federal Labour Court as an organisational unit in which certain specific working aims are pursued with the help of human, tangible or intangible resources. The pure sale of specific company assets, such as certain machines does not represent a transfer of business, as these items do not constitute an economic unit.

(2.) Transfer of the company to the purchaser by a legal transaction

Another precondition is that the business transfer is effected by a legal (contractual) transaction. Such contractual transaction can be a business acquisition by an asset deal, a contract of lease, a granting of lifehold or the continuation of the business by a sequestrator.

(3.) Employer's obligation to inform employees (Section 613 a V German Civil Code)

The employer (either the former employer or the acquirer of the business) must inform the employees involved prior to the transfer of the business or partial business unit . Such information must particularly contain the following items:

a. the date or planned date of the transfer of undertaking
b. the reason for the business transfer
c. the legal, commercial an social consequences for the employees involved
d. the planned arrangements concerning the employees

(4.) Right of objection (section 613 a VI German Civil Code)

According to Section 613 a VI German Civil Code the employees involved have the right to object to the transfer of their employment to the new owner until one month after having received the proper information pursuant to Section 613 a V BGB (see above).

If an employee objects to the transfer in due time an in due form, the employment relationship will continue with the former owner, despite the fact that the business where he worked is transferred to the new owner. But an employee who objects has a significant risk that he will then be dismissed by his employer for operational reasons, because his position has ceased to exist in the company of the employer and he will therefore be redundant in the company. An objection can therefore only be a good option for the employee if the former employer is a large company where there are other possible workplaces for that employee and social protection wouldn't allow the former employee to dismiss this employee.

(5.) Legal Consequences

The legal consequences of the business transfer affect both the individual employment relationship and the collective agreements in force (shop agreements and collective bargaining agreements on pay and conditions).
The purchaser of the business basically assumes all rights and obligations of the existing employment relationship which are in force at the time of the transfer. This applies to all benefits of the employee, including the length of service with the former employer which is important for the notice periods in case o a termination and to the protection against unfair dismissal.

The rights of the transferred employees following from collective bargaining agreements and shop agreements continue also under the new owner of the business and become part of the individual employment relationship.
 
The bargaining agreements and shop agreements formerly applying in the business of the former employer do not become collectively binding for the new owner for his whole business, but with respect to the individual employment relationships of the transferred employees, they remain in force and cannot be changed to the disadvantage of the employee until one year after the business transfer. After one year, they remain to function as non-mandatory contract terms.

If employees are dismissed by either employer (former or new employer) for a reason connected with the business transfer this will automatically be deemed an unfair dismissal and the new employer will be liable for any statutory claims arising (Section 613 a IV German Civil Code).Which mandatory provisions, notice periods, formalities and procedures have to be observed when terminating an employment contract? Which considerations should be made before terminating an employment contract ?

(1.) If the company has a works council, the works council must to be heard for his opinion before any notice of termination is being issued. A dismissal notice given to the employee without prior consultation of the works council is void. The works council can object to the dismissal, but this doesn't prevent the employer from terminating the employee, it only gives the employee the right for a continuance of his employment during a termination protection suit initiated by him. In the case of an operational dismissal, the works council is also to be informed about the social data which led to the decision taken in line with the consideration of social aspects of the situation.

(2.) Any notice of termination must be given in writing, otherwise it is void. Electronic form (E-mail or fax) is insufficient.

(3.) Ordinary Termination

For an ordinary termination, firstly the applicable notice period has to be observed. If the employment contracts stipulates a notice period, it is prevailing, unless the law prescribes mandatory longer notice periods due to the lengths of service. The statutory notice periods pursuant to Section 622 of the German Civil Code (BGB) apply if either the employment contract doesn't provide for any notice period of if the notice period in the employment contract is, in case of a termination declared by the employer, shorter than the minimum notice period provided in Section 622 BGB. Section 622 BGB provides for short notice periods if the employment hasn't existed for a long time, but after many years of service, the statutory notice periods are extended in monthly steps.
 
If The Termination Protection Act applies to the respective employment relationship, not only the applicable notice period has to be observed, but in addition one of the following additional reasons for the justification of an ordinary termination are necessary.

For explanation, the Termination Protection Act applies if:

(a) the employee is employed in that company for more than six months, and (b) the company employs more than 10 employees, or (if the employee was employed prior to December 2003) more than 5 employees.

There are three ordinary reasons for dismissal, which justify a notice termination also under the applicability of the Termination Protection Act:

(a) Dismissal cause lying in the employee's person

The most common reason for this kind of dismissal is the employee illness. Frequent short illness and permanent illness can justify a dismissal. In both cases, the precondition is that a lot of work time has been lost in the past and a negative health prediction is given. In practice, it is however very difficult to dismiss an employee for this reason, because the employee will often show a medical certificate in the dismissal protection lawsuit, attesting that he will soon be cured from his illness.

(b) Dismissal cause lying in the employee's conduct

This kind of dismissal is mainly effected by the employer, if there has been a breach of contract by the employee in the service, in confidence or in trust. In these cases, it is mostly necessary to extend an dissuasion against the employee to point out the wrong conduct, before the employment relationship can be terminated, in other words a lawful dismissal can only be declared if there is a repeated misconduct after a dissuasion.

(c) Dismissal for operational reasons

The employer has the right to terminate the employment relationship for operational reasons if he has no employment for the concerned employee(s). This is the most frequently used reason for termination in practice, particularly if the business situation forces a company to cut personnel costs and make positions redundant.
The operational reason can be internal or external. Rationalism measures are taken into consideration as well as a lack of orders and a decrease in sales.

Very important for this kind of dismissal is that the employer must take social aspects into consideration, before he terminates the employment relationship. In other words, when choosing who to terminate between several comparable employees, the employer has to take into account the length of service of the affected employee, the employee's age and his support obligations to wife and children. Thus, the employer has to select among equally qualified employees the employee who is, in line with aforementioned criteria, the least likely to be socially affected. In practice, this means that an employer who wants to make a position redundant because of its inefficiency, can be forced to move the employee who works in this inefficient position to another remaining position in the company and dismiss the younger employee from the remaining position instead. In this regard, the employer cannot argue that the older employee is less efficient and costs more. These arguments are not valid. However, when taking the social aspects into consideration, only those employees are to be included in the selection, who are interchangeable and comparable in terms of their professional qualifications and the tasks they perform.

(4.) Extraordinary Termination

In cases of serious misconduct, employers can give immediate notice of termination with immediate effect. The contractual or statutory notice periods do not apply in these cases. It has to be taken into account however that a termination for cause with immediate effect is only possible within two weeks after the employer has become aware of the respective facts.

The immediate termination is allowed if an employee intentionally causes damages to the company, for example by intentionally destroying or stealing property of the company or by passing on internal information to third parties. However, in cases of less severe cases of misconduct, the misconduct has to be admonished by a warning letter first, and only in case of an anew misconduct of same or similar nature, the immediate termination is possible.How strict are the termination protection rules in your region and how can or will the employee react when receiving the notice of termination?

Protection of the employees against unfair dismissal is a key subject in Germany with significant relevance in practice. The Termination Protection Act ("Kundigungsschutzgesetz") is compulsory law and applies to all companies which employ more than 5, or as the case may be more than 10, employees. If the employee was employed before the 31.12.2003, more than 5 employees are sufficient for the applicability of the Dismissal Protection Act. If the employment relationship has begun after the 31.12.2003, it is necessary that more than 10 employees are employed in the enterprise (Section 23 Termination Protection Act). For companies below this threshold, the Termination Protection Act is not applicable.

Employees who are have been in service with the employer for less than 6 months are not protected under the Termination Protection Act.

The Federal Labour Court ruled in its judgement of 15.02.2007, Az.: 8 AZR 397/06 that if an employee passes over to a new employer due to a business transfer in the meaning of Section 613 of the German Civil Code and the Dismissal Protection Act applied for his former employer because it had more than 5 or 10 employees, but the new employer doesn't achieve these thresholds, the applicability of the Dismissal Protection Act will not be continued by way of business succession.

If the Unfair Dismissal Act is applicable, the ground for the dismissal is subject to judiciary verification if the employee files a reinstatement complaint before the labour court within 3 weeks after having received the notice. In case of an extraordinary dismissal, the dismissal is subject to judiciary verification, even if the Unfair Dismissal Act is not applicable.

The employee has two possibilities to react after receipt of the notice of termination.

He may accept the dismissal and work until the end of the period of notice.

If he doesn' t agree with the termination, he has to file a protective lawsuit against the dismissal at the competent Local Labour Court within three weeks of the receipt of the notice. Failing this deadline leads to the irrevocable validity of the notice with the consequence that the employment relationship is terminated after expiration of the notice period, irrespective of whether a reason for the termination was given or not.

Has the employee filed a lawsuit timely, the Local Labour Court has to adjudicate on the justification of the reason for the termination stated by the employer, which can either be (a) a reason in the person of the employee, (b) a reason in the misconduct of the employee or (c) an operational reason - for details see question 11 above -, and in the case of operational reasons, the court will particularly control the social justification of the dismissal and whether the employment relationship is, in case of insufficient ground or lack of social choice, still existent.

In general, the employer is under the obligation to provide evidence of the reasons of termination, he has the burden of proof.

The ordinary dismissal must be socially justified, if the Dismissal Act is applicable. The result will strongly depend on the particular reason (business reason, personal reason, conduct-related reason or extraordinary termination). Which rules and procedures apply in case of mass dismissals?

The main regulation in case of mass dismissals is Section 17 of the Termination Protection Act. This rule obligates the employer to notify the Federal Labour Office before he terminates a certain number of employees (mass dismissal).

Such notification report has to be made, if the employerin companies with regularly more than 20 and less then 60 employees terminates 5 employees,in companies with regularly a minimum of 60 and less than 500 employees terminates 10 % of the employees or more than 25 employees, andin companies with a minimum of 500 employees terminates at least 30 employees.

The report has to be made before the notices of termination are issued.

Furthermore, the employer has to inform the works council about the mass dismissal (section 17 II of the Termination Protection Act). The employer and the works council have to confer about the possibility to avoid the planned dismissals.

Another important aspect of mass dismissals is that they are often a "company reorganization" pursuant to Sec. 111 of the Works Constitution Act, which is - in companies with more than 20 employees and an established works council - subject to co-determination by the works council, with the consequence that the employer must consult with the works council about a "balancing of interests" and a "social plan" which sets forth a compensation scheme for the employees concerned by the reorganization. If the thresholds of dismissals pursuant to Sec. 17 of the Termination Protection Act are exceeded and the mass dismissal forms a business reorganization in the meaning of Sec. 111 Works Constitution Act, or irrespectively of a business reorganization also if certain higher dismissal thresholds are exceeded pursuant to Sec. 112a Works Constitution Act, the works council can urge the employer to establish a social plan by letting an arbitration committee ("Einigungsstelle") establish the social plan. Should the employer circumvent this consultation process with the works council and avoid the establishment of a social plan, he may be confronted with higher penalty compensations in legal proceedings initiated by the dismissed employees.Is it common to make severance agreements with employees, and what would be a standard compensation that would be paid to an employee for the loss of his job?

Formerly it was quite common that in cases where a dismissal notice was already given or intended by the employer, the employer and employee agreed mutually on the termination of the employment by a written severance agreement which stipulated the mutual ending of the employment at a certain date and the payment of compensation for the loss of the job.

But nowadays, in most cases the employee does not want to sign such a contract anymore because it has adverse financial effects for him. If the employee signs such a contract voluntarily, the Federal Employment Office cuts the unemployment benefit payment and the payment period because the employee did not compete for the maintenance of the employment relationship. Due to these financial disadvantages, the motivation for an employee to sign such a contract is not very high. However, if the employee has filed a termination protection and reinstatement lawsuit, he is allowed to enter during the court procedure into a mutual severance agreement by which the employment will be terminated against payment of a compensation. In this case, he will not be blocked from unemployment benefits. Because of this situation, it is normal in Germany that an employee who has been given notice of dismissal will firstly initiate legal proceedings to challenge the termination, but will nevertheless accept a severance agreement during the court proceedings if a compensation is offered.

In the severance agreement the parties agree to end the employment relationship at a specific date upon payment of a lump sum to the employee, which normally consists of the payment of salary up to the end of the notice period plus a compensation for the loss of the job. There are also no fixed rules for calculating the amount of the settlement. The Labour Courts frequently use settlement formulas (between 0.5 and 1 times the gross monthly salary per year of employment) in order to propose an amicable composition. Section 1a para. 2 of the Termination Protection Act suggests also that 0.5 monthly salaries for each year of employment are a reasonable compensation in case of operational reasons.

The employer may submit a dissolution motion. In this case, provided that it is unacceptable for the employer to continue the employment, the Court determines the dissolution of the employment relationship, irrespective of whether there is a reason for dismissal or not, and at the same time sets the amount of compensation, which can be up to a maximum of 12 months salary. The aforementioned formulae are frequently also applied in theses cases.Are there special protection rules for certain individuals? Special protection rules exist for certain groups of individuals:Pregnant women and young mothers cannot be terminated until four months after the childbirth (Section 9 Maternity Protection Act, "Mutterschutzgesetz")Parents in parental leave: If the employee has taken parental leave - to which one of two parents is entitled during the term of up to the first three years of life of each child -, the employer is not allowed to terminate the relationship of employment until the end of the parental leave (Section 18 Federal Education Benefit Act ("Bundeserziehungsgeldgesetz" and Section 18 of the new "Bundeselterngeld- und Elternzeitgesetz BEEG")Handicapped employees: The termination of employees, who are more than 6 months employed and severely disabled or equally affected, requires the approval of the Integration Office (Sections 85 ff. Code of Social Law IX ( Sozialgesetzbuch IX").Members of the works council: The members of the works council can during their incumbency and one year thereafter only be terminated for extraordinary reasons. An ordinary termination by the employer is excluded during this time (Section 15 Dismissal Protection Act ("Kundigungsschutzgesetz"). How does an employment tribunal differ from a civil lawsuit, and what are the chances and risks in a dismissal protection suit for the employer and the employee ? Two forms of proceedings have to be distinguished in the employment tribunal:
 
Judgement-Proceeding

The Judgement-Proceeding is appropriate if the employee accuses his employer or vice-versa. This is for example the case in dismissals, dissension about wage and assertion of holiday claims. The denomination of this proceeding is based on the reason that this proceeding ends with a judgement, if the parties have not come to a compromise. However, also a termination protection suit which takes place in the form of a judgement proceeding is in most cases mutually settled by a severance agreement which the parties agree before court. A material difference between the labour court proceedings and civil proceedings is that in the first instance of the labour court procedure, each party bears its own costs, i.e. the winning party has no cost compensation claim against the losing party.

Resolution-Proceeding

For the cases that there are disagreements between the works council and the employer, the so-called Resolution-Proceeding is appropriate. This proceeding ends with a resolution. The main difference to the Judgement-Proceeding is, that during the resolution-proceeding the Labour Court is responsible for investigation all relevant circumstances. That means that the Court by his resolution is not bound to the pleading of the parties hereto. In this special proceeding the costs are defrayed by the employer.

Risks and Chances

An employee has nothing to loose in a dismissal protection suit, because the employer has already terminated the employment relationship. He can only win in view of the employment, i.e. either try to be reinstated into his employment, or achieve to get a compensation for his agreement to a mutual termination of the employment. However, the speciality of the employment tribunal concerning the costs must be pointed out. In an employment tribunal at the first instance each party bears its own costs independent of the result of the proceeding. However, should the case be carried to the second instance, the losing party has to bear the costs of both parties, on the basis of the statutory attorney fee regulation.

The reason for the small risk of the employee is also that the employer has to prove that the dismissal is justified. Thus, it is advisable for the employer to terminate an employment relationship only if there are chances to succeed in legal proceedings. Otherwise, there is a great probability that the employer has to pay more than the standard compensation if he wants to achieve the termination of the employment.
 
FAQ by Anne Dellbrugger, Yvonne Goebel and Dr. Clemens Rogge, Schneider Schwegler Rechtsanwälte, Dusseldorf

Schneider Schwegler

Königsallee 60 G

Dusseldorf

40212

GERMANY

URL: www.schneider

-schwegler.de

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October 9, 2007