Germany is considered a leading industrial nation in many areas of business and technology but when it comes to law and formal requirements it is still rather traditional. For entrepreneurs doing business in Germany for the first time this may come as a surprise.

German legal practice still widely depends on original handwritten signatures and documents actually executed on paper. This is especially true for aspects of labour and employment law. The reasoning behind this is that only written documents ensure a level of proof and warning which is adequate for the importance of the document to the employee. Any employer that ever dismissed an employee in Germany will have learned painful lessons when it comes to the right authorised signatory, the right signature on the right paper with the right letterhead and with the right pen (blue) and all the following obstacles in delivering a (finally) duly executed and signed original document to the employee being terminated.

But what employers often forget is that the fun with German employees does not end with the termination letter:

Every employee in Germany is entitled to a written reference called the “Arbeitszeugnis” (Section 109 German Industrial Code – “GewO”). An employee may seek a “plain” reference or a “qualified” reference.

A plain reference merely indicates the nature and duration of the employment relationship, while a qualified reference also describes and evaluates the employee’s conduct and performance during the employment relationship. In practice all employees expect and demand a qualified reference.

If a legitimate interest (“berechtigtes Interesse”) exists, the employee may even demand an interim reference (“Zwischenzeugnis”), particularly if the scope of work within the operational unit is altered, the company or the group changes, the employee’s superior changes, a transfer of business takes place or, most relevantly, the termination notice period has been given but not yet expired.

The reference has to state the employee’s full name, details of the employment relationship and especially describe all tasks of the employee. The reference may state additional information (particular success stories of the employee or his social activities in the company, etc.) if the employer deems fit but details in this regard are often highly disputed. It must be written in German, even for foreign employees in Germany. However, upon request, the employer may also write a reference in a foreign language.

The date of the reference should be that of the legal expiration of the employment agreement, even if the reference is executed later as a consequence of a legal dispute over its content. Although some court rulings state that the date of the reference should be the date the reference is signed, the reality is that this (usually later) date is commonly considered an indication of some form of dispute between the employer and the employee. As a result reference letters usually bear the date of expiration of the underlying employment relationship, pretty much whenever they are actually provided.

The reference must be signed by the employer (or its representative) by his own hand. A signature by a representative of the signatory, a facsimile signature or a photocopied signature will not be sufficient.

The reference must state the facts, but the language must be favourable to the employee (“wohlwollend”) and shall not hinder his further professional advancement without good cause. References therefore have a codified language of their own. There are certain codes related to specific “grades”. These grades generally are, in descending order: “very good”, “good”, “satisfactory”, “non-satisfactory”.

Reference letters in most cases, especially where the employer and the employee part ways amicably, range between the grades “good” and “very good”. The general principle is that employers have to issue a reference with at least the rating “satisfactory” (“befriedigend”) unless the employer can prove that the performance of the employee was seriously non-satisfactory, and there is rarely anything to be gained by it from the dispute and ill-will that inevitably results. If employees want a better rating than that then they have the burden of proving a performance level beyond that of the average employee.

The reference is an important tool for both employers and employees, which is also the reason why it can be stated that some of the fiercest legal battles are fought over reference letters in Germany. These disputes usually involve general content and tasks performed; etc., but can include seemingly unconnected issues such as quality and condition of the paper used, grammar and style or where to put or not put a comma. The argument is that a “good” reference given on tatty paper or with careless style or grammar shows that the employer did not care enough about the employee’s next role to do it properly, and therefore the impression conveyed is negative even if the words by themselves are not.

Employees utilise claims for a reference letter as pressure against the employer once everything else is settled or in earlier stages to annoy the employer. Employers use it as negotiation leverage or hold it back as long as possible (which has its legal risks) and often play on the hopes and fears of the employee by indicating what may or may not be stated in it.

Even though there is a legal right to a reference, employers have a wide legal corridor within which they can hold back on issuing a reference or play with the detailed rating and content of it. Legal action for a reference alone is rare since the parties usually settle this out of court but it can and will happen if the employer is not careful, since the law in this area strongly favours the employee.

While the reference must not hinder further job possibilities, it also has to adhere to the legal principle of truth (which is often overlooked in practice). Where employees have committed misconduct the previous employer can be liable should it nevertheless issue a benevolent reference and a later employer hiring him in good faith suffers a loss in the reliance on it.

Another important aspect which should not be forgotten is that employees can claim damages if the reference letter is not issued in due time or contains wrong information and the employee suffers loss as a result, usually his not being accepted for a new job.

The significance of the inaccurate or missing reference letter in the employee getting or not getting a job might in most cases be difficult to prove but as a current court case involving German industry steel company Thyssen shows, this can lead to high claims if the matter concerns senior management. In the Thyssen case the employee is demanding EUR 1.75 million (his salary for a year) from his former employer.

All these issues show why employers active in Germany should never underestimate the “Arbeitszeugnis” and the trouble it may cause.