German Employment Law is complex and subject to various statutory regulations which usually are widely unknown to foreign companies planning to hire staff in Germany. As German Employment Law additionally is said to be largely “employee protection law”, it is important for foreign companies to be familiar with some basic issues:

  1. Written employment contract: Each employee has a right to and will expect a written summary of the main terms and conditions of employment rather than a simple letter offering employment which might be more typically expected, for example, in the US. Furthermore, certain provisions are only enforceable if agreed in writing. Therefore, almost all employees in Germany have an employment contract in writing. For employers a written contract has the advantage of making it possible to include certain provisions into the agreement, especially with respect to IP rights, confidentiality, and non-competition covenants. Irrespective of what the parties may agree upon in the employment contract, however, German law imposes a number of obligations and rights which may override contractual agreements.
  2. Protection against dismissal: In Germany, there is no concept similar to employment “at will”. If an employer employs more than ten employees in Germany, the Protection against Unfair Dismissal Act applies. This means that the employer needs to have a legally “fair” reason to dismiss an employee who has been employed for more than six months. Such reasons can be operational (e.g. restructuring), personal (e.g. long lasting sickness), or misconduct of the employee. If the threshold of more than ten employees is not exceeded, no reason for dismissal is needed, only the applicable notice period needs to be observed and the dismissal needs to comply with the principles of good faith and good morals. A special protection against unfair dismissal applies to some group of employees. For example, a notice is void if it is given to pregnant employees and mothers within four months after the birth of the child, employees during parental leave or severely disabled employees. In these cases, prior approval of the competent state authorities is required (but usually very difficult to obtain).
  3. Notice periods and severance pay: For any ordinary dismissal, the applicable termination notice period needs to be observed. German law does not recognize payment in lieu of notice. The length of notice periods can either be agreed in the employment contract or the statutory notice periods apply. If the statutory notice period is longer than the period agreed in the employment contract, the statutory notice period prevails. The length of statutory notice periods depends on time of service. During the initial six months of employment, a probationary period can be agreed. During such a probationary period, dismissal is possible with two weeks’ notice. Until completion of five years of service, the statutory notice period is one month to the end of a calendar month. The maximum statutory notice period is seven months to the end of a calendar month after 20 years of service. Extraordinary dismissals without notice are only possible in cases of severe misconduct of the employee. There is no statutory entitlement or calculation of severance payments. Nevertheless severance payments are often agreed upon in termination agreements or settlement agreements ending a law suit for unfair dismissal.
  4. Working time regulations: The regular number of hours during a working day must not exceed eight hours. A daily working time of up to ten hours is permitted if, over a period of six months or 24 weeks, the average daily working time does not exceed eight hours. All weekdays excluding Sundays and public holidays are considered to be working days. However, employees usually work from Monday to Friday (five-day week) in Germany. In a five-day week, the average working time is between 35 and 40 hours. Working on Sundays and public holidays is generally prohibited. Nonetheless, the German law on working hours provides for several exemptions in which working on Sundays and public holidays is permitted (subject to prior approval by the competent state authorities in some cases).
  5. Minimum wage: Since January of 2015, a minimum wage of EUR 8.50 per hour has to be paid to employees. This applies to all employees but not to apprentices and interns within certain internships. Companies may be held liable, if a contracting party does not pay the minimum wage to its employees.
  6. Statutory holiday entitlement: Employees in Germany have a statutory right to 20 days paid holiday per year in a five day working week. Nevertheless many employment contracts provide for a higher number of paid vacation days; 25 to 30 days paid holiday per year are common practice. Severely disabled employees may claim additional five working days of vacation pursuant statutory law.
  7. Continued remuneration during sickness: Employees are entitled to six weeks continued full remuneration from the employer for each illness during a calendar year. Afterwards employees can apply for sick pay with the statutory (or voluntary private) health insurance for 78 weeks.
  8. Maternity and parental leave: There is a fully paid ban on working later than six weeks before the expected due date and up to eight weeks after the actual birth date (extended to 12 weeks for premature or multiple births). Either parent or any other person who is looking after and raising the child has a statutory claim for unpaid child raising leave for up to three years. During this time, the employment contract is suspended and the previous position must still be available when the employee returns.
  9. Non-compete and non-solicitation provisions: During an ongoing employment relationship, employees are bound by statutory non-compete restrictions. Furthermore, employment contracts usually include additional detailed non-compete restrictions. However, post-termination non-competition obligations can only be enforced in Germany if they are reasonable and if the employer pays the employee compensation for the duration of the prohibition in the amount of at least 50 per cent of the last remuneration (including all benefits) under the employment contract. Finally, such prohibition on competition may only be agreed for a maximum period of two years after termination of the employment contract. Therefore, in each individual case it should be considered carefully whether it makes sense to agree upon a post-contractual non-competition covenant.
  10. Works council: In operations with at least five employees, employees can initiate the establishment of a works council. Works councils are typically established in larger operations, especially in the blue collar sector. Whereas in new economy companies, it is rather unusual to set up works councils. Works councils have broad information, consultation and especially determination rights. For example, a works council needs to be consulted before any dismissal as otherwise the dismissal is void. Moreover, works council members, spare members of the works council, election candidates for the works council and election board members can be terminated only by extraordinary notice for cause and only after the approval of the works council has been obtained.