Under German employment law, the employer has no obligation to provide a detailed employment contract. However, employees have a right to, and will expect, a written summary of the main terms of employment.
Main terms of employment
In Germany, the employer is required to put down in writing the main terms of the employment no later than one month after the agreed commencement of the employment relationship, to sign the written record and to hand it over to the employee. The written record must include at least:
- the name and address of the contracting parties,
- the start date of the employment relationship,
- in case of fixed-term employment: the expected duration of the employment,
- the place of work,
- a brief characterization or description of the work to be performed by the employee,
- the composition and amount of the remuneration, including supplements, allowances, bonuses and special payments, as well as other components of the remuneration and their due date,
- the agreed working time,
- the duration of the annual vacation,
- the terms of termination of the employment relationship,
- a general reference to the collective agreements, works agreements or service agreements applicable to the employment relationship.
A written summary of the main terms of employment will help an employer to avoid claims for damages by employees resulting from a lack of information. For example, a claim may arise if an employee does not assert claims under a collective bargaining agreement in time because he was not aware of the applicability of the collective bargaining agreement.
Written Employment Contract
Although there is no legal obligation, there are good reasons for finalizing a detailed employment contract that goes beyond the minimum requirements of the Verification Act:
- A detailed employment contract avoids ambiguities regarding the employee's entitlements. For example, it should be explicitly stated under which conditions the employee is entitled to variable remuneration, whether and to what extent overtime will be remunerated, and so forth.
- Furthermore, the employer can impose obligations on the employee that go beyond the employee’s statutory obligations, such as post-contractual non-competition, non-solicitation clauses or confidentiality obligations. It is also advisable for employers to include expiration clauses. For example, a term may be included according to which claims (e.g., salary claims) of the employment relationship will be forfeited unless they are asserted vis-à-vis the employer within a certain period after they have become due.
Fixed-term employment contract
In Germany, the parties to an employment contract usually agree on an indefinite employment. However, employers increasingly use fixed-term employment contracts as an extended probationary period, for flexible personnel planning and often also to comply with internal staffing guidelines. Fixed-term employment contracts terminate automatically and, thus, the employer is not required to issue a termination notice or make any severance payments to terminate them.
Fixed-term contracts are subject to the restrictions of the German Part-Time and Fixed-term Employment Act (Teilzeit- und Befristungsgesetz “TzBfG”). For Instance, fixed-term employment contracts must always be concluded in writing, otherwise they are deemed to be for an indefinite period.
A distinction is made between fixed-term employment contracts with a “valid reason” (mit Sachgrund) and contracts without such a “valid reason” (ohne Sachgrund).
- A “valid reason” is, for example, a temporary increase in the volume of work or the temporary replacement of an employee who is absent (e.g., due to illness or maternity leave). For employment contracts with "valid reason" there is no legally defined maximum duration, as the aim is to cover the employer's temporary needs so long as they exist.
- In practice, most fixed-term employment contracts are not based on "valid reasons" within the meaning of the TzBfG. If there is no "valid reason", the employer may extend the fixed-term contract no more than three times and the fixed-term employment may not exceed a total duration of two years. In addition, a fixed-term without "valid reason" is not permissible if a fixed-term or permanent employment relationship has already existed with the same employer.
Exception for start-ups: During the first four years after the start of a company, fixed-term contracts without “valid reason” are permissible for a term of up to four years.
Part-time employment contract
Part-time work is also governed by the German Part-Time and Fixed-term Employment Act (Teilzeit- und Befristungsgesetz - TzBfG). Employees are entitled to request a reduction to their contractually agreed working hours if they have worked with the company for more than six months and if the company usually employs more than 15 employees. The employer can deny the employee’s request for part-time work if there is a valid operational reason. Such a reason may exist if the part-time work significantly interferes with the organization of the enterprise, the work process or safety aspects, or if it causes disproportionate costs for the employer.
The employer and the employee must negotiate the request to reach an agreement on the number of weekly working hours and the distribution of working time. If they cannot agree on a reduction in working hours, the employer is obliged to notify the employee in writing about his decision to reject the request. This has to be done at least one month prior to the start of the part-time work requested by the employee. If the employer fails to give this notice, the request for part-time work is automatically implemented and cannot be unilaterally changed by the employer.
Employees must not be discriminated against because of their part-time employment. Therefore, part-time workers are entitled to similar benefits as comparable full-time workers and receive pro-rated payments and benefits.
Termination of employment
Under German employment law, employees enjoy strong protection against termination. Protection against termination is divided into general protection against termination under the Act on Protection against Dismissal (Kündigungsschutzgesetz) and special protection against termination. The latter applies to certain groups of employees, such as severely disabled employees, and women during pregnancy and four months after childbirth. In addition, there are some formal requirements that employers must observe. In the following, we provide a basic overview of the dismissal process in Germany.
Ordinary termination observing the notice period vs. termination for good cause
German employment law makes a distinction between ordinary termination observing the applicable notice period (ordentliche Kündigung), whereby the employment relationship terminates upon expiry of the notice period, and termination for good cause (außerordentliche Kündigung). Termination for cause requires a severe breach of duty and leads to an immediate termination of the employment relationship. In both cases, termination at the employer's initiative is (strictly) limited by law.
Termination for good cause
In case of a severe breach of contract by the employee, the employment can be terminated for cause with immediate effect without observing a notice period. The employer has to provide a reason 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 contract of employment, the contractual date for its expiration.
Good cause within the meaning of sec. 626 of the German Civil Code might be, for example:
- criminal acts, e.g., theft,
- sexual harassment,
- unlawful competitive activity,
- working time fraud, or
- continued refusal to work.
In addition, the employer must provide notice of the termination of employment within 2 weeks of becoming aware of the relevant circumstances justifying said termination with immediate effect.
Termination observing the applicable notice period
In the case of an ordinary termination the employer must observe the applicable notice period and – if general protection against unfair dismissal applies – he needs a specific reason to justify the termination.
During an agreed probationary period of up to six months German employment law provides for a minimum notice period of two weeks. If no probationary period has been agreed and for the time following an agreed probationary period, the statutory minimum notice period is four weeks to the 15th or the end of a calendar month. However, for a termination by the employer this timeframe gradually increases with the years of service from one month to the end of a calendar month to up to seven months after 20 years of service.
The statutory notice periods are staggered as follows, depending on the length of employment:
|Less than 2 years||4 weeks to the 15th or the end of a calendar month|
|2 years||1 month to the end of a calendar month|
|5 years||2 months to the end of a calendar month|
|8 years||3 months to the end of a calendar month|
|10 years||4 months to the end of a calendar month|
|12 years||5 months to the end of a calendar month|
|15 years||6 months to the end of a calendar month|
|20 years||7 months to the end of a calendar month|
In practice, employer and employee regularly agree on a longer notice period. However, the notice period to be observed by the employee may not exceed the one for termination by the employer.
Unlike in other jurisdictions, German employment law does not recognize the concept of “pay in lieu of notice”. The employer must instead abide by the statutory or contractually agreed notice period. The employees receive their regular salary during this time.
General Protection against dismissal
Under the German Dismissal Protection Act, the freedom of the employer to dismiss an employee is substantially restricted. If an employer employs more than 10 employees and if the relevant employee has been employed for more than six months, the employer may ordinarily give notice to terminate only if the termination is justified by
- reasons relating to the employee’s person (e.g., long-term illness or repeated short-term illnesses causing business disruption or unreasonably high sick-pay costs), or
- reasons relating to the employee’s conduct (e.g., breach of contract, in spite of a prior warning relating to a similar breach) or
- by urgent operational reasons and business reasons (e.g., restructuring, shutdown of business). Urgent operational requirements exist where:
- the employee’s position has been cancelled as result of a sound management decision,
- the employee cannot continue to be employed at another vacant position within the company, and
- the employer has carried out a “social selection” and duly considered the four social criteria:
- obligations to support defendants and
- recognized severe disability of the employee.
The employer must be able to explain and justify the weighting of the four criteria mentioned above or any additional criteria used to arrive at a specific decision. However, if the employer and the works council manage to agree on a list of the workers to be dismissed, then social justification is presupposed and can only be challenged in court on the grounds of gross misjudgment. Generally speaking, the implied social basis of the mechanism tends to protect more vulnerable employees.
Although the three reasons for a termination (person-related reasons, conduct related reasons and operational reasons) seem to be quite manageable at first glance, the German courts, driven by the highest German employment court, the Federal Labour Court (Bundesarbeitsgericht), have developed complex case-law and a strict standard for interpreting these three grounds.
Special Protection against termination
Certain groups of employees enjoy special protection against dismissal. For example, the dismissal of a female employee is prohibited during pregnancy and the four-month period after childbirth if the employer, when giving notice, was aware of the pregnancy or childbirth or if the company is informed thereof within two weeks of receipt of the notice by the employee. Severely disabled employees and those with equivalent status may be dismissed only after prior approval by the integration office. Works council members must not be given notice during their term in office unless reasons for extraordinary termination exist and the works council or, in lieu of it, the labour court, has approved such termination.
Information of the works council
If a works council has been established, the works council needs to be consulted before any dismissal as otherwise the dismissal is void. The employer must inform the works council of all reasons for the dismissal. A dismissal that is made without (properly) consulting the works council is invalid.
Since case-law has developed high requirements for this proper consultation, the employer must be extremely careful when preparing the information letter for the works council.
Since case-law has developed high requirements for this proper consultation, the employer must be extremely careful when preparing the information letter for the works council.
To be legally effective, the termination notice must be signed by a person who is authorized to represent the company by its sole signature (e.g., managing director, CEO) or whose authority to give notice is generally known within the company.
Notice of termination must be given in written form, and must include an actual, hand-written signature, as opposed to a digital one. All other forms of notice (i.e. those given orally or by e-mail, scan or fax or DocuSign, etc.) are void.
Claim for unfair dismissal
If the employee believes that a dismissal is invalid, he or she may file a claim for unfair dismissal within a three-week period after having received the termination letter. If the labor court decides that a termination is valid, the employment relationship will terminate after expiration of the applicable notice period. Unlike in other jurisdictions, a valid dismissal will end the employment without the employer’s obligation to make a severance payment, unless it is part of a collective restructuring measure covered by a social plan agreed with the works council.
Termination Agreement and Severance Payment
Invalid terminations by the employer will result in reinstatement by the labor court unless the parties agree on a mutual termination agreement that provides for a severance payment to settle a termination dispute. In Germany, most protection against dismissal disputes end with a mutual termination agreement that provides a severance payment or the extension of the actual applicable notice period. This is due to the high requirements for valid terminations by the employer and the fact that the German labor courts make very employee-friendly decisions.
Many employees bring a claim for unfair dismissal even in the case of a valid termination to exert some pressure on the employer to make a severance payment. This practice results from the fact that many employees in Germany have legal expense insurance that covers their legal fees. Even if the termination is valid, employers often enter into a mutual termination agreement that provides for severance pay or an extended notice period to avoid time-consuming and costly litigation.
The amount of severance pay is subject to negotiation between the parties and is calculated as follows:
monthly gross salary * years of employment ´* factor x
As a rule of thumb, factor x usually ranges between 0.5 and 1.5, depending on the circumstances of the individual case, the employee’ s role and the business sector, but can be lower or higher, depending on the employee’s chances of success in a (possible) lawsuit.
Companies carry out restructuring to avoid future crises, overcome existing ones or generally improve their competitiveness. In almost all cases, the necessary restructuring measures also affect ongoing employment relationships. During a crisis, measures to reduce the workforce are often inevitable. In most of the cases the restructuring of companies fulfills the criteria of a so-called “operational change” according to the German Works Councils Constitution Act (Betriebsverfassungsgesetz – BetrVG). Operational change is the pivotal legal concept, which comes very close to a comprehensive definition of restructuring.
When restructuring projects involve changes in the workforce, it is essential for management to consider the requirements of labor and employment law from the outset.
According to the German Works Councils Constitution Act operational changes include:
- reduction of operations or closure of the entire or important departments of the operation,
- relocation of the entire operation or of important parts of the operation,
- mergers or split-ups of operations,
- fundamental modification of the operational organization, the purpose of the operation or the operational facilities,
- introduction of fundamentally new working methods and production processes.
The legal concept of ‘operational change’ applies only in companies that regularly employ more than 20 employees and where a works council exists, which then has rights of information, consultation and negotiation as follows:
- The works council must be informed and consulted about operational changes at an early stage.
- If an operational change is to be implemented, the employer and the works council must negotiate a reconciliation of interests (Interessenausgleich) and conclude a social plan (Sozialplan). In principle, the employer may not implement any measures in this regard if the works council has not been properly informed about the measures under consideration.
- The works council must be informed on collective redundancies, incorporated in the German legislation on employment protection.
Unlike, for example, in France, the employer is not obliged to justify his/her decision to restructure in economic terms, nor is the regional impact of restructuring defined as a concern to be dealt with. In other words, the employer’s decision to abandon a product line, to automate a production process or to shut down a plant – to give only some examples of operational changes– are considered a management prerogative.
Reconciliation of Interests
A reconciliation of interests is an agreement between the employer and the works council on whether, when and how a change in operations proposed by the employer can be implemented. The reconciliation of interests is intended to ensure that disadvantages for the employees affected by the change in operations do not arise in the first place or are at least kept within reasonable limits.
Although the reconciliation of interests and social plan (i.e., agreement between the employer and the works council on the compensation or mitigation of the economic disadvantages) are legally independent of each other, they are usually negotiated in parallel. Concessions by the works council in the reconciliation of interests often come with demands for a higher social plan budget and vice versa
While the social plan can be enforced by the works council even against the employer’s will, the conclusion of a reconciliation of interests cannot be enforced by the works council. However, the employer must negotiate "genuinely" with the works council, which, according to case law, also includes at least appealing to the conciliation committee, i.e., an internal mediation committee made up of an equal number of members from the employer side and the works council side. If the employer fails to comply, several labor courts and regional labor courts grant the works council a claim for injunctive relief to refrain from the operational change. In addition, the employer is subject to economic pressure because he must expect claims for compensation when implementing an operational change "without having attempted" (section 113 (3) of the German Works Councils Constitution Act) to reach an agreement with the works council through a reconciliation of interests (so-called compensation for disadvantages (Nachteilsausgleich) within the meaning of section 113 of the German Works Councils Constitution Act).
The works council can significantly delay the implementation of the operational change. Companies should be prepared for all conceivable delaying tactics and take these into account in the time and action plan from the outset.
A social plan is the agreement between the employer and the works council on the compensation or mitigation of the economic disadvantages suffered by the employees as a result of the proposed operational change. In contrast to the reconciliation of interests, the social plan can be enforced in co-determination proceedings.
It is important that employers carefully assess in advance whether and what disadvantages will arise for the employees concerned. For example, the mere split of an operations into different business units is often not connected with financial disadvantages for the employees.
The core element of social plans are severance payments as a compensation for the job loss. In addition, social plans provide for other cash benefits such as relocation allowances, additional payments for severely disabled employees and for employees with dependent children, hardship funds, retention bonuses and volunteer programs. Social plans have become increasingly innovative in the way that provisions for re-training and outplacement services often complement severance payments.
In practice, the following rule applies: the faster the reconciliation of interests is to be agreed upon, the more generous the social plan must be.
Collective Dismissal / Mass Layoff
A collective dismissal or mass layoff under German employment law occurs when a large number of employees are dismissed within 30 calendar days. The minimum number of dismissals required for a mass dismissal depends on the size of the business and is specified in section 17 of the Dismissal Protection Act.
|Number of employees in the operation||Number of employees to be dismissed|
|21 to 59||> 5|
|60 to 499||10% or > 25|
|> 499||> 30|
In such scenario, the employer is obliged to
- inform the works council “in due time” about the proposed dismissals, and
- inform the employment agency before dismissing the employees.
Failure to give notification or giving incorrect notification may result in the invalidity of the dismissals.
Collective dismissals qualify as an operation change within the meaning of sec. 111 of the German Work Constitution Act, so that the reconciliation of interests procedure applies. If certain additional criteria are met, the employer must enter into a social plan relating to the collective dismissals.
If the number of redundancies in a workforce reduction exceeds the statutory thresholds within 30 calendar days, the regulations on the mass redundancy procedure must be included in the restructuring process.
Short-time work (Kurzarbeit) and staff reductions
Short-time working is intended to provide temporary economic relief for the company by reducing personnel costs. At the same time, the jobs of the employees affected are to be retained for the duration of the short-time work. Short-time work is therefore necessarily only considered in the event of a temporary shortfall in work. In contrast, terminations for operational reasons may have to be considered if the shortfall in work is likely to be permanent.
Both short-time work and staff reduction can be effective and supplementary means of successfully restructuring a company.
Transfer of business
The transfer of a business or part of a business to a new owner by way of agreement is subject to sec. 613a of the German Civil Code (the German TUPE provision). Business sales and restructuring measures e.g., when unprofitable (parts of) operations are sold or spun off into so-called shared service centers or subsidiaries to improve profitability, often qualify as a transfer of business (Betriebsübergang) according to sec. 613a of the German Civil Code (Bürgerliches Gesetzbuch – BGB).
Transfer of Business
A transfer of business occurs when an economic entity is transferred by a legal transaction and this economic entity is continued by the new owner of the business. Such continuation exists if the business in question is transferred as a "going concern", which depends on the specific facts related to the transfer, for example:
- whether the tangible assets of the enterprise, such as buildings and movable property, are transferred,
- the value of the intangible assets at the time of the transfer,
- whether the majority of the employees are taken over by the new employer (if the transferee acquires only a part of the transferor's entire business)
- whether the customers of the business are transferred
- the degree of similarity between the activities carried on before and after the transfer; and
- the period of time, if any, during which those activities were suspended.
The legal analysis of whether the transfer of assets constitutes an economic unit which is continued by the new owner is highly dependent on individual circumstances.
613a of the German Civil Code does generally not apply to:
- Share deals,
- transfers of assets that do not form an "economic entity" or where such economic is not continued by the new owner,
- transfers exclusively by an act of public authority.
Transfer of Employment Relationships
A transfer of business results in the automatic transfer of all employment relationships of the individuals employed in the transferred entity from the transferor to the transferee. The employment is transferred by virtue of law to the transferee “as is”, i.e., including all employment terms, regardless of their legal basis. As a rule, this means that the employment relationship continues with the same rights and obligations as before the transfer of the business.
The rights and obligations in collective bargaining agreements and works council agreements (Betriebsvereinbarungen) may also, in principle, only be changed by the new owner to the detriment of the employees one year after the transfer of business (section 613a (1) sentence 2 of the German Civil Code). However, such collective agreements and works agreements may be replaced by existing or newly concluded agreements with the same scope of regulation.
Termination of Employment
Sec. 613a (4) BGB prohibits the termination of employment due to the transfer of business, but explicitly allows the termination of employment (in connection with the transfer) for other legitimate reasons. This means that all employees of the transferred business or part of the business are transferred and the transferor may not terminate the employment relationship in order to allow the transferee to take over only certain employees or to employ them under changed conditions. However, both the transferor and the transferee may terminate the employment relationship for other legitimate reasons under the German Protection Against Dismissal Act.
Employers’ obligation to inform Employees
Pursuant to section 613a (5) BGB, the employees affected by the transfer of business must be informed in writing by the transferor or the transferee of the transfer of their employment relationship. This notification must contain
- the time or the envisaged time of the transfer,
- the reason for the transfer,
- the legal, economic and social effects of the transfer on the employees and
- the envisaged measures towards the employees.
Employees’ right to object to the transfer of employment
Employees have the right to object to the automatic transfer of their employment relationship to the transferee. The objection must be made within one-month of receiving detailed information about the planned transfer. If they object, their employment relationship will not transfer to the transferee and they will remain employed by the transferor. However, the transferor may terminate an employee's employment for operational reasons if the employee's job in the company has been eliminated as a result of the transfer and there is no possibility of placing the employee in another vacant job.
The one-month period for objection only begins if the information provided to the employee is correct, complete and accurate. Otherwise, employees may be able to object to the transfer of their employment relationship to the transferee even years after the transfer of business.
Under the General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz, AGG) employers are obliged to refrain from discrimination and, in addition, the employer has several organizational obligations to protect his employees from discrimination at the workplace.
Employers are expressly prohibited from discriminating against job applicants and all employees on the basis of
- race or ethnic origin,
- religion or belief,
- disability, or
- sexual orientation.
Employers must observe the ban on discrimination when publishing job advertisements and also during the application procedure.
A job advertisement seeking a “friendly young waitress” demonstrates two forms of discrimination: the term “young” is a form of discrimination on grounds of age, while the female form “waitress” can be equated with discrimination on grounds of sex.
In a job interview, it would be unfair to ask a female applicant about her plans for a family.
However, the employees - women and men - are also entitled to be protected against discrimination in existing employment relationships.
For example, promoting employees automatically once they have reached a certain age constitutes discrimination against younger employees.
Employers must ensure that discrimination does not take place. In addition, they are obliged to take measures against employees who discriminate against other colleagues. The possible measures for this purpose range from a transfer to another post to a reprimand up to a termination of employment.
Forms of discrimination
In Section 3, the General Equal Treatment Act specifies different forms of discrimination.
Direct discrimination: A person is treated less favorably than another in a comparable situation on any of the grounds referred to under Section 1 AGG.
Examples are, for instance, job advertisements with discriminating age limits, dismissal of a woman because of pregnancy (gender) or the refusal of membership at a gym on the grounds of ethnic origin.
Indirect discrimination: Discrimination against a person does not appear to occur on the grounds stated under sec. 1 General Equal Treatment Act, e.g, gender, race or age, but on grounds of a seemingly neutral criterion. Initially, they apply to everybody in the same way, however, as regards their effect, they are more discriminating for certain groups than for others.
For example, a job advertisement is indirectly discriminating if it requires German as mother tongue for the work in a market garden. This occupation requires a relatively low level of linguistic competence. However, such a requirement excludes those who do not have German as their mother tongue, e.g., people who have come to a country as immigrants.
Harassment: If a person’s dignity is violated, if that person is degraded or offended on the grounds referred to under section 1 of the General Equal Treatment Act, this shall be deemed to be discrimination under the AGG. A specific form of harassment is sexual harassment caused by unwanted conduct of a sexual nature, including inappropriate sexual allusions, staring (at somebody), suggestive comments, the spreading of pornographic material, and physical sexual assaults.
Bullying as a very frequent form of harassment increasingly takes place in the work environment. Bullying is defined as actions violating a person’s dignity and lasting for a prolonged period of time, taking place in a targeted manner and systematic way and being geared towards an infringement of personality rights of the bullied person.
Eventually, there can also be victimization in the work environment if a person complains about discrimination and is therefore discriminated against again - e.g. by transferring the person to a worse workplace.
Justified Difference of Treatment
Difference of treatment in an employment context is permissible within very narrow limits, provided that the characteristics required are genuine and nearly essential for performing the task.
An example would be an association which offers advice to migrant women from specific countries. To establish trust, it is useful to have women of the same culture providing the advice. As such, here it would be permissible only to hire women with a specific ethnic background, as gender and ethnic origin are legitimately relevant occupational requirements in this case.
If the Anti-discrimination Act has been violated, the affected employee has a claim for compensation against the employer under section 15 AGG (in the case of financial damages) and, under certain conditions, also a claim for damages for pain and suffering (in the case of immaterial damages). For example, in the case of non-employment, a claim for compensation of up to three months' salary can be demanded (section 15(2) AGG).
It is important to note that the discriminated applicant or employee has no right to be hired, reinstated or promoted.
Even if colleagues or non-employees have violated the prohibition of discrimination, the employer may be liable for these actions according to the principles of organizational fault if you have not taken measures to protect against discrimination.
German employment law provides a complex system of employee representation. Employee representation at the operational level is guaranteed by the works council. Works councils guarantee employees far-reaching rights of participation and co-determination in social, personnel and economic matters and are the primary partners of employers in negotiating restructuring. Works councils are an integral part of the employment law framework in Germany and a source of constant concern for (foreign) HR managers.
Establishment of works councils
In Germany, the employer is not obliged to establish a works council. A works council is only established by election on the initiative of the employees or a trade union represented in the operation. The size of the works council depends on the number of employees in the operation and can consist of up to 35 members.
However, the employer may not prevent the election of a works council - interference may even have criminal consequences.
A works council can be elected in any operation (Betrieb) that employs at least five employees over the age of 18, including three employees who are eligible to vote for a works council. If there are several operations in a company, a group works council must be set up which is responsible for all matters relating to the company as a whole or at least two operations.
All employees (regardless of trade union membership) who have been employed in the company for six months are eligible for election to the works council. Managing directors, board members and senior executives are not eligible to vote, do not count towards the threshold and are not represented by the works council. The works council is elected in a formalized election procedure by direct and secret ballot. The law provides for a complex election procedure.
Once in place, regular works council elections take place every four years.
Works council rights
The Works Constitution Act (Betriebsverfassungsgesetz – BetrVG) provides works councils with a broad range of participation rights in a variety of
- personnel matters (recruitment, transfers, dismissal),
- social matters (working time, remuneration schemes, use of IT systems) and
- economic matters (operational changes, e.g., reduction of operations or closure of the entire or important departments of the operation, mergers with other operations or split-up of operations).
The works council’s rights are of varying intensity, i.e. information and consultation rights, veto and co-determination rights.
With regards to social matters, the works council has a comprehensive co-determination right.
Amongst others, social matters include:
- Company rules: e.g., code of conduct, smoking ban, dress code,
- start and end of daily working hours and breaks,
- temporary reduction or extension of working time, e.g., overtime,
- introduction of general guidelines for holidays,
- introduction and use of technical equipment and software,
- issues relating to the company wage structure, in particular the distribution of bonuses, premiums and other performance-related benefits.
The employer must obtain the consent of the works council before implementing a decision concerning a social matter. If no agreement can be reached between the employer and the works council, a so-called conciliation body must be put in place. If no agreement is reached even after further negotiations before the conciliation board, this conciliation board will make a final decision regarding the social matter.
Any decisions concerning a social matter implemented without the proper involvement of the works council are null and void.
The works council has the right to be involved in personnel matters, e.g., personnel planning, the introduction of employee questionnaires, selection guidelines etc. The employer is obligated to inform the works council before hiring or transferring an employee and to submit the necessary documents to the works council. If the works council refuses its consent to the aforementioned personnel measures, the employer is obligated to obtain such consent to the personnel measures in court.
The process of obtaining the consent to personnel matters in court can be not only very costly but also very time-consuming.
The works council must be consulted in detail prior to each individual dismissal and can object to it for certain reasons. However, the works council’s objection has no influence on the effectiveness of the notice of termination. A dismissal made without (proper) consultation of the works council is invalid.
In practice, incorrect consultation of the works council prior to the termination of employment is one of the most frequent reasons for the invalidity of termination. This process requires utmost diligence and legal support.
Economic Matters / Operational changes
In companies that regularly employ more than 20 employees who are eligible to vote, the works council has to be informed and consulted at an early stage of the employer´s deliberations on operational changes. The employer and works council have to negotiate a reconciliation of interests (Interessenausgleich) and to agree on a social plan (Sozialplan).
Operational changes which require works council negotiation prior to implementing the measure include:
- reduction of operations or closure of the entire operation or important departments thereof,
- relocation of the entire operation or of important parts of the operation,
- mergers with other operations or splits of operations,
- fundamental modification of the operational organization, the purpose of the operation or the operational facilities,
- introduction of fundamentally new working methods and production processes.
Works council agreements (Betriebsvereinbarungen)
The works council and the employer usually conclude Works council agreements on various working conditions, such as regulations on the start and end of daily working hours (not the duration as such), vacation periods, internal guidelines for social behavior, safety issues such as accident prevention, monitoring measures, as well as general remuneration structures other than individual salary, etc. Works council agreements may not cover matters that are already regulated by law or collective bargaining agreements.
Works council agreements with the works council cannot be concluded if the matter is already regulated by law or collective agreement.
Works council agreements have a direct impact on the employment relationships of individual employees, as works agreements are binding on all employees, except for executive level and managing directors.
Costs of the works council
As a rule, the employer bears the costs resulting from the work of the works council. The employer must, amongst other things, provide the works council with offices and equipment as necessary for the performance of the works council’s duties. Since works council members must receive comprehensive training on their rights and obligations, the employer is also obligated to pay the necessary training expenses. Such expenses are not insignificant because each member is entitled to comprehensive training on works council constitution law. If the works council considers the legal advice of a lawyer to be necessary, the employer must also bear these costs. The same applies for all legal disputes with the works council in court. Moreover, the employer is obligated to pay the works council members the customary remuneration during the time in which the works council work is completed.
Protection of works council members
Members of the works council enjoy special protection against dismissal and can only be given notice for good cause, i.e., if the employee has seriously violated obligations under the employment contract. In practice, these requirements will only be met in a few rare cases. Even where cause exists, the works council's or the labor court's prior consent is required.
Works council members enjoy special protection against dismissal for a period of one year following the end of their term of office.
Trade unions and employers’ associations
Trade unions are organized by sector, rather than on the basis of political orientation or white/blue collar status. Other than works councils, trade unions are rarely involved in a company’s day-to-day issues. However, Trade unions in Germany have a history reaching back to the German revolution in 1848, and still play an important role in German economy and society: Approximately 80% of all employment relationships are subject to collective bargaining agreements.
The main function of trade unions is to negotiate and conclude collective bargaining agreements with employers' associations. They bargain over pay and working conditions (including, for example, notice periods and employment protection for employees with long service), and they may initiate the election of works councils. Trade unions do not have co-determination rights within a company. However, they support the works council and individual employees, e.g., by providing legal advice. Their advice to and support for works councils are crucial when it comes to negotiations on restructuring.
Collective Bargaining Agreements
According to section 1 of the German Collective Bargaining Act (TVG), a collective bargaining agreement is a written contract between one or more employers or employers' associations and one or more trade unions. Collective bargaining agreements contains provisions on the content, conclusion and termination of employment relationships as well as on operational and works constitutional issues. Collective agreements set minimum working conditions, so that more favorable provisions for employees can be regulated in the employment contracts.
The provisions set forth in a collective bargaining agreement apply directly and in mandatory form to an employee if they are a member of a trade union and the employers themselves have concluded a collective bargaining agreement with said union or are a member of an employers’ association which concludes collective bargaining agreements in their name. In addition, the application of a collective bargaining agreement or individual provisions of a collective bargaining agreement can be agreed between the employer and the employee in the employment contract. In practice, where collective bargaining agreements are implemented, employees who are not organized in trade unions are usually treated in the same way as unionized employees.
Social security in Germany is largely organized in the form of a contributions system in which the risks are borne collectively by all insured persons. Irrespective of their individual income and contributions, all insurants are largely and comprehensively protected against various life risks. The vast majority of the German population is insured under the social insurance system, either on a voluntary or compulsory basis.
The mandatory Social Security System in Germany consists of five branches:
- Health insurance
- Nursing care insurance
- Pension insurance
- Unemployment insurance
- Accident insurance
Social security contributions for health, nursing, unemployment and pension insurance are roughly shared equally by employer and employee. The costs for accident insurance are exclusively borne by the employer. In total, the employer's share of social insurance contributions amount to approximately 22 percent of the employee's gross wage, with the employee additionally adding about the same amount.
The employer withholds the employee’s share of social insurance contributions, adds the employer’s share and then pays the full amount to the respective social insurance carriers.
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