Labor and Employment Law in Germany

An Abstract on Main Issues

The complex German Labor Law explained and summarized.

1. Basic rules for employment in Germany

Employment in Germany is based upon a variety of labor and employment laws but is also influenced by the social security system and the income tax system.

1.1. Principles of German employment law

The major sources are federal statutes, collective bargaining agreements, working agreements and case law of the labor courts. Minimum labor and employment standards are laid down in separate acts on various labor and employment related issues. There exist special labor courts with an independent jurisdiction in labor matters. They construe the labor and employment laws and they are responsible for the case law, which is of high importance in German employment law.

The following acts may be considered to be the most important statutes:

General statutes:

  • Bürgerliches Gesetzbuch (BGB), English: Civil Code, defines the employment relationship. The most important regulations concern the periods of notice, which increase the longer the employment lasts.
  • Kündigungsschutzgesetz (KSchG), English: Protection Against Unjust Dismissals Act
  • Allgemeines Gleichbehandlungsgesetz (AGG), English: General Equal Treatment Act
  • Teilzeit- und Befristungsgesetz (TzBfG), English: Part-Time and Limited Term Employment Act
  • Entgeltfortzahlungsgesetz (EFZG), English: Continuation of Remuneration Act
  • Bundesurlaubsgesetz: (BUrlG), English: Federal Paid Leave Act
  • Betriebsverfassungsgesetz (BetrVG), English: Works Constitution Act

Occupational health and safety regulations:

  • Mutterschutzgesetz (MuSchG), English: Maternity Protection Act
  • Arbeitszeitgesetz (ArbZG), English: Working Time Act
  • Bundeselterngeld- und Elternzeitgesetz (BEEG), English: Federal Act on Payment of Child Raising Benefit and Child Raising Leave

Collective labor agreements: In Germany, collective labor agreements usually only apply if both parties belong to a union. Exception: Some collective labor agreements are declared generally binding by the federal ministry for labor and social affairs.

Whether or not a statute is applicable very often depends on the number of employees. At present there are 160 different thresholds, which have to be taken into account in order to find out if the statute in question is applicable:

  • At least five employees: Possibility of a workers’ council with one member.
  • More than ten employees: Protection Against Unjust Dismissals Act applies.
  • More than 15 employees: Statutory right to claim a part time job.
  • More than 20 employees: Duty to employ at least one severely disabled person or to pay a monthly compensation charge.

1.2. Principles of German social security law

Germany’s statutory social security system obligates employees to pay social security contributions. The five branches of the social security system are the unemployment insurance, the health insurance, the long-term care insurance, the retirement pension insurance and the accident insurance. Except for the accident insurance, which is contribution-free for the insured employee as it is financed by the employer only, the employee and the employer share the costs of the contributions. The total amount of the contributions to the social security system depends on the gross income. The employer deducts the employee’s part from his or her salary.

1.3 Principles of the income tax system

Employees pay income tax on their income. The tax progressively increases depending on the gross income. The current rates vary between 15% and 42% plus solidarity tax contribution and church tax if the employee is a member of a church. The employer is responsible for forwarding the income tax to the tax authority.

2. Most important employment issues in Germany

2.1. Conclusion of employment agreements

2.1.1. Probation period

When concluding an employment contract the parties often agree on a probationary period. Employment on probation is permitted for a period up to six months.

During this period, both the employer and the employee are allowed to terminate the employment contract with a notice period of two weeks only (§ 622 sec. 3 BGB).

2.1.2. Temporary employment

Usually, the parties agree upon employment for an unlimited period of time. Under the Part-Time and Limited-Term Employment Act (TzBfG), it is also possible for the employer and the employee to conclude a contract for a limited period of time (fixed-term contract).

In order to do so, several statutory requirements have to be fulfilled. As a general rule, time limitations of employment contracts must be justified by objective reasons. However, the term “objective reason” is not exactly defined in the Act. Instead, the statutory provision of § 14 sec. 1 TzBfG provides a non-exhaustive enumeration of typical reasons for time limitations in employment contracts, which serves as clarification of what constitutes an objective reason. According to that, motives such as the temporary demand of a certain type of work, the intention to facilitate the start of the professional career of graduates, or the replacement of an absent employee, to name only a few, are objective reasons.

However, there are three exceptions to the general rule that fixed-term contracts must be justified by objective reasons:

  • Fixed-term contracts of up to two years, unless the previous employment contract was with the same employer (prohibition of chain employment contracts, § 14 sec. 2 TzBfG).
  • Fixed-term contracts of up to four years, if the contract is concluded within the first four years after the foundation of the corporation (privilege for start-ups, § 14 sec. 2a TzBfG).
  • Fixed-term contracts of up to five years, if the employee is at least 52 years of age and has been unemployed for at least four months prior to taking up the limited employment (privilege of elder unemployed persons, § 14 sec. 3 TzBfG).
Attention: To be legally effective limited-term employment contracts must be in writing and must be signed by both parties before the first day of the employment d (§ 14 sec. 4 TzBfG).

2.1.3. Part-time employment contracts

Part-time work is also governed by the Part-Time and Limited-Term Employment Act (TzBfG).

A full-time employee, who has been employed for at least six months in the same establishment, can request to work part-time, unless there are generally no more than 15 employees working for the employer (§ 8 sec. 1 and 7 TzBfG).

Employers have to treat part-time employees and full-time employees equallyunless there is a specific reason that justifies different treatment.. This principle is laid down directly in the Part-Time and Limited-Term Employment Act: The employer is not allowed to discriminate against employees because he or she has claimed rights under this act (§ 5 TzBfG).

2.1.4. Apprenticeship contracts

Contracts of apprenticeships are subject to the Vocational Training Act (BBiG), which stipulates that the statutes and principles governing employment contracts must be applied, unless the Act provides an express statutory exception (§ 3 sect. 2 BBiG).

2.2. Working conditions

2.2.1. Working time

Statutes that govern the working time are the Working Time Act (ArbZG), the Maternity Protection Act (MuSchuG) and the Young (Minor) Workers Protection Act (JArbSchG). These statutes are applicable to white-collar workers, blue-collar workers and apprentices. As a general rule, the term “working time” is defined as the time from the beginning until the end of work without breaks (§ 2 sec. 1 ArbZG). The legal working time is eight hours per day from Monday through Saturday. The maximum working time permitted by law per week is therefore 48 hours.

Sundays and mandatory holidays serve as idle time and working is prohibited (§ 9 sec. 1 ArbZG) unless there is an exception for certain work branches such as hospitals, hotels, restaurants etc. (for privileged branches see § 10 ArbZG). Even in privileged businesses, each employee has to have at least 15 Sundays without work per year. Employees who have to work on Sundays or on holidays have to be given a day off in lieu within a period of two weeks.

The regular daily working time of eight hours may temporarily be extended up to ten hours per day, but only if the daily working time in the following six months remains to be eight hours per day on average (§ 3 ArbZG). This enables employers to introduce flexible working hours at least to a certain extent. However, it must always be taken into account that 11 hours of uninterrupted rest after daily work must be guaranteed.

Night work is legally permitted (§ 6 ArbZG).

2.2.2. Paid leave

This issue is regulated by the Federal Paid Leave Act (BurlG). The statute provides that employees have to be granted at least 24 days of vacation per calendar year, not counting Sundays and public holidays. Saturdays are thus included in the calculation. If employees usually only have to work on five days per week, the mandatory vacation time is 20 days per year.

The employment contracts provided by us stipulate a mandatory vacation time of 20 days but also clarify that those 20 days are meant for employees who have to work five days per week. If employees e.g. only work three days per week, the mandatory vacation time is 12 days.

2.2.3. Other leave entitlements

Sick-leave is governed by the Continuation of Remuneration Act (EFZG). If the employee has been employed for at least four weeks, continued payment of wages can be claimed for a period of up to six weeks. During this period of time the employee is thus entitled to 100% of his average income.

Another entitlement for continued payment during absence is stipulated in § 616 BGB. According to that provision, full wages can be claimedif the employee is absent due to personal reasons for a short time, such as the death or funeral of a close family member or the birth of the own child.

3. Equality

Under the General Equal Treatment Act (AGG), any discrimination on grounds of race or ethnic origin, gender, religion or secular believes, disability, age or sexual identity is inadmissible. Unjustified, unequal treatment of employees is thus unlawful.

In practice, the Act affects mostly the hiring of employees, their employment and working conditions, their professional advancement, remuneration and dismissal. Under the Act the employer must take the necessary measures to protect employees against adverse treatment. The employer can fulfill this duty by training his or her employees. In case the employer fails to train his employees appropriately and an employee is being discriminated against by another employee, he may be entitled to sue his employer for compensation of non-pecuniary damages.

4. Termination of employment

4.1. Statutes

The termination of employment is mainly governed by the Civil Code (BGB) and the Protection against Unjust Dismissal Act (KSchG). The German Employment Law sets high standards for the employer to unilaterally terminate an employment relationship. Especially the application of the Protection Against Unjust Dismissal Act (KschG) has a strong impact on the dismissal of employees. This act applies if the employer regularly employs more than ten employees. Also, an employee must have worked in the company for at least six months without interruption in order to come under the Act’s scope of protection (§§ 1, 23 KschG).

4.2. Statutory requirements for notices of termination

The notice of termination must be given in writing to be valid (§ 623 BGB). It must be declared in a written document and signed by the issuer. This statutory written form requirement cannot be waived, as it is mandatory. Notices by fax or e-mail are not sufficient since they do not fulfill the written form requirements due to lack of the original signature.

If notice is given by an authorized person, the original power of authority has to be presented to the employee.

4.3. Ordinary and extraordinary dismissals

German Employment Law distinguishes between ordinary dismissals, whereby the employment relationship ends with the expiration of a period of notice (§ 622 BGB), and extraordinary dismissals, which effect the immediate cancellation of the employment contracts (§ 626 BGB).

Where the Protection against Unjust Dismissal Act (KschG) applies, ordinary dismissals are only allowed for operational reasons, misconduct or personal reasons (§ 1 sec. 2 KschG). Each type of dismissal requires the fulfillment of specific prerequisites. To name only a few, dismissals for misconduct usually require at least one written warning beforehand because the employee shall be granted the chance to change his or her misbehavior; dismissals for personal reasons are only possible if the employee is unable to perform the work e.g. due to long-term illness; dismissals for operational reasons require a structural entrepreneurial decision to eliminate the specific job, the employer has to provide evidence that there is no way the employee can be reassigned to another free position and the correct application of social criteria for the determination of who to release (“social selection”). In any case, the individual circumstances of each case are decisive.

Where the Protection Against Unjust Dismissal Act does not apply, the employer is free to dismiss any employee at any time, as long as the dismissal is not arbitrary.

Extraordinary dismissals always require a good cause, which makes it, in good faith, unacceptable to continue the employment relationship until the end of the notice period, or, in the case of a fixed-term employment contract, until the contractual date for its expiration. A good cause often realates to serious misconduct of the employer. The dismissal for good cause is only possible within two weeks after the notifying party has obtained knowledge of the facts that entitle the party to terminate the employment relationship for good cause.

If there is a workers’ council, employers must be aware that the council must be heard before each dismissal. Even though the workers’ council cannot prevent a dismissal, the dismissal is invalid if the employer fails to properly inform and consult the workers’ council beforehand (§ 102 BetrVG).

Some groups of employees e.g. disabled persons and pregnant women benefit from particular protection against ordinary and extraordinary dismissal due to their certain individual circumstances.

4.4. Notice periods

Ordinary dismissals are subject to certain periods of notice. Notice periods are stipulated by law. The minimum statutory notice period for both, the employer and the employee, is four weeks counting back from the 15th or the last day of a calendar month (§ 622 BGB). However, the notice period for the employer gradually increases with the company seniority of the employee:

  • 2 months to the end of the calendar month for 5 years of company seniority
  • 3 months to the end of the calendar month for 8 years of company seniority
  • 4 months to the end of the calendar month for 10 years of company seniority
  • 5 months to the end of the calendar month for 12 years of company seniority
  • 6 months to the end of the calendar month for 15 years of company seniority
  • 7 months to the end of the calendar month for 20 years of company seniority

Individual contracts of employment may only specify longer notice periods.

4.5. Termination by mutual agreement

Of course, the termination by mutual agreement is possible and quite common. The termination agreement must be in writing. Usually the agreement contains provisions on the date of the end of the employment, paid leave, severance payments, return of company property, reference etc.

German Employment Law does not provide for a termination against severance pay. However, more than 85% of the lawsuits against dismissals are settled by the payment of a severance. A severance payment is usually calculated on the basis of half a gross monthly salary for each year of employment.

5. Workers’ council

The workers’ council is the representative body of the employees and it is statutorily granted specific rights of participation and codetermination. The formation of a works council is not mandatory for the employees. However, if the employees decide to constitute a workers’ council they have the right to initiate elections. The only requirement is that there are at least five regularly employed employees in the establishment (which is defined as the organizational labor unit of a company). The size of the workers council depends on the number of employees in the establishment.

Members of the workers’ councils, the election committee and nominated candidates can only be dismissed for serious cause. Thus, they are granted statutorily protection against ordinary dismissals (§ 15 KschG). The workers’ councils have different information and consultation rights. However, the most important rights granted by the Works Constitution Act are the codetermination rights in personal matters, such as hiring, transfers and dismissals of employees. The workers’ council and the employer may also conclude working agreements in order to create general rules on working conditions. Such agreements have immediate and binding effect on the individual employment contract (§ 77 sec. 4 BetrVG).