Important and/or distinctive aspects of rights on termination in Germany

In contrast to many other jurisdictions in Europe, German employment law provides for rather strong termination protection, in particular as employees may not be unilaterally dismissed in exchange for statutory redundancy pay.

German Termination Protection Act

The employment relationship of an employee working in a business unit employing more than 10 employees and who has completed at least 6 months of service with the company can be terminated with notice only if the termination is “socially justified”.

The requirement that a termination must be “socially justified” means that the employment relationship may be terminated only for reasons based on:

  • the employee’s person;
  • the employee’s conduct; or
  • urgent business requirements.

Termination for urgent business requirements is admissible only if the following conditions are met:

  • the employee’s specific job is eliminated;
  • there is no possibility of employing the employee in another vacant position within the company including other business units; and
  • the so-called “social selection” was properly made.

If business considerations require the dismissal of an employee where there is a group of comparable employees, the termination may be invalid if the “social selection” out of these employees was not properly made. This would be the case where the employer did not select for redundancy the employee least severely affected by the termination.

Consequences of a dismissal

If a legal dispute was brought before a labour court and the employer was able to provide sufficient evidence to meet the above conditions for termination (noting that the employer has the full burden of proof), the termination would be considered valid and the employment would end at the expiration of the notice period. The employee would be entitled to receive the contractual remuneration as at the effective termination date. No additional severance would be due.

By contrast, if the court did not consider the reasons and evidence sufficient to justify a dismissal, the termination would be null and void and the employee would be re-employed by court order. In addition, the employee would have to be paid the salary that would have accrued between the expiration of the applicable notice period and the court’s judgment. However, the parties frequently agree upon a separation agreement in the course of such a proceedings (see below).

Separation Agreement

Even if its prospects of successfully defending a termination claim appear to be good, an employer may wish to reach an amicable separation. With a separation agreement, the employer would not have to meet the conditions listed above for termination, nor would it be required to inform the works council. However, the employer would commit to paying a certain amount as redundancy compensation for loss of the job. As far as the financial aspect is concerned, two points should be considered.

Firstly, the employee would be entitled to continue to work and receive his or her salary until the end of the normal notice period. Employees normally seek confirmation that their notice period only begins to run from the date of the settlement agreement.

Secondly, where the employer’s prospects of successfully defending a termination claim are not good, it is customary to make a severance payment. Under German law, there are no fixed rules for the calculation of severance payments under separation agreements. However, from 1 January 2004, employees terminated by reason of urgent business requirements have a statutory claim to a severance payment in the amount of half of their monthly salary, per year of service, if they do not file for protection against termination and if the employer informs them of the reasons for termination as well as [the conditions for making a claim for protection against termination] in the written notice of termination. Usually, this calculation rule is regarded as appropriate for terminations for urgent business requirements and will also be considered as a reference point for separation agreements. However, as the law only refers to terminations for urgent business requirements, the figures agreed to in a separation agreement are still subject to negotiations.