Procedures For Terminating the Agreement
The letter of termination must be in writing. The termination must comply with the terms of the contract. In most cases there are certain minimum steps to be followed. The legal or contractual notice period must be observed.
If a works council is established, it has to be granted a hearing before the termination.
The employer can terminate by instant dismissal where the employee is guilty of gross misconduct. Certain minimum procedural steps have to be observed in these cases (hearing of the employee and the works council) and certain time-limits have to be observed.
The agreement can generally be terminated by the employee’s resignation. Normally the contract will stipulate the notice period required.
Termination On Notice
The employee can terminate on notice. The notice period depends on the contract or the duration of continuous employment.
An employer with more than 10 employees can terminate on notice, if the duration of employment is less than 6 months. If an employee is employed for more than 6 months’ notice must be based on specific reasons derived from the person or conduct of the employee or other company related grounds.
If the employer has less than 10 employees there are basically no restrictions for terminating the employment.
Termination By Reason Of The Employee's Age
There is no legal retirement age that automatically terminates the employment. Termination due to the employee’s age must be contractually agreed.
Automatic Termination In Cases Of Force Majeure
There is no automatic termination in cases of force majeure. This would be treated as serious cause and would generally justify an instant dismissal if the event comes from outside the influence of the employer.
A collective dismissal is defined by law if a certain number of employees (depending on the number of regular employees in the company) will be dismissed within 30 calendar days. In this case the employer must inform the Federal Employment Agency before issuing the dismissals, otherwise the dismissals are null and void. If there is a works council, the prior implementation of a consultation procedure is generally required. A mass dismissal is usually a change in operations within the meaning of section 111 of the Works Council Constitution Act (BetrVG), so a reconciliation of interests must be negotiated with the works council and a social plan must be agreed under the conditions of section 112 a BetrVG.
Termination By Parties’ Agreement
The parties are entirely free to agree a termination agreement. The parties are not required to obtain the courts’ or regulatory body’s approval before the termination is effective. The agreement will be void if it is not in writing and can have negative impact on unemployment pay.
Directors Or Other Senior Officers
Senior officers who are entitled to hire and fire employees by their own discretion do enjoy only reduced protection against unfair dismissal.
In the case of a statutory director, termination of employment does not automatically bring the directorship to an end. Separate steps will be required to bring the directorship to an end (pursuant to the company’s articles of association). Vice versa the dismissal from the function of the directorship does not automatically bring the employment contract to an end.
Special Rules For Categories Of Employee
Special rules apply for (I) members of the works council, (II) severely handicapped employees, (III) women throughout pregnancy and four months after giving birth, (IV) employees on parental leave and (V) employees who assume certain official duties within the company, e.g. the data security officer, the officer in charge of emission control.
The deadline for implementation of the Whistle-blower Directive by EU member states into national law is 31.12.2021 and Germany is still working on a draft law which includes that companies with 50 or more employees are obliged to set up internal reporting channels. For companies with up to 249 employees, there will probably be a two-year transition period until the obligation to set up internal reporting channels takes effect. Furthermore, reprisals against whistle-blowers will be prohibited. This also applies to threats and attempts of reprisals. Also a reversal of the burden of proof is foreseen.
Specific Rules For Companies in Financial Difficulties
There are only special rules in cases of adjudication of bankruptcy. In this case the employee or administrator can terminate the employment contract with a notice period of three months (overruling all other agreements under the employment contract or a collective bargaining agreement).
For companies with 10 employees or more all rules regarding protection against unfair dismissal remain valid also in case of bankruptcy. The closing down of a business leads to a justified termination for company related grounds.
Special Rules For Garden Leave
If agreed, garden leave is possible after notice of termination has been given. Outstanding holidays can be taken into account in the case of a revocable leave of absence. Pay in lieu of garden leave is only possible by mutual agreement and would have a negative impact on unemployment pay.
Restricting Future Activities
Generally, parties are free to agree clauses restricting the future activities of an employee. The agreement must be in writing and is only valid if it includes a compensation for the employee of at least 50% of the annual salary during the year preceding the termination. Maximum duration for a non-competition clause is two years.
In general, severance payments are freely negotiable. German law does not establish a right to severance payments. When determined by a court in cases of unfair dismissal, the age, the duration of employment and the salary are generally considered when calculating the amount of severance payment.
In cases of unfair dismissal the severance payment is usually between 50% - 100% of a monthly salary for every year of employment.
Special Tax Provisions And Severance Payments
Since 2006, there have been no special tax exemptions applied to severance payments.
The only tax privilege is that such extra income – if the sum of all payments exceeds in the respective year the normal annual income – can be treated for taxation as if it would have been paid distributed over five years.
Allowances Payable To Employees After Termination
Employers are not required to contribute to any allowances payable to employees after termination.
Time Limits For Claims Following Termination
Usually a cut-off period for contractual claims is agreed upon in the employment contract or is stipulated by a collective bargaining agreement. Labour Courts have approved time limits of 3 months following the origination of a claim. Otherwise the standard period of limitation for claims applies (3 years).
In cases of unfair dismissal a claim for continued employment has to be served within three weeks of receiving the notice of termination.