The state labor court of Frankfurt (Landesarbeitsgericht Frankfurt) ruled on 13 July 2016 (docket number: 18 Sa 1498/15) that a dismissal of an employee by a major financial institution at the behest of the New York Department of Financial Services (NYDFS) is invalid. The dismissal has to be justified based on German labour law.

The financial institution was the target of several investigations by US-American banking authorities because it failed to follow compliance measures and to maintain sufficient communication with the authorities which, according to the authorities, resulted in a breach of the “Iran Threat Reduction and Syria Human Rights Act” of 2012. NYDFS not only fined the financial institution for this breach by also requested by way of a Consent Order that the financial institution terminated several employees who were allegedly involved in breaching the sanctions, including the plaintiff in this case. The NYDFS aimed to sanction individual persons as a deterrent, as is practice for supervisory measures in the US. The bank claimed that it was forced by this Consent Order to terminate the plaintiff and that there were no other reasons, especially none linked to German labour law, that led to the termination.

The plaintiff filed proceedings against the termination of his employment contract, which were successful before the state labour court of Frankfurt. The court argued that the obligation under the Consent Order was made with the reservation that the termination could be reviewed by a German court. It is therefore not sufficient to simply refer to the Consent Order, the termination also requires justification under German law. The court held that the termination was not valid under German law. Generally, a termination can be based on third party pressure. However, the prerequisites for such a termination under pressure are very high. The third party (e.g. other employees, clients, unions, works council) has to request the termination of the employee under the threat of severe disadvantages (e.g. mass dismissals, strikes). The employer is only considered justified if the employer has no other option to avoid the disadvantages than the dismissal of the employee. In the given case, the Consent Order did not prohibit the financial institution from continuing the employment provided the employee was transferred to another department. Consequently, the employer had an alternative to the dismissal of the employee. However, the court also held that the financial institution is not obliged to employ the employee in his old department during the ongoing legal proceedings.

The state labor court has permitted the appeal to the Federal Labour Court (Bundesarbeitsgericht). The decision is not yet final. We will keep you posted about any further developments.