Swedish Labor Court’s Ruling

The Swedish Labor Court (AD 3/2017) had recently decided on the termination of the employment contract of a sales representative. The employer justified the termination by stating that the employee’s sales figures within the last year were unsatisfactory and substandard. The Court was of the opinion that the employee’s performance was not poor enough to justify the termination of the employment contract. However, the employee additionally repeatedly refrained from preparing weekly reports and presenting them to his employer, which resulted in him having to be reprimanded four times. The Court viewed this misconduct as poor performance justifying the ordinary termination of the employee. The Court was in particular convinced that, due to repeated reprimands, it could not be assumed that the situation would improve.

In addition, another aspect of this decision is worth mentioning: irrespective of the validity of the termination, the employer was liable to compensate the employee for damages in this case because it did not explicitly point out the employee's right to bring an action and did not deliver the notice of termination in person but instead sent it by registered letter.

Legal Situation in Germany

German labor law differentiates between terminations for reasons of conduct or personal traits of the employee and business-related reasons (Section 1 of the German Unfair Dismissal Act (KSchG)). Termination due to poor performance is generally not provided for by law. In particular, individual occasional misconduct does not entitle the employer to a regular termination of the employment contract.

In theory, the poor performance of employees which, despite existing personal and professional qualifications, is beyond the tolerance limit to be imposed under the employment contract, can constitute a presumable violation of contract. Thus, such behavior can entitle an employer to terminate the employment according to the circumstances of the individual case and after prior warning. However, it is practically impossible to prove because employees generally do not demonstrate a will to not intend to fulfill their obligations under the employment contract.

However, the situation changes if an employee repeatedly violates explicit work instructions (e.g. writing a weekly report). After a formal warning, employment may also be terminated due to misconduct under German law.

Formalities must be observed in German labor law as well. Some formal requirements must be respected not only for the avoidance of claims for damages but also for the validity of the termination in the first place. This applies, in particular, to the written form requirement according to Section 623 of the German Civil Code (BGB), which requires an original signature.

In contrast to Swedish law, delivery in person is not required for the valid termination of a contract or in order to avoid liability for damages. As a unilateral declaration of intent, it is sufficient for its effectiveness to reach the employee’s sphere of control, provided the employee would become aware of the notice under normal circumstances. However, as the employer has to bear the burden of proof for this (and for the time of receipt, on which adherence to the notice period depends), a personal transfer or any proof of delivery (e.g. transfer by private messenger or by registered mail) is recommended.

Also, there is no obligation for the employer to provide the employee with information concerning the right to bring an action. Instead, the employer must notify the employee of his or her duty to report to the employment office (Bundesagentur für Arbeit) so that he or she will not suffer any disadvantages concerning unemployment benefits. Claims for damages that might arise if the employer fails to do so are rarely brought against employers in court. However, such claims could include damages for all lost unemployment benefits (because a vesting period of one week can be imposed).

Recommendation

The termination of employment due to poor performance is a challenge under German law. Therefore, it should be examined whether there was an infringement of work instructions which, after the warning had been given, justifies a conduct-based termination. Particular attention should be paid to formalities which, unlike under Swedish law, can not only lead to damages, but also to a void termination.