There is no longer a legal distinction between blue-collar and white-collar workers. According to the legal definition, an employee in Germany is someone who is obliged to perform work in personal dependence, bound by instructions and determined by others, Section 611a, Paragraph 1 of the German Civil Code (Bürgerliches Gesetzbuch – BGB). This is to be distinguished from the service contract, which is intended for managers or freelancers, for example.

The status of employee is associated with far-reaching protection rights.

Under the principle of freedom of contract, employers and employees are, in principle, free to negotiate employment contracts. German employment law recognises fixed-term and permanent employment contracts. If the fixed term has not been expressly agreed upon in writing before the start of employment, the employment contract is automatically concluded for an indefinite period.

Agreements between employers and employees can, in principle, be made orally or in writing; written contracts are only mandatory in exceptional cases. However, the newly introduced German Proof Act provides for the obligation on the part of the employer to verify and document employment. This means that the essential terms and conditions of employment must be set out in writing and signed by the employer.

All legal actions which serve the purpose of terminating the employment relationship (ie, a termination agreement, a fixed-term contract and a notice of termination) are required to be conducted in writing (wet ink). Violations of this requirement may result in the action being deemed invalid.

Principle

According to Section 3 of the German Working Hours Act (Arbeitszeitgesetz – ArbZG), the maximum working day is eight hours. Working days include Saturdays. Thus, the maximum number of weekly working hours is 48 (six times eight hours).

The daily number of hours can be extended to ten but must be counterbalanced within a period of 24 weeks to the average maximum weekly number of 48 working hours, according to Section 3 of the ArbZG.

Exceptions

Exceptions to this rule are possible to a limited extent. They can be made through a collective bargaining agreement or by the supervisory authority and are governed by Sections 7 and 15 of the ArbZG. For example, it is permissible for collective bargaining agreements to stipulate that working hours may exceed ten in the case of regular and substantial standby duty, or for the period of compensation to be extended to one year.

There are also special provisions for some categories of employees such as minors, pregnant and nursing mothers, and people with severe disabilities.

Part-Time Working Hours

According to Section 2, paragraph 1 of the German Act on Part-Time Work and Fixed-Term Contracts (Teilzeit- und Befristungsgesetz – TzBfG), part-time work is anything less than full-time work. There is no specific threshold stipulated for the number of working hours per week to be considered as part-time employment. Any number of hours can be agreed by contract.

Rest Breaks and Rest Periods

A distinction is made between rest breaks and rest periods. The rest period is the time between the end of the working day and the resumption of work. Rest breaks, on the other hand, are (unpaid) breaks during normal working hours.

According to Section 5, paragraph 1 of the ArbZG, the rest period must be at least 11 hours and may not be interrupted. It should be noted that standby or on-call duty is considered working time and is therefore not permitted during the rest period. In the case of on-call duty, the rest period may be reduced under certain circumstances in accordance with Section 5, paragraph 2 of the ArbZG.

In principle, employees may not work more than six hours without a break. If an employee works between six and nine hours, a rest break of at least 30 minutes must be taken. If they work for more than nine hours, the rest break must be at least 45 minutes (Section 4 of the ArbZG).

The (Electronic) Recording of Working Hours

After the Federal Labour Court (dated 13 September 2022 – 1 ABR 22/21) ruled that employers in Germany were legally obliged to record the working hours of their employees, the Ministry of Labour presented a draft law on 19 April 2023 pertaining to the obligation to record working hours electronically. The bill is in the legislative process and has not yet been passed.

Minimum Wage

The introduction of the Minimum Wage Act (Mindestlohngesetz – MiLoG) in January 2015 established a statutory minimum wage in Germany. Initially, the minimum wage was EUR8.50 per working hour, and this has since been steadily increased based on the recommendations made by an independent minimum wage commission. The current statutory minimum wage is EUR12 per working hour, which is anticipated to be increased to EUR12.41 as of 1 January 2024 and to EUR12.82 as of 1 January 2025, in accordance with the recommendations of the commission. Whether the legislator will comply with this recommendation or deviate from it remains to be seen. However, it is widely expected that the legislator will not (again) intervene with the regular process according to which the independent commission is primarily responsible for finding the next level of the minimum wage.

The MiLoG generally applies to all employees. However, there are exceptions where the statutory minimum wage does not apply. For example, minors who have not completed their apprenticeship or apprentices and trainees during a compulsory internship are excluded from the minimum wage requirement. Violations against the obligation to pay minimum wages can result in fines of up to EUR500,000.

Bonus Payment and 13th Month Salary

A bonus payment can either be agreed as a voluntary additional benefit or as a contractually fixed bonus and is paid voluntarily by the employer for work performed. It is paid in addition to the annual salary.

Whether a 13th salary is paid depends on the industry and the employer: there is no general entitlement. A 13th salary can also be paid as a vacation or Christmas bonus. Generally, it is calculated on the basis of the gross salary and is also subject to social security and tax liability.

Supplements

Regular remuneration can be increased by supplements. For instance, higher payments for work on Sundays and public holidays, or night work, are both permissible and common.

Overtime is often compensated by time off in lieu. However, it is also possible to agree on compensation. Under certain conditions, it is permissible to count overtime as compensated for with regular remuneration. However, additional remuneration, including supplements, is possible as well. Overtime can be remunerated at a higher as well as at a lower rate than regular working hours.

Vacation

Vacation is paid time off. Section 3 of the German Federal Leave Act (Bundesurlaubsgesetz – BUrlG) stipulates that employers must grant their employees a minimum number of 24 vacation days per calendar year if they work six days a week. For employees with a five-day week, which is more common in Germany, the statutory leave entitlement is 20 days per year. Deviations from the minimum entitlement may only be made to the benefit of the employee.

The full entitlement for paid leave arises after the employee has been employed for more than six months; before that, the employee is only entitled to partial leave (Section 4 of the BUrlG). If an employee leaves the company during the current calendar year, the leave already taken can be deducted by the new employer (Section 6, paragraph 1 of the BurlG).

Difficulties arise if the statutory minimum leave was not fully claimed in the current calendar year. Pursuant to Section 7, paragraph 3 of the BUrlG, leave days can only be transferred to the next calendar year until the end of March of that following year and only if the full leave could not be taken earlier for operational reasons. Thereafter, the leave entitlement lapses.

However, according to the rulings of the ECJ of 6 November 2018 (Cases C-619/16 and C-684/16) and the Federal Labour Court of 19 February 2019 (Case 9 AZR 541/15), unclaimed leave does not automatically expire at the end of the year: the employer must remind the employee beforehand and thus enable them to claim the leave while it is still possible to do so. This requires the employer to provide explicit information about the scope of the statutory leave, how to claim the leave and under what circumstances the employee might risk forfeiting the leave. HR processes have to be re-designed to meet these requirements.

What might be of particular interest in this context is the fact that the ECJ ruled in its judgment of 22 September 2022 (Case C-120/21) that leave days do not automatically expire after three years if the employer has failed to remind the employee in good time to take that leave. This was subsequently also decided by the Federal Labour Court in its ruling of 20 December 2022 (Case 9 AZR 266/20).

Sick Leave

If an employee is sick, they are entitled to receive paid sick leave from the employer for a period of six weeks according to the Continued Pay Act (Entgeltfortzahlungsgesetz – EFZG). This entitlement arises only if the employee has been employed by the company for at least four weeks. After the six-week period of paid sick leave has ended, employees usually qualify for sick pay from their health insurance provider.

Maternity Leave and Parental Leave

Section 3 of the German Maternity Protection Act (Mutterschutzgesetz – MuSchG) stipulates special protection periods for mothers before and after childbirth. Usually, expectant mothers are subject to an employment ban six weeks before the calculated date of birth and eight weeks (12 weeks in the case of multiple births/premature births/identified disabilities) after the birth.

If an employee is on maternity leave, their vacation entitlement does not expire (Section 24 of the MuSchG). In principle, the same is true for employees on parental leave. However, according to Section 17, paragraph 1 of the Parental Leave Act (Bundeselterngeld- und Elternzeitgesetz – BEEG), the employer has the right to reduce the annual leave entitlement by one-twelfth for every full month of parental leave.

Confidentiality and Non-disclosure Obligations

Employees are subject to statutory confidentiality obligations with regard to the trade and business secrets of their employers. This obligation is recognised as a secondary obligation under the employment contract and continues to exist even after termination of the employment relationship. A breach of this obligation during the employment relationship is punishable under Section 23 of the Law on the Protection of Trade Secrets  (Gesetz zum Schutz von Geschäftsgeheimnissen – GeschGehG).

An obligation to maintain confidentiality that goes beyond the statutory obligation to do so must be stated specifically and unambiguously in the employment contract, according to the Federal Labour Court. Clauses which oblige the employee to keep all business transactions confidential after the termination of the employment relationship are invalid, since, in effect, they would prevent the employee from taking part in any activity for another competitor in the same business sector.

Liability

Employees are generally not exempt from liability for damage caused by them at work, but some provisions must be observed by the parties due to the special characteristics of the employment relationship. In particular, the principle of internal loss adjustment must be taken into account (analogous to Section 254 of the German Civil Code (BGB)), which is based on the understanding that in a long-term employment relationship, it is to be expected that the employee will occasionally make mistakes. Small mistakes, however, can have significant financial consequences for the employee, such as damaging machines worth millions through negligent behaviour. The employer, meanwhile, receives the profit of the employee’s work and thus also has to bear the possible risk of loss which might occur through mistakes or negligent behaviour. Accordingly, liability relief is granted to employees. In order to take advantage of this aspect, liability is allocated between the employer and the employee based on the degree of fault within the scope of the principle of internal loss adjustment.

When an employee injures a colleague during work-related activities, this usually constitutes an occupational accident, and the statutory accident insurance usually pays for the damages (Section 105 of the German Social Code VII (Sozialgesetzbuch VII – SGB VII)).

For as long as the employment relationship exists, employees and other staff members are subject to a statutory non-compete obligation, in accordance with Section 60 et seq of the German Trade Act (Handelsgesetzbuch – HGB). The statutory non-compete obligation ends when the employment relationship ends. It does not apply to the period after the termination of the contractual relationship. For this reason, post-contractual non-compete clauses are commonly agreed upon in employment and service contracts. These stipulate that the staff member may not use the knowledge and skills acquired in their previous employment or service relationship in the same business area as their previous employer for a certain period of time.

For such a clause to be effective, the employer must have a legitimate business interest in the non-compete clause. In addition, the non-compete clause must be reasonable in terms of place, time and content. To compensate the staff member for the disadvantages caused by such a clause, the staff member is entitled to a compensation payment of at least 50% of their last contractual remuneration. Furthermore, the non-compete clause must be agreed in writing and the provisions must be formulated clearly and unambiguously in accordance with the principle of certainty. The duration of the post-contractual non-compete clause is limited to a maximum of two years after the end of the contractual relationship.

The solicitation of employees and customers by a competitor is fundamental to the principle of open competition and is therefore permitted unless an agreement has been made to the contrary. However, under certain circumstances, solicitation may be anti-competitive pursuant to Section 3 of the German Act Against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb – UWG) or Section 4, Number 10 of the UWG. This may be the case, for example, if an objective assessment of the circumstances shows that the behaviour in question is primarily aimed at impairing the competitiveness of the competitor instead of promoting the competitor's own competitiveness. This is also the case if unfair methods are used or if the behaviour in question impairs the competitor in such a way that he or she is no longer able to compete adequately on the market of his or her own accord.

The contractual agreement of non-solicitation clauses is permitted. Employers and staff members may agree that the solicitation of employees within a certain period of time after termination of the contractual relationship is subject to a contractual penalty. The clause must be in writing and may be valid for up to a maximum of two years. Whether a compensation payment is required, is controversial. However, non-solicitation clauses are often combined with non-compete clauses, which means compensation has often already been paid (see 2.1 Non-competes).

Employers must record and process the personal data of the employee in order to make hiring decisions or, after hiring, in order to implement or to terminate the employment relationship. Data protection in the employment relationship aims to protect the employee’s general personal rights. Therefore, employees have a right to be informed about what personal data is processed by the employer for what purpose.

There is not just one single data protection law. There are various provisions regarding data protection obligations. The most important data protection obligations for employers are stipulated in the General Data Protection Regulation (GDPR). The GDPR came into force in all EU member states on 25 May 2018. This regulation applies directly in the member states and thus introduces standardised rules.

The German legislator made use of the opening clause of Article 88, paragraph 1 of the GDPR. In addition to the GDPR, the Federal Data Protection Act (Bundesdatenschutzgesetz – BDSG) applies in Germany, which contains a special provision on the employment relationship in Article 26, paragraph 1 of the BDSG and governs the processing of personal data within that relationship.

The GDPR and the BDSG are primarily meant to protect personal data. In employment law, this means, in particular, information contained in an employee’s personnel file (eg, application documents, employment agreements, employee master data, sick days and absences, and evaluations).

Data protection regulations are particularly relevant when dealing with personnel files, evaluations and other personal documents of employees. The employer is subject to strict obligations regarding the deletion of data and must keep track of different deletion deadlines in order not to risk a data protection breach.

Employers must also take into account that the transfer of data to third countries, meaning outside the scope of the GDPR, must be viewed critically as it can lead to data protection breaches. Therefore, some tools or business models cannot be implemented without data protection restrictions and checks.

Citizens of the EU or EEA (European Economic Area) member states as well as Swiss citizens can freely take up employment in Germany. They require neither a residence permit nor a special work permit under immigration law. These people are therefore employed in Germany under the same rules as German employees.

A further group of people who are allowed to commence employment without restrictions in Germany are those whose application for asylum has been granted.

In contrast, non-EU/non-EEA/non-Swiss citizens require a valid residence permit to commence employment in Germany. This permit must be obtained in advance. The employment of a worker without such a permit is considered illegal and is subject to fines. An employer who employs a non-EU citizen must therefore check in advance whether the person has a residence permit that allows them to work in Germany and must keep a copy of this permit for the duration of the employment.

For citizens of EU/EEA member states and Swiss citizens only the general obligation to register with the residents’ registration office applies, as is the case for all residents in Germany including German citizens. This also applies to asylum-seekers whose application for asylum has been granted.

Citizens of certain countries may enter Germany without a visa and can apply for a residence permit once they are in the country. Nationals of other countries must apply for their residence permit before entering Germany.

In some cases, the Federal Employment Agency must approve the residence permit. Whether such approval is required and under what conditions it is granted depends on the educational qualification, the professional field and the existence of concrete job offers.

Mobile working means that employees are not tied to a fixed office at home or to the employer’s office space. They perform their work on a mobile basis at self-determined and often varying locations outside the company.

Mobile working must be distinguished from working from home or teleworking in particular. Unlike mobile working, working from home is tied to a fixed workplace within the employee’s private space.

The German Working Hours Act (ArbZG), the German Occupational Health and Safety Act (Arbeitsschutzgesetz – ArbSchG) and related occupational health and safety regulations apply to mobile work in the employment relationship. In addition, regulations on mobile work can also be found in some company agreements and collective agreements. While the Workplace Ordinance (Arbeitsstättenverordnung – ArbStättV) applies in the context of working from home, it does not apply to mobile work, as it would be impossible for the employer to ensure the safety of a table or chair in a café.

Data protection precautions must be observed when working from home as well as in mobile work, just as they are when employees work in the office. The employer must ensure that suitable protective measures are in place.

There is no legal entitlement to mobile working, although this has been debated at a political level as a result of the COVID-19 pandemic. Employers must instead reach a corresponding agreement with their employees or a work agreement with the works council.

There are different types of sabbaticals which can be agreed upon between the employer and employee. The employee can save up a “credit” of working hours in a long-term account and use the accrued hours for a longer leave of absence. The employee then receives a monthly payment during the sabbatical, which they have earned through preparatory or follow-up work. Alternatively, the employee may voluntarily waive their pay or have their employment converted to part time. It is also possible, but not as common due to social security reasons, to take unpaid leave, terminate the employment relationship with a promise of re-employment, or agree to suspend the employment relationship.

When employers introduce the option of taking a sabbatical, they must consider the implications for social security contributions. Some types of sabbaticals can result in disadvantages for the employee under social security law if the sabbatical exceeds a period of one month. In this respect, the nature of the agreement under employment law is often guided by its effects under social security law.

In the private sector, there is no general entitlement to a sabbatical under employment law. In the public sector, however, there is.

The workplace is currently facing a fundamental transformation. New technologies, digitalisation, demographic change and increasing globalisation are changing how, where and when we work. The relationship between employers and their employees is being newly defined and offers a wide range of opportunities.

Various “New Work” Models

Agile working

The key component of the concept of agile working is the ability within a company or organisation to react flexibly and swiftly to change. It is shaped by the establishment of short-term goals, feedback, small teams, and quick decision-making processes. In particular, design thinking and holacracy (a style of management where leadership roles are not subject to a traditional hierarchy of command) are among the key approaches to agile working. Instead of relying on homogeneous teams, agile working focuses on interdisciplinarity, and instead of a rigid management style, there is a fixed set of steps to be followed by the teams.

In terms of employment law, agile working leads to the dissolution of operational and hierarchical structures. Besides corresponding adjustments at the level of employment contracts, employers need to take organisational precautions, in particular with regard to the directive powers in the company or the structures under works constitution law. Typically, in this type of work, reporting lines are less clear. Hence, power is not as obviously distributed as in conventionally structured organisations.

The first cases involving agile work have been brought to the German courts, which are particularly involved in assessing it in terms of works constitution law. In a recent ruling it was decided that the introduction of agile work may trigger co-determination rights for the works council (ArbG, dated 6 October 2022 – 3 BV 116/22). Further developments in the assessment of agile work remain to be seen.

Crowd working

Crowd workers offer their services via online platforms and can thus work from anywhere in the world. Companies hire them primarily to perform tasks that require a high volume of work for which in-depth knowledge of corporate structures is not relevant.

The legislative process at the EU level is working to provide a distinct legal framework for crowd work. In this context, the status of crowd workers as employees and the distinction between them and self-employed employees is the subject of some controversy in Germany, and these questions are not always assessed uniformly under current law.

Desk sharing

In this type of work, fixed workstations are not assigned. Instead, all employees can choose which desk to work at. Desk sharing is also accompanied by increasing flexibility in working hours. Flexitime is becoming more common, and the decision of whether to come into the office or work from home is, increasingly, left to the employee.

Challenges Posed by the New Work Models to Germany’s Employment Law

Changes in approach to work in Germany have occurred so rapidly in recent years that, in many areas, the country’s employment law has not yet been adjusted accordingly. The following areas are particularly challenging.

Entering an employee’s home to carry out risk assessment

Before an employee can work from home for the first time, the employer must carry out a risk analysis of the remote workplace, which, inevitably, requires the employer to enter the employee’s home to assess its suitability. However, this necessity clashes with the fundamental legal right of the inviolability of the home – a right which allows the resident to grant or refuse access to third parties at their own discretion.

(Work) accidents

A further problem is the assessment of an accident which occurs at a remote workplace. First, it must be determined whether an accident really took place “at work” according to Section 8, paragraph 1 of the German Social Code IX (Sozialgesetzbuch IX – SGB IX) or whether it constitutes a “normal” accident within the employee’s personal sphere of risk.

In each individual case, it must then be determined whether the activity that caused the accident is covered by insurance and therefore qualifies as a work accident. In other words, it must be determined whether the activity that caused the accident was of a private or business nature. For example, getting up to take laundry out of the washing machine during working hours is considered a private act, while fetching a print-out from the printer for work purposes is considered to be a purely occupational act and is therefore covered by insurance.

Adherence to working hours

As work becomes more flexible, the employer is increasingly losing control over when and how long employees work. This can be problematic if the employee disregards the legal requirements when planning their working hours. The allocation of working hours cannot be left entirely to the employee: the employer must ensure that the provisions of laws pertaining to working hours are complied with.

The current German Working Hours Act (ArbZG) only recognises two concepts: free time and work time – there is nothing in between. Problems arise, for example, when an employee accesses their email account late in the evening and/or early in the morning and reads and answers incoming emails. It is necessary to assess on a case-by-case basis whether the employee’s activity constitutes work time and the legal consequences resulting from this, for example, with regard to mandatory resting periods according to the Working Hours Act.

A German trade union is an association of employees representing the economic, social and cultural interests of employees. The aim of trade unions is to safeguard and promote the working and economic conditions of their members. For this purpose, they negotiate collective bargaining agreements. To be able to enforce their demands more effectively, trade unions are allowed to organise strikes. In Germany, however, unions are only allowed to strike on issues that can be defined in collective bargaining agreements. Therefore, strikes cannot be called for political reasons. Employees participating in a strike cannot demand remuneration on the days they are striking. However, if they belong to the union, they receive strike pay.

In addition, the tasks carried out by trade unions also include advising employees in matters of employment law.

In 2022, the gross union density (ratio of total union membership to the number of employees) in Germany was 13.5%, but this varies from sector to sector. Certain business sectors are characterised by comprehensive bargaining agreements that regulate the remuneration structure of almost the entire workforce (eg, aviation). In other sectors, however, the degree of organisation is lower, and the individual negotiation of remuneration is more common (eg, management consulting).

A works council represents the interests of the employees in the operation and can negotiate on their behalf with the employer. For this purpose, the works council is entitled to rights stipulated in the Works Council Constitution Act (Betriebsverfassungsgesetz – BetrVG).

Formation of the Works Council

In operations with more than five employees, employees are entitled to convene an election meeting and establish a works council. The works council members are elected by the employees every four years. The employer cannot prevent its formation unilaterally if this is the will of at least a group of employees.

Composition of the Works Council

The number of works council representatives depends on the size of the respective operation. The works council representatives enjoy special protection against dismissals. Furthermore, they must be granted leave of absence for their works council assignments, while receiving their regular remuneration. Costs incurred by the works council, including its advisers if required, must be covered by the employer.

Participation Rights of the Works Council

Works councils in Germany have the following participation rights:

Information and consultation rights

The weakest participation right which a works council is legally entitled to is the right to be informed. As an example, the employer must inform the works council about any issues or changes pertaining to workplace design, work processes and the work environment in general, personnel planning and occupational health and safety.

Works councils also have consultation rights, which have a more significant impact. The works council must be given the opportunity to express its position on certain issues to the employer. The employer must discuss any planned measures with the works council but may, ultimately, disregard the works council’s opinion. The works council’s most important right to consultation is its right to be consulted prior to the dismissal of an employee. If this right is disregarded or compromised in any way by the employer, the dismissal is invalid.

Co-determination rights

A particularly extensive participation right which the works council is entitled to is the right to so-called co-determination. At the weaker level, the right of consent, the works council must approve measures taken by the employer after a hearing. Without the works council’s consent, the measure is invalid unless consent was unlawfully withheld and replaced by a corresponding resolution in labour court proceedings. The consent of the works council is particularly relevant with regard to personnel measures such as the hiring of employees.

In addition, the works council has an enforceable right to co-determination in certain cases – especially in social matters (eg, how mobile working is implemented or how vacation policies are established). In this context, the works council can demand that the employer enters into negotiations regarding a subject that is affected by the right to co-determination. At the end of the negotiations, a works agreement must be reached.

If no agreement is reached, a so-called conciliation body is convened under a neutral and objective conciliation body chairperson. The decision made by the conciliation body then replaces the required agreement between the employer and the works council.

Employers must take the co-determination rights of the works council into account, particularly in the context of restructuring measures. The works council can request the employer to negotiate a reconciliation of interests in which the background is taken into account and the implementation of the measure is agreed upon. Furthermore, the works council can demand that a social plan be drafted, which, for example, regulates the severance payments to be made to the employees affected. In practice, this leads to prolonged and complex negotiations in the preliminary stages of restructuring measures. It is thus important for employers to take this crucial step into account in their planning.

Definition

A collective bargaining agreement is an agreement between employers and trade unions (see 6.1 Unions). The negotiating party can either be an individual employer or an employers’ association which several employers in a particular industry have joined. A collective bargaining agreement defines the rights and obligations of employees and employers. This includes, for example, working conditions such as remuneration, working hours as well as leave entitlement. The working conditions agreed apply directly and mandatorily to the employees and employers who are members of the respective association and trade union. The employee can therefore automatically claim the provisions of the collective agreement for themselves without negotiating with the employer. If the employment contract contains provisions that are less advantageous than those in the collective agreement, the more favourable provisions of the collective agreement automatically apply (“favourability principle”).

Works Agreement

A works agreement, on the other hand, is an agreement between employers and works councils to which all employees of the company are bound. In principle, works agreements define the company’s general conditions (eg, working time models, rules of conduct, shift work, etc).

Relationship Between a Collective Bargaining Agreement and a Works Agreement

If works agreements collide with a collective bargaining agreement, the collective bargaining agreement is superior by law. Therefore, no matters can be regulated at a works council level that have already been regulated or are typically regulated in a collective bargaining agreement. The only exception to this is when the collective agreement contains a corresponding opening clause that allows works agreements to be made.

The Declaration of Termination

The termination must be declared in writing (wet ink), otherwise it is invalid. The electronic form is excluded.

In terms of content, the notice of termination must be clearly recognisable as such. Although employers must adhere to exacting standards regarding the reason for termination, in most cases, they are not required to state those reasons in the letter of termination.

Termination With Notice

The requirements for the reason for termination depend on the type of termination. Dismissals subject to a period of notice are regulated by the German Dismissal Protection Act (Kündigungsschutzgesetz – KSchG). However, the KSchG only applies if the employment relationship has existed for at least six months and at least ten employees are employed in the company (at least five employees in old cases). A termination covered by the KSchG can only be justified on one of the following three grounds.

Conduct-related reasons

In the case of a conduct-related termination, the employee must have consistently caused substantial disruption to the company’s morale or have breached the terms of the employment contract or have permanently damaged the relationship of trust between the employer and the employee. Since termination must only be the very last means, a prior warning is required in most cases in order to give the employee the opportunity to improve their behaviour. Examples of reasons for dismissal include refusing to work, feigning illness or violating company rules.

Personal reasons

In the case of a personal-related termination, the employee no longer meets the required capability or competence to fulfil their obligations under the employment contract. Examples are the lack of a work permit or insufficient physical fitness, as well as illness. In the case of dismissal due to illness, however, there must be a negative health prognosis and the company’s interests must be significantly impaired.

Operational reasons

A termination can be justified if it stems from a business decision that leads to a reduction of the workforce and if the employees cannot be otherwise engaged in the company. Employers are not free to decide who is affected by the staff reduction. Instead, a social selection among comparable employees is required, according to which, those who are most likely to find follow-up employment on the labour market are to be dismissed first. However, certain key staff and high performers can be excluded from the selection process.

Procedure of Termination

Before giving notice of termination, employers must check whether there is any special protection against dismissal (eg, for members of the works council, pregnant women, people with severe disabilities, etc).

Pursuant to Section 102, paragraph 1, sentence 1 of the Works Council Constitution Act (BetrVG), the works council must be consulted prior to any dismissal. If the employer fails to attend the hearing or does not conduct it appropriately, the termination is void.

Procedure Regarding Collective Redundancies

Under the requirement of Section 17 of the KSchG, in the case of collective redundancies, employment agencies must be informed. Furthermore, the works council must be informed in good time about the planned dismissals.

If a mass dismissal notification is required but not carried out by the employer, all dismissals that have been made are void in most cases. The same applies if the works council was not granted the opportunity to participate.

Notice Periods

When terminating an employment contract, different periods of notice must be observed, which may result from the employment contract, a collective bargaining or works council agreement, or by law. If no notice period is stipulated, the statutory notice period pursuant to Section 622 of the German Civil Code (BGB) applies.

The statutory notice period for the termination of employment is four weeks to the 15th or to the end of a calendar month. The longer the employee has worked for the organisation, the longer the statutory notice period becomes.

Severance

Generally, employees do not have a legal claim to severance pay when their employment relationship ends. However, a claim to severance pay can be regulated, for example, in social plans, collective bargaining agreements, managing director agreements or individual contractual agreements.

The employer can also offer severance pay if the dismissed employee allows the three-week period for an action for protection against dismissal to expire. The expiry of this substantive exclusion period automatically leads to the validity of the termination which can no longer be challenged in court. The standard severance payment which is used as a reference in negotiations provides for 0.5 times the gross monthly salary per year of employment. However, the actual settlement amount always depends on a number of factors which influence the respective bargaining power of the employer/employee, including the chances each side has to win in court, or the use of new legal tech tools which limit the employer’s risk to have to grant back pay to the employee, and other variables.

Pursuant to Section 626, paragraph 1 of the German Civil Code (BGB), termination without prior notice is only permissible if the cause of dismissal is so serious that the parties cannot reasonably be expected to continue the employment relationship for the duration of the period of notice. Otherwise, only an ordinary dismissal can be considered. In order to render the termination legally watertight, employers typically simultaneously issue a termination without notice, along with a termination with notice as of the next possible date.

Employees can only be dismissed without notice two weeks after they have received all of the relevant information which justifies the termination.

Before informing employees of the termination, special protection against dismissal must be considered and the works council must be consulted (see 7.1 Grounds for Termination).

The employment relationship can be terminated by mutual agreement without a period of notice by means of a termination agreement. Like the letter of notice, the termination agreement must be signed by both parties in writing (wet ink). However, it is not necessary for the works council to hold a consultation.

Usually, in return for termination of the employment relationship, the employee receives an agreed severance payment. However, the conclusion of a termination agreement can lead to a 12-week waiting period, during which, no unemployment benefit can be claimed. Under certain conditions, however, the Employment Agency may waive the waiting period.

The requirement of fair negotiation imposes limits that can lead to the invalidity of the termination agreement. The requirement of fair negotiation is breached if the employer creates or exploits a situation of psychological pressure, thereby making it significantly more difficult or impossible for the employee to make a free and considered decision.

Certain categories of employees are subject to special protection against dismissal. This special protection applies in addition to the existing general protection against dismissal.

Employee Representatives

Members of the works council, youth and trainee representatives and representatives for the severely disabled enjoy special protection against dismissal under Section 15 of the German Dismissal Protection Act (KSchG). The protection against dismissal not only exists for the duration of their mandate, but also for a limited period of time beyond, and partly also for certain functionaries already in the process of establishing the employee representation body. Termination with notice is permitted but requires the approval of the works council according to Section 103 of the Works Constitution Act (BetrVG). In the case of dismissals for operational reasons (eg, a plant closure or restructuring), extraordinary dismissals also require compliance with a social phasing-out period.

Severely Disabled Workers

Severely disabled workers enjoy special protection against dismissal under Section 168 of the German Social Code IX (SGB IX). The Integration Office (Integrationsamt) must approve any dismissal. However, the employee must have worked for the company for at least six months without interruption, and the degree of disability must be officially determined to be at least 50%, or at least 30% in the case of an equivalent status.

Pregnant Women and Mothers

According to Section 17 of the German Maternity Protection Act (MuSchG), dismissal during pregnancy and up to four months after childbirth is generally not permitted. In exceptional cases, the highest state authority for occupational health and safety can approve dismissal if it is not related to pregnancy or childbirth. Permission is rarely granted.

Parental Leave

Dismissal of employees during parental leave is not permitted under Section 18 of the Parental Leave Act (BEEG). In exceptional cases, the supreme state authority for occupational health and safety may agree to a dismissal.

Trainees

Trainees enjoy special protection against dismissal from the end of their probationary period until the end of their training under Section 22 of the German Vocational Training Act (Berufsbildungsgesetz – BBiG). The probationary period can be between one and four months. After this period, dismissal with notice without good cause is not permitted.

Special Representatives in the Company

Certain employers must appoint special representatives for specific tasks. For example, special protection against dismissal is conceivable for data protection officers under Section 4f of the German Federal Data Protection Act (BDSG) or for immission control officers under Section 58 of the German Federal Immission Control Act (Bundesimmissionsschutzgesetz – BImSchG).

An action against an employer’s dismissal may be brought on any grounds that render the dismissal invalid. The lawsuit for protection against dismissal can only be focused on the continuation of the employment relationship, not on the payment of a severance.

In general, the claim must be brought within three weeks of receipt of the written notice of termination (Section 4 of the German Dismissal Protection Act (KSchG)). Otherwise, the termination is deemed effective regardless of any errors.

After the claim has been filed, the first step is to try to reach a settlement in a conciliation hearing. It is often possible to reach a settlement agreement on the termination of the employment relationship at the conciliation hearing, including the payment of a severance package.

If no agreement can be reached, the parties have the opportunity to comment on the notice. Afterwards the labour court decides whether the employment relationship has been terminated or will continue.

Discrimination Protection

The General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz – AGG) provides legal protection against discrimination in the workplace. The law aims to prevent and to eliminate discrimination due to race, ethnic origin, gender, religion or belief, disability, age or sexual identity (Section 1 of the AGG). Any direct or indirect discrimination can only be justified within a narrow scope.

Burden of Proof

Section 22 of the AGG provides for a reversal of the burden of proof in favour of the plaintiff. If the employee provides circumstantial evidence of discrimination, the employer bears the burden of proving that no discrimination took place.

Claim for Damages and for Compensation

The AGG provides for a claim for damages in cases of discrimination (Section 15, paragraph 1 of the AGG). The employee is also entitled to compensation for pain and suffering pursuant to Section 15, paragraph 2 of the AGG. The claim for compensation does not depend upon the existence of actual damage or upon the employer being at fault. If the employee provides circumstantial evidence of discrimination and the employer is unable to disprove this evidence, the claim for compensation already pertains.

Principle of Equal Treatment Under Employment Law

In addition to the legal protection provided by the AGG, the principle of equal treatment under employment law applies. This means that employees may not be treated less favourably than comparable employees for arbitrary reasons. If unequal treatment arises, the disadvantaged employees could be entitled to equal treatment.

The judiciary is undergoing a digital transformation. Court hearings can take place digitally via video conferencing. This option is being used increasingly often. Furthermore, the conversion to an electronic court file is taking place. The first labour courts are managing incoming proceedings exclusively in digital form. The implementation is taking place gradually, however.

Since 1 February 2022 every lawyer has been obliged to set up the so-called special electronic lawyer’s mailbox (“beA”). Accordingly, lawyers are obliged to communicate with the courts exclusively via this digital mailbox and to submit their correspondence electronically.

Labour Court

Labour courts deal with claims arising from the employment relationship. They deal with questions regarding works constitution law and collective bargaining law as well as disputes between employer and employee. Managers and freelancers are not covered by labour jurisdiction but by ordinary jurisdiction.

The procedure before the labour courts differs significantly from ordinary civil proceedings. In employment law disputes, it is mandatory to attend a conciliation hearing. The aim is to reach a settlement between the parties. The courts are also staffed differently. Already at first instance, the judgment is made by a chamber consisting of a professional judge as well as an employee and an employer representative. Also, the duration of the procedure is reduced in labour courts as the principle of accelerated proceedings applies.

System of Instances

The labour courts are organised in a separate system of instances. In the first instance the decision is made by the labour court, in the second instance by the regional labour court and in the last instance by the federal labour court. Only at the constitutional level (Federal Constitutional Court) and European level (GCEU and CJEU) are the same courts responsible as for ordinary civil proceedings.

Class Action Claims

Class action claims, as they are known in the US, are not provided for in Germany. In mass proceedings, each employee must file a claim individually. This results in proceedings with a large number of concurrent cases. However, trade unions are entitled to bring an action for interpretation of a collective bargaining agreement provision themselves. The court’s interpretation binds other courts as well as all parties bound by the collective bargaining agreement.

Representation in Court

If representation by lawyers is not required, the parties may conduct the legal dispute themselves. Representation by a lawyer is mandatory before the regional court and federal court.

In principle, arbitration is possible in Germany, but the general provisions on arbitration proceedings do not apply to labour law cases pursuant to Section 101, paragraph 3 of the German Labour Court Act (Arbeitsgerichtsgesetz – ArbGG). Exceptions are provided for in Section 101, paragraph 1 and 2 of the ArbGG, according to which, in the case of disputes between parties to a collective bargaining agreement or disputes arising from an employment agreement contract governed by a collective bargaining agreement, the parties may agree that the decision will be taken by an arbitral tribunal. In this case, the parties must comply with the procedural rules set out in Sections 103 et seq of the ArbGG.

Arbitration agreements refer exclusively to the above-mentioned civil disputes. The labour courts have sole jurisdiction over expedited proceedings (eg, dismissal protection proceedings). Legal remedies of execution are also not subject to an arbitration agreement due to the fact that they are a sovereign right by the state.

While the rules of arbitration do not apply to disputes between the employer and the works council, the statutory conciliation board is often defined as an internal company arbitration court. Simply put, the conciliation board is an internal mediation body which – in the cases provided for by law – meets, negotiates and decides when the works council and the employer cannot agree. The employer and works council may also voluntarily establish a conciliation board. The most important rules regarding the conciliation board can be found in Sections 76, 76a of the Works Constitution Act (BetrVG).

In the first instance at the labour courts, the prevailing party is not entitled to reimbursement of the costs of hiring a lawyer. This is intended in particular to remove any potential structural disadvantage for the employee.

Lawyers are generally remunerated according to the Act on the Remuneration of Lawyers (Rechtsanwaltsvergütungsgesetz – RVG). The amount of remuneration depends on the amount in dispute. On the employer side, it is common to agree on an hourly rate regardless of the RVG. The lawyer’s fees may therefore vary on the employee’s and employer’s side.

Only from the second instance onwards must the losing side bear the costs. However, the amount is limited to the remuneration according to the RVG. Accordingly, any fees agreed upon with the lawyer in excess of the RVG must be borne by each party.

Legal aid is available to the employee or the employer if they cannot afford the costs of the legal dispute due to their personal and economic circumstances, and if the action has a chance of success and no priority legal expenses insurance has been taken out. In such cases, the state covers the legal costs.

For disputes with the works council, the employer must also pay the works council’s legal fees. The works council has no financial resources of its own. The state does not reimburse the works council’s legal fees.