German labour and employment law is divided into two areas: individual employment law and collective labour law. Individual employment law concerns relations between the individual employee and their employer, while collective labour law regulates the collective representation and organisation of employees as well as the rights and obligations of employees' representatives. It is not consolidated into a single labour code: the main sources are Federal legislation, case law, collective bargaining agreements, works council agreements and individual employment contracts.

Issues arising on hiring individuals

Immigration

In principle, employees who are not German nationals and would like to work in Germany require a residence title and a work permit before entering Germany unless they are: (1) EU nationals or (2) nationals of a European Economic Area (EEA) member state (Iceland, Liechtenstein, Norway), or Switzerland.

Employment structuring and documentation

The employer has a statutory obligation to provide the main contractual terms in writing to the employee no later than one month after their employment commences. The terms and conditions of employment are regulated principally by statute, employment contract, collective bargaining agreements and works council agreements.

Generally employment contracts are entered into for an unlimited period. A fixed-term contract is possible, provided the term is agreed in writing before the employment commences. A fixed-term employment relationship may also be justified on objective grounds, which are set out in statutory law (e.g. temporary increase in work volume, substitution of an employee during parental leave). If no objective grounds exist, fixed-term employment is limited to a maximum duration of two years, provided there was no previous employment contract with the same employer. A fixed-term contract ends automatically without written notice at the end of its term. If the employment continues after the fixed-term contract expires, the agreement is deemed to be for an indefinite period.

The employer and employee may agree to a probationary period, which is limited by law to a maximum of six months.

Foreign secondees

The rights of employees who are only temporarily posted to work in Germany are generally determined by foreign labour law. However, to ensure fair competition and to protect the interests of employees in certain business sectors (including construction, commercial cleaning and postal services sectors) a number of working conditions apply including: (1) maximum work periods and minimum rest periods; (2) minimum paid annual leave entitlements; (3) minimum wage, including overtime (pursuant to the relevant collective bargaining agreement); (4) regulations on health, safety and hygiene at work; (5) maternity/parental leave and youth protection; and (6) antid iscrimination provisions including prohibitions on gender discrimination.

Issues arising during the employment relationship

Wages, annual leave and working time

The statutory national minimum wage (NMW) was raised to EUR 8.84 per hour on 1 January 2017. The NMW does not apply to employees under 18, trainees or interns. The rate of the NMW will be reviewed every two years by a commission representing both employers and trade unions.

Aside from the NMW, there are special regulations and collective bargaining agreements in certain sectors (e.g. the construction industry), most of which have a minimum wage. As of 1 January 2017, sector-specific minimum wages may not be lower than EUR 8.50 per hour.

As a general rule, remuneration is determined by mutual agreement. The salary is set out in the individual employment contract, either specifically or by reference to a collective bargaining agreement. In addition to the obligation to observe the NMW, a salary of less than two thirds of the relevant usual wage is contrary to public policy and such an agreement is generally considered to be void.

The statutory maximum working time is eight hours per day from Monday to Saturday. Working on Sundays and public holidays is generally not permitted, unless expressly allowed by legislation. The statutory maximum weekly working time limit is 48 hours.

Overtime pay is not expressly regulated by law but is subject to the employment agreement, collective bargaining agreements and works council agreements.

Employees who work a five day week have a statutory entitlement to 20 days' paid annual leave. However, it is more typical for employees to receive between 25 and 30 days' leave, depending on their seniority and the type of business.

Trade unions

The formation, function and internal democratic structures of trade unions are protected by constitutional law. The main function of trade unions is to conclude collective bargaining agreements which can be done with either a single employer or an employers' association. Trade union representatives also support employees and works councils but do not have participation rights within a company.

Collective bargaining agreements have immediate and binding effect on the individual employment relationship in the same way that statutes do if one of the following requirements is met: (1) the employee is a member of the relevant trade union and the employer is a member of the relevant employers' association or concluded the collective bargaining agreement itself; (2) the Federal Ministry of Labour and Social Affairs has declared the collective bargaining agreement to be generally binding; or (3) the employment contract provides for the contractual application of a particular collective bargaining agreement.

Social insurance

All salary payments are subject to tax and social security contributions (pension, unemployment, health, accident and nursing care insurance). These must be withheld from an employee's salary by the employer and paid to the respective institutions.

In general, the employer and the employee each pay half of the social security contributions. The employers' contributions are paid in addition to the agreed salary, calculated on the basis of the employee's gross salary, subject to a maximum amount. Contributions to the employee's accident insurance are made solely by employers.

Issues arising on termination of the employment relationship

Business transfers

Under German law, all of the transferor's employees automatically transfer to the transferee on their existing terms and conditions of employment. Before the transfer, each "affected employee" must be informed in writing about the transfer: the reasons, the background, the social and legal implications of the transfer and any "measures" planned by the transferee.

Employees are entitled to object to the transfer of their employment without giving reasons for their objection. In this case, their employment will continue with the transferor. If the transferor is no longer in a position to employ them, a dismissal for operational reasons may be socially justified.

Terminating employment

Under German law, employment can be terminated by mutual consent, by expiry of a fixed-term contract or by notice given by one of the parties. To be legally effective, the notice and the termination agreement must be in writing. Notice given by the employer must be the original document in writing and signed by a legal representative of the employer. All other forms of notice (i.e. verbal notice, or notice given by email or fax) are void.

If the employer terminates the employment without having first informed and held a hearing of the works council (if there is one) as well as the representative body for severely disabled employees (when the employment of an individual with severe disabilities is terminated), the dismissal is also void. If the dismissal is void, the employee is entitled to reinstatement and continued remuneration.

Protection against dismissal is divided into general and special protection. Special protection is provided to employees who may be at greater risk of dismissal, such as disabled or pregnant employees and works council members. In such cases, the permission of relevant government authorities is required before terminating their employment contract.

The right to dismiss employees is substantially restricted by the German Act on Protection Against Unfair Dismissal. The Act applies if: (1) a business establishment generally has more than ten employees; and (2) the employee has worked in the same company or business establishment for six months without interruption. If the Act applies, a termination is justified only if it is based on reasons relating to: (1) the person; (2) their conduct; or (3) compelling operational requirements which preclude the continued employment of the employee in the establishment.

Severance payments are paid at the end of employment if: (1) the employment agreement provides for a contractual severance payment; (2) the parties agree on a severance payment (in or out of court); (3) the court dissolves the employment in return for a severance payment being made if it finds that, despite the termination being invalid, continued employment would be intolerable either for the employer or the employee; or (4) a social plan concluded with the works council in connection with a mass dismissal provides for severance payments. The following (non binding) formula is often used to calculate severance payments: monthly gross salary multiplied by years of employment, multiplied by a factor of x (where x is generally a number between 0.5 and 1.5, but may be lower or higher, depending on the circumstances).

Due to the high level of protection against dismissal, it is not uncommon for the employment to be terminated by a termination agreement. This may occur at any time, with or without a severance payment. Statutory unfair dismissal protection does not apply in such cases.

Published in collaboration with L&E Global an alliance of employers’ counsel worldwide

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