Dismissals in Germany

1. Dismissal of employees

1.1 Reasons for dismissal

Employees with more than six months’ continuous service with an employer which employs more than ten employees (in exceptional cases: more than five) will fall under the Protection Against Dismissals Act. Dismissals must be justified for business-related reasons (e.g. business closure), conduct-related reasons (e.g. theft) or person-related reasons (e.g. health).

1.2 Form

Written form necessary, signed by a duly authorised representative of the employer. Must not be faxed or emailed.

1.3 Notice period

Statutory minimum notice period: four weeks to seven months, dependent on length of service. It is possible to agree upon a probationary period of a maximum of six months with a statutory notice period of only two weeks. Collective bargaining agreements may provide for variations.

1.4 Involvement of works council

Works council (if established) must be properly informed prior to dismissal of an employee (excluding high ranked executives). The works council must approve the dismissal of an employee who is a member of the works council.

1.5 Involvement of a union

No involvement.

1.6 Approval of state authorities necessary

Obligatory for certain groups of employees, e.g. the severely disabled, pregnant women, and employees on parental leave or dismissals in the context of collective redundancies.

1.7 Collective redundancies

Collective redundancies are dismissals within 30 days of the following numbers of people:

  1. more than five employees in an establishment of 20 to 60 employees; or
  2. 10% or more than 25 employees in an establishment of 60 to 500 employees; or
  3. at least 30 employees in an establishment of 500 or more employees.

The employer must duly notify the employment agency, which is a state authority with local branches, of the proposed redundancies in writing prior to serving dismissal letters. However, the employment will not end before expiry of the waiting period after notification (in general one month, exceptions possible). Further, on condition that the employees of the establishment have elected a works council, the employer must prior to serving notice of termination engage in time-consuming negotiations with the works council to reach a reconciliation of interests (‘Interessenausgleich’), which is usually combined with negotiations regarding a social plan (‘Sozialplan’).

1.8 Summary dismissals

Dismissal without notice is in general only possible where there has been a serious breach of duty. Notice must be delivered within two weeks after a representative of the employer with the authority to dismiss has gained knowledge of the reason for dismissal.

1.9 Consequences if requirements are not met

If employees file a successful action within three weeks following the receipt of the written notice: Employees are reinstated and awarded continued payment of salary. High ranked executives who themselves have authority to employ or dismiss a significant part of the workforce are not entitled to claim reinstatement if the employer does at least file a motion to terminate the employment combined with a severance. The court will in such cases terminate their employment and award severance pay of up to a maximum of 18 months’ remuneration.

1.10 Severance pay

No statutory severance payment. But based on court order (see above) claims are possible. Further, severance payments may be due because of   an amicable settlement by the parties, especially common if the justification of a dismissal may be doubtful, and in case of dismissals for business-related reasons according to:

  1. a social plan (‘Sozialplan’) to be agreed between the employer and the works council or determined by a conciliation board, or
  2. a collective bargaining agreement (‘Sozialtarifvertrag’) to be agreed between the employer or relevant employers association on the one hand and the union on the other.

1.11 Non-competition clauses

Post-contractual non-competition covenants are only valid if the employer promises to pay at least half of the entire usual remuneration (including fringe benefits etc.) during the term of the clause. However, compensation and other income must not exceed 110% (subject to a necessary relocation   of the employee: 125%) of the former total remuneration. Dismissal will usually trigger this payment obligation. Post-contractual non-competition covenants only apply to competition-relevant activities (e.g. employee may also work for a competing company during the post-contractual non-competition covenant if the activity there is not relevant to competition).

1.12 Miscellaneous

Not applicable.

2. Dismissal of managing directors

2.1 Reasons for dismissal

Limited companies (‘GmbH’): the company may revoke the appointment / terminate the service contract without cause, unless the articles of association or the contract provide otherwise. Stock corporation companies (‘AG’): revocation of appointment / termination of service contract only with important reason. Withdrawal of confidence by resolution of the shareholders may be an important reason to revoke the appointment as such, but it does not justify a termination of the service agreement.

2.2 Form

By valid shareholders’ resolution or, if a supervisory board is established, a valid supervisory board resolution on revocation of appointment as managing director and on termination of the contract; both must be delivered to the managing director in written form (signed by the representative of the shareholders’ meeting / supervisory board).

Note: a supervisory board is mandatory at companies with limited liability with more than 500 employees, and at stock corporations.

2.3 Notice period

Revocation of appointment: no statutory notice period (true for both limited companies (‘GmbH’) and stock corporation companies (‘AG’)). Termination of the service contract:

  • GmbH: managing directors usually have fixed-term contracts or long contractual notice periods. However, the statutory minimum notice period is just four weeks, and may be extended depending on the length of service.
  • AG: a managing director’s service contract must be a fixed-term contract (max. five years, min. one year), and only summary dismissal – generally without notice – is possible.

2.4 Involvement of works council

No involvement.

2.5 Involvement of a union

No involvement.

2.6 Approval of state authorities necessary

Not required.

2.7 Collective redundancies

If one wants to be on the safe side the notification of the employment agency shall at least count in managing directors of a GmbH.

2.8 Summary dismissals

Generally only possible in case of a serious breach of duty. Notice must be delivered within two weeks of the shareholders’ meeting / supervisory board’s meeting at which the shareholders / supervisory board members were informed of the reasons which will justify the termination. Further, such meeting has to be arranged within due course if some of its members become aware of the aforementioned reasons.

2.9 Consequences if requirements are not met

The revocation of an appointment as managing director and / or termination of the service contract will be invalid. It is possible for the revocation to be valid, but the termination of the service contract invalid. In such cases, the managing director is entitled to continued payment of salary.

2.10 Severance pay

There is no statutory severance payment. Severance payments are subject to negotiation, but amounts granted by a supervisory board are limited by the criminal offence of ‘fraudulent breach of trust’.

2.11 Non-competition clauses

Post-contractual non-competition clauses are possible. However, the permitted scope is not clearly fixed by statutory law but depends on the merits of the single case (somehow confusing case law). In any case, the post-contractual non-competition clause only applies to competition-relevant activities. To avoid high risks the company shall promise to pay a reasonable compensation (at least half the fixed salary) during the term of the clause, the term shall not exceed a period of two years and the regional and factual scope shall be focused on activities carried out by the manager during the last two years of service. There is no statutory limit which must not be exceeded by the compensation and other income generated by the former managing director during the term of the covenant not to compete, but the parties may agree on a limit according to the law applicable to employees.

2.12 Miscellaneous

Due to the sophisticated case law it is highly recommendable to not use standard forms but to seek advice of a specialist in the case given.