Grounds for Termination
Under German law, the employment relationship can be terminated by mutual consent, by expiry of a fixed-term contract or by notice given by one of the two parties. As to the general protection, the freedom of the employer to dismiss an employee is substantially restricted by the Dismissal Protection Act (“DPA”), which applies if: 1) a business establishment has generally more than ten employees; and 2) the employee has worked in the same company or business establishment for six months without interruption.
Dismissals by reason of redundancy are considered ordinary dismissals under the DPA. In addition, specific rules apply if the dismissals form part of a so-called mass redundancy of a certain scale; e.g. prior notice must be given to the competent employment agency and a violation of this formality will result in dismissals being void. In case of a so-called operational change of business (e.g. closure of the business), collective dismissals may, in addition, require the negotiation of a social plan and the attempt to negotiate a reconciliation of interests with the works council, if the undertaking employs more than 20 employees. Certain reprieves exist during the first four years of a company’s existence.
If the DPA applies, a termination is only legally effective if it is “socially justified”. A termination is justified only if it is based on reasons related to: 1) the person; 2) the conduct of the employee; or 3) urgent operational requirements which preclude the continued employment of the employee in the undertaking.
Notice must be given in writing (wet ink signature) and signed by a duly authorised representative of the employer, in order to be legally effective. All other forms of notice (i.e., those given orally or by e-mail or fax) are void. Terminations without information/hearing of the works council (if in place) or the representative body for severely disabled persons (if in place and in case of a termination of a severely disabled person) are also void.
Is Severance Pay Required?
Severance payments are paid at the end of employment in the following cases: 1) the employment agreement provides for a contractual severance payment (which is very unusual); 2) the parties agree upon a severance payment (in or out of court) to settle a termination dispute; 3) the court dissolves the employment against payment of severance if it finds that despite the invalidity of the termination, 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 collective redundancy provides for severance payments.
Due to the high standards of protection against dismissal, it is not uncommon for the employment to be terminated by contract between the employer and employee, i.e. a separation agreement. This may occur at any time with or without severance payment. The provisions on protection against unfair dismissal do not apply in such cases. The employer will generally offer a severance payment to induce the employee to accept the termination by agreement.
With respect to age discrimination, particularly regulations in social plans compensating for disadvantages to older employees, need to be drafted with due care. The age of an employee may also have an impact on negotiations, as older employees may find it more difficult to find new employment and therefore typically ask for higher severance amounts.
Remedies for Employee Seeking to Challenge Wrongful Termination
As there is generally no statutory entitlement to severance payments in Germany, the employee can only claim reinstatement. The burden of proof regarding the validity of the termination is on the employer, and in practice it is often difficult to establish the social justification for the dismissal. If the termination is deemed invalid, the employee returns to their position. In practice, most dismissal protection proceedings are settled in exchange for a severance payment.
There is no general legislation covering whistleblowing in Germany. In general, employees are obliged to report any kind of misconduct within the company as part of their ancillary employment duties (so called duties of good faith). In certain business sectors, special legal provisions exist, such as e.g. in the financial services sector. Furthermore, trade secrets will only be protected if the owner has taken “confidentiality measures appropriate for the circumstances”.
Whistleblowers do not enjoy any special protection against dismissals, but are subject to the (rather strict) general rules. Such cases shall be decided on the basis of the question of whether the whistleblowing was “proportionate” (i.e. that the employee should first report misconduct internally before going public or involving the authorities).