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Employee Terminations in Germany: An Overview

Almost all employees in Germany are protected from unfair dismissal by the Employment Protection Act. Special protection is also provided to:

  • Employees who are pregnant and mothers after childbirth.
  • Employees on maternity or parental leave.
  • Employees with severe disabilities.

These protections do not apply where:

  • Employees have worked in their position for less than 6 months.
  • Where the company has fewer than 10 individuals.
  • Where the employee is not protected, and termination doesn’t need to be justified (so long as it’s not discriminatory).

In the absence of these protections, employers must prove they have good cause to terminate.

Expiration of a Temporary Contract

Employers are not obliged to renew temporary work contracts with specific end dates. However, employers must notify employees at least one month in advance when they do not plan to renew a contract. When employers terminate a temporary contract early, they must follow rules and procedures for the termination of permanent contracts, which are:

  • Notification in advance by employer, and
  • Possible entitlement to severance pay.

Recent Court Decision Makes a Gig-economy Worker an Employee

Employers should know that German gig-economy workers now appear to have more protection than previously, due to a December 2021 decision by the German Federal Labour Court. This decision occurred in the context of record growth of online delivery services in Germany, which has seen these companies secure 500% more customers in the country amid a changing, increasingly remote work environment.

Most platforms which deploy gig-economy workers do not customarily identify those workers as employees despite their often-limited economic independence. But in Germany, as in elsewhere, a growing number of workers derive a significant amount of their income from these platforms. At present, almost 6% of Germany’s working population earn 25% to 50% of their income from these platforms.

This landscape is changing following the German Federal Labour Court’s decision which ruled a crowd worker an employee after he worked 15 to 20 hours a week and was then blocked from the platform after a disagreement with the operator. Judges here ruled that the platform exercised indirect control over the crowd worker who was therefore unable to organize his activity according to place, time, and content.

Through this “gamification”, the court ruled, the crowd worker’s hourly wage was impacted, he had a detailed task description and a fixed timeframe, and a personal dependency on the platform and thus — an employment relationship was created. While this decision was made on the merits of an individual case — the court’s reasoning will have a wider impact and businesses operating in Germany should take head.

Three Common Reasons for Termination of Permanent Contracts Are:

  1. Business-related dismissal – When a company is undergoing restructure, facing major financial difficulty, or terminating business activities, employment contracts may be terminated. However, employers must prove that the position no longer exists and there are no other positions in the company which the employee is suitable for. Employees are entitled to a notice period, even when a company is winding down. It’s also important to note that this would not be applicable for Employer-of-Record employees.
  2. Conduct-related dismissal – Employees who breach employment terms can be dismissed. At least one written warning is required before dismissal. However, in the case of a sever breach (e.g., theft, abuse), termination can be immediate. Action must take place within two weeks of the employer learning of the act precipitating the termination. Inadequate performance by an employee can be difficult to prove.  If the employee can show they are working to the best of their capabilities, it’s not possible to terminate them if they are not achieving company goals.  Too, a dismissal must be “socially justified”, which is also difficult to prove.
  3. Person-related dismissal – Where an employee is unable to work in the long-term due to illness – and employer may terminate employment. Employers here are required to show that the employee is not fulfilling contractual requirements.

Notice Period for Termination

Employers must provide notice of dismissal in writing.  Verbal notices are insufficient.  Notice periods vary, depending on seniority.  Employees work regular hours and are paid a salary during their notice period.  Pay in lieu of notice may be permitted with express written consent of the employee.

Contesting a Dismissal

Employees may contest a dismissal by filing a legal complaint in labor court within three weeks of receiving a dismissal notice. Employees cannot contest if they’ve mutually agreed with the employer to end the contract, in writing.

Entitlements and Severance

When employees are dismissed, they are entitled to demand a reference and documentation of their deregistration from the social security system, and a printout of their electronic income tax certificate on their income tax return. Employees may also be entitled to payment for unused holiday leave.

German law provides no statutory entitlement to severance. However, employers sometimes compensate employees with severance under collective bargaining agreements – and where they are seeking to avoid protracted negotiations over dismissals.

Severances are typically approximately 50% of the monthly salary per year they’ve worked at the company but will also depend on the circumstances of the dismissal and the employee’s service to the company.

GoGlobal Can Help

The international PEO services model enables companies to hire compliantly, quickly, and affordably almost anywhere, while avoiding the pitfalls and risks of hiring contractors. As an international PEO services company, GoGlobal is well placed to help your company adapt to Germany’s termination regime. Please contact us to discuss how GoGlobal can help you.