Germany

A. Hiring of employees (onboarding)

1. Mandatory employer requirements

The contracting parties are free to decide the content of the employment contract. In order to protect employees, contractual freedom is restricted by mandatory statutory law and by collective agreements and work agreements. If no written employment contract has been concluded, the employer is obliged to provide the employee with a record of the essential working conditions of the employment relationship. The deadline by which the data must be available varies between 1 day and 1 month, depending on the type of information. The essential working conditions are for example: name and address of the parties; a description of the work to be performed by the employee; the remuneration, including supplements, allowances, bonuses, special payments and other components of remuneration and their due dates, the working time, the duration of annual leave, and the periods of notice.

The employee must be registered with the health insurance fund (Krankenversicherung) with the first subsequent payroll, at the latest within six weeks after the start of employment. The competent health insurance fund is generally determined by the employee's membership certificate. Additionally, the employer must register an employee to the pension insurance once the employee has taken up work. The employer is responsible for withholding and paying social insurance contributions. He/She must also pay wage tax and, if applicable, church tax and the solidarity surcharge for employees to the competent tax office (Finanzamt). In addition, the new employee must be registered with the responsible employer's liability insurance association (Berufsgenossenschaft) for accident insurance. Contributions to accident insurance are paid exclusively by the employer.

In general, foreign employers must fulfil the obligations mentioned above. Alternatively, it is possible to transfer these obligations to the employee, provided that the employer reimburses the employee. If the employer commissions a third party to perform the reporting duties, the employer is still fully liable.

It is not required to establish a German legal entity to hire someone to work in Germany.

2. Probation periods

A probationary period may be stipulated in the employment contract or collective agreement. The probation period is possible as a fixed-term employment relationship or an “upstream” probationary period within the framework of an open-ended employment relationship. As a rule, the probation period should not exceed six months, although the law does not stipulate a maximum period.

During the probationary period, but for a maximum of six months, the employment relationship may be terminated with a statutory notice period of only two weeks. However, a longer notice period may be agreed in the employment contract and a longer or shorter period may be agreed in the collective bargaining agreement.

A reason for termination is only required after six months have passed, but even before that, the employer may not terminate the employment relationship arbitrarily (willkürlich). However, it is generally a sufficient motivation if the employer is not satisfied with the employee's performance.

There is no action needed to continue the employment relationship upon passing the probation period.

3. Hiring checks

Medical examination
A medical examination of employees is required in certain cases regulated by law. For example, it is necessary when engaging in particularly hazardous activities or, under special conditions, when working in food production or catering. In such cases the employment contract may be made subject to the condition that the results of the examination do not contradict the employment.

The employer can only demand medical examinations prior to hiring if there is a legitimate interest. The examination must therefore be limited to the aptitude for the prospective job and its requirements.

If a medical examination during the current employment relationship shows that the employee is not physically capable of performing the contractually owed work, this can generally constitute a reason for termination for personal reasons.

Criminal background check
The employer may only ask about previous convictions if these are objectively relevant to the type of position to be filled. Although the submission of a certificate of good conduct (polizeiliches Führungszeugnis) may generally not be required by the employer, in practice it is nevertheless often requested before signing a contract. This makes the signing of the employment contract by the employer de facto dependent on the submission of the certificate of good conduct.

For certain jobs a certificate of good conduct is mandatory, e.g., jobs working with children.

Permanent storage in the personal file is normally not permitted. Rather, it is sufficient to document the presentation of the certificate of good conduct.

Reference and education checks

Reference and education checks are permissible with consent of the individual.

4. Diversity & inclusion

With the General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz, AGG), the German government has established the prohibition of discrimination in employment and occupation on the basis of particular personal characteristics (race, ethnic origin, religion, political ideology, sexual identity, gender, age, and disability). As far as there is no unequal treatment on these grounds, the general principle of equal treatment under labor law applies. It prohibits the employer from arbitrary, i.e. objectively unfounded, disruption of general or group-related regulations to the detriment of individual employees or groups of employees.

In general, the principle of equal treatment must also be complied with in the context of remuneration. However, if the employer pays individual employees higher remuneration than others for the same work on the basis of freely negotiated contracts without following a general principle, there is no obligation of equal remuneration. In Germany, there is also no general principle of "equal pay for equal work". Still, if remuneration is paid on the basis of a certain recognizable and generalizing principle, the employer is prohibited from forming groups when determining the conditions of entitlement, unless there is a reasonable cause.

In Germany, the "Act on the Equal Participation of Women and Men in Management Positions in the Private Sector and in the Public Sector" (Gesetz für die gleichberechtigte Teilhabe von Frauen und Männern an Führungspositionen) came into force in 2015. The law was amended again in 2021. It establishes rules for the gender distribution at the supervisory board level, the executive board and the two levels below for listed companies and/or companies subject to co-determination . The Act stipulates that the executive board of a listed company subject to the Codetermination Act must consist of at least one woman and at least one man if it has more than three members. In addition, the executive board must determine target figures for the two management levels below the executive board. The target figure of zero must be justified. The same applies to the management of a co-determined German company with limited liability (GmbH). The supervisory board of acompany that is listed on the stock exchange or subject to co-determination shall set targets for the proportion of women at the supervisory board and the executive board level. The target figure of zero must be justified. If the proportion of women is below 30 percent when the targets are set, the targets may no longer fall below the proportion achieved. At the same time, deadlines must be set for achieving the targets.

5. Types of employment contracts

In Germany, a distinction can generally be made between a fixed-term and an open-ended employment contract. In addition, project-related employment contracts, part-time employment contracts or mini-jobs are also possible.

If the employment contract does not specify the duration of the employment relationship, it is an open-ended contract. In principle, the open-ended employment contract does not have to be concluded in writing. However, depending on the type of information at the latest one day up to one month after the agreed commencement of the employment relationship, the employer must document the essential contractual conditions in writing and provide them to the employee.

In contrast to an open-ended contract, a fixed-term employment contract ends automatically upon expiry of the agreed term. Therefore, an act of termination is not necessary. In addition to a time limit, the end date can also be tied to a specific purpose. In this case, the employment relationship ends when the agreed purpose is achieved.

Fixed-term employment contracts are permitted, provided that the employer has a factual reason (sachlicher Grund) for the temporary employment contract, although these do not need to be mentioned explicitly in the employment contract. The law contains a number of typical factual reasons. A fixed term is permissible, for example, if there is only a temporary need or if the recruitment is made to temporarily replace another employee. It is also possible to set a fixed term to trial the employee. As long as there is a factual reason, employers can also set successive fixed-term contracts without limitation. However, above a certain number of successive fixed-term contracts, it is possible to establish misuse by the employer.

Employers may also fix the term of employment contracts without a factual reason. In this case, however, some limits must be observed. A fixed-term contract without a factual reason is permissible for a maximum period of two years and can only be extended three times within this period.

The fixed-term contract must be concluded in writing and signed before the employee enters into service. If the employer did not include the duration or purpose of the fixed-term contract in the contract, the fixed-term employment contract is considered to be open-ended.

6. Specific rules for executives

The provisions of labor law generally apply to executives, with some exceptions such as working hours and termination rules.

7. Language requirements

German is the official language of Germany, but there are no special formal requirements for the conclusion of an employment contract. Therefore, employment contracts can also be drawn up in another language. In the event of a dispute, the German labor court may require a legally binding translation of the employment contract.

8. Equal pay

In general, the principle of equal treatment must also be complied with in the context of remuneration. However, if the employer pays individual employees higher remuneration than others for the same work on the basis of freely negotiated contracts without following a general principle, there is no obligation of equal remuneration. In Germany, there is also no general principle of "equal pay for equal work". Still, if remuneration is paid on the basis of a certain recognizable and generalizing principle, the employer is prohibited from forming groups when determining the conditions of entitlement, unless there is a reasonable cause. In 2017, however, the” Act to Promote the Transparency of Pay Structures” (Entgeldtransparenzgesetz) came into force. The aim is to implement the principle of "equal pay for equal work or work of equal value" more strongly in practice.

Furthermore, the equal pay for equal work principle that is based on the European Posted Workers Directive has been transposed into national law. However, only for a limited number of business sectors collective bargaining agreements must be applied in order to observe said principle. With regards to most business sectors only the threshold of the statutory minimum wage must be achieved or exceeded.

9. Remote work

In Germany, employees do not have a statutory right to work remotely. Even if remote work is widespread, the employer can prohibit it. However, the current German government's coalition plan provides for a right to claim for mobile working. The employer would then only be allowed to object if there are operational concerns to the contrary. In addition the “Works Council Modernization Act” (Betriebsrätemodernisierungsgesetz) stipulates that works councils can have a say in the implementation of mobile working. However, co-determination is limited to the content of the work arrangements. The specific regulations for working remotely should be specified as precisely as possible in the employment contract. However, a regulation in a works agreement is also possible.It is important to note that breaks and rest periods must also be observed in terms of working in home office. Accident insurance coverage is also guaranteed in the home office if the work is performed in the same way as in the employer’s premises. The employer must provide the employee with all the work equipment needed to perform the work. 

Employees are not entitled to reimbursement of home office expenses, but they can declare their home office days in their tax return and thus deduct a lump sum up to a maximum of 120 days. 

B. Termination of employees (offboarding)

1. Kinds of dismissal

Under German labor law, there are two kinds of dismissals: ordinary dismissals (ordentliche Kündigungen) and dismissals for serious cause (außerordentliche Kündigungen). These two kinds differ in reason for dismissal, notice period (Kündigungsfrist) and dismissal protection (Kündigungsschutz).

An open-ended employment contract can be terminated by the employer at any time by either an ordinary dismissal or a dismissal for serious cause. Alternatively, the parties can terminate the employment contract by mutual agreement.

The fixed-term employment contract ends automatically when the agreed term expires. If the employer and employee continue to execute the employment contract beyond its expiry date, the rules provided for an open-ended employment contract apply automatically. An ordinary dismissal of a fixed-term employment contract is not permissible, unless the contract states otherwise. If a right to ordinary termination has been agreed, it applies to both parties. The right to execute a dismissal for serious cause cannot be excluded.

2. Dismissal motivation

Ordinary dismissal
As a general rule, an ordinary dismissal is valid if the applicable notice period is observed and the dismissal does not violate public policy (e.g., if based on discriminatory grounds).

However, there are some restrictions. Employees in an operation (Betrieb) with more than ten regular employees, and with more than six months’ seniority (Betriebszugehörigkeit), enjoy comprehensive dismissal protection under the Dismissal Protection Act (Kündigungsschutzgesetz, KSchG). Accordingly, a dismissal has to be “socially justified” (sozial gerechtfertigt), which means there has to be a specific reason for the dismissal. The Dismissal Protection Act sets out three particular categories of reasons that may socially justify a dismissal: (1) person-related reasons (personenbedingte Gründe), (2) conduct-related reasons (verhaltensbedingte Gründe) and (3) operational reasons (betriebsbedingte Gründe).

1. A dismissal for person-related reasons can be socially justified if the employee is unable to perform his/her contractual duties under the employment contract for reasons from his personal sphere. It is irrelevant if the employee is responsible for this inability or not. In practice, the most important circumstance leading to such inability is illness – either long-term illness or frequent short-term absences. However, effectively dismissing an employee due to illness is extremely difficult in Germany. Pursuant to case law of German labor courts, there are three strict prerequisites for such dismissal: First, at the time the dismissal is declared, it must be presumed that the employee’s absence due to illness will continue in the future which is generally indicated by severe absence times in the past (usually multiple weeks per year over a couple of years). Second, the continued absence has to be a serious detriment to the employer’s business interests (e.g., loss of production or customers). Third, the employer’s interests in the termination of the employment relationship have to outweigh the employee’s interests into its continuance. As a dismissal is always only an ultima ratio, also a relocation to another job position or any other action to avoid the dismissal must be considered.
2. A conduct-related dismissal as an employer’s response to an employee’s breach of contractual duties covers various forms of employee misconduct. According to case law, such dismissal in first instance requires a significant breach of duty on the employee’s part to be lawful (e.g., unexcused absence, poor performance or inappropriate conduct towards the employer or colleagues). Second, it must be likely that the employee will breach the contractual duties again in the future. In this context, the employer is in particular obliged to issue (usually several) warnings (in writing for proof). A conduct-related dismissal without at least one prior written warning is usually invalid. Special attention should be paid to issuing effective warnings in compliance with the prerequisites set by German labor courts and in a properly documented way. Third, the employer’s interests to terminate the employment relationship have to outweigh the employee’s interests. For example, social data such as the employee’s age, seniority, and number of dependents have to be considered to the advantage of the employee. Finally, given the dismissal’s ultima ratio character, no less restrictive means may be available.
3. Dismissals for operational reasons are based on structural entrepreneurial decisions on the employer’s part. A dismissal for operational reasons requires in a first step that the employee’s job position ceases to exist due to an entrepreneurial decision of the employer, based either on external business reasons (e.g., a drop in the demand for a product) or on internal business reasons (e.g., a modification in production methods, closure of an entire business, or outsourcing of work to other companies). The mere dismissal of a particular employee may generally not be the content of such entrepreneurial decision. The underlying decision leading to the elimination of a job position is, however, subject to review by a German labor court only to the extent to which it is arbitrary. Second, the employer has to carry out a social selection (Sozialauswahl), which is one of the key issues in the context of dismissals for operational reasons. If the employee at risk could also perform the job of a comparable employee, the employer has to assess whether the employee at risk enjoys greater social protection than the relevant colleagues being employed in the same operation. The statutory criteria for this selection process are age, seniority, maintenance obligations, and disabilities of the affected employees. In the end, the employee with the social criteria least worthy to protect would have to be dismissed. Third, there may not be any other open and reasonable job position on an appropriate hierarchy level that could be offered to the employee in question. This search for an open job position is not limited to the same operation but must also consider job positions in other operations of the same legal entity.

The notice letter should not mention the reason for the dismissal in order to be valid; only in exceptional cases regulated by law is an unexplained notice of termination invalid. The law provides for such an exception for example for pregnant employees. In this case, the termination must specify the exact reason in writing.

Within the scope of application of the Dismissal Protection Act, the employer is also obliged to inform the employee, on request, of the reasons which led to the social selection made. If the employer fails to do so, he/she may be liable for damages. However, the notice letter takes effect regardless.

Dismissal for serious cause
A summary dismissal for serious cause requires a serious cause (wichtiger Grund) for terminating an employment relationship. Such serious cause exists if facts are present on the basis of which – taking all circumstances of the individual case into account and weighing the interests of employer and employee – the employer cannot reasonably be expected to continue the employment relationship until the notice period has elapsed or – in employment relationships for a definite period – until the agreed term has ended. Some examples include repeated tardiness, persistent refusal to work, theft of the employer’s property, or work for a competitor of the employer.

Furthermore, a dismissal for serious cause has to be notified to the employee within two calendar weeks after the employer has obtained knowledge of the facts resulting in the dismissal. Otherwise, the dismissal is invalid.

Dismissals for serious cause tend to be challenged in court (just as ordinary dismissals) and a lot of cases are ruled not to be dismissals for serious cause. Therefore, as a precautionary measure, at the same time an ordinary dismissal is usually also notified if there are doubts regarding the justification for a dismissal for serious cause. If the serious cause is not accepted in court and no ordinary dismissal was served, an ordinary dismissal can still be notified afterwards, however, meaning the employer loses time and money.

The employer must, at the employee's request, immediately inform the employee in writing of the reasons for his or her dismissal. If the employer does not comply with this obligation, the dismissal remains effective, but the employer may be obliged to pay compensation for damages.

3. Notice period

For ordinary dismissals, statutory minimum notice periods apply. The length of these minimum notice periods depends on the employee’s seniority with the employer and gradually increases over time. During the optional but customary probation period of up to six months, the statutory notice period is two weeks. Up to a seniority of two years, the notice period is 4 weeks to the 15th or to the end of a calendar month. The notice period then increases in irregular intervals to up to seven months:

For example, if an employer wants to dismiss an employee with 4 years’ tenure on 10 August, the notice period is one month to the end of the calendar month, i.e., the notice period will expire on 30 September.

Many collective bargaining agreements (Tarifverträge) but also individual contracts – especially with white-collar or executive employees – contain longer notice periods which prevail as they are more advantageous for the employees. If contractual notice periods are shorter than the statutory minimum notice periods, the longer statutory notice periods prevail.

There is no indemnity in lieu of notice under German law. Employees generally work throughout the term of the notice period. Sending employees on garden leave is only permitted in exceptional cases, especially where the employer made a valid reservation in the employment contract.

In order to end the employment relationship at an earlier date than the expiry of the statutory notice period, the parties can conclude a termination agreement. However, this is concluded by mutual agreement between employer and employee. Generally, a severance payment is agreed in the termination agreement. The following calculation formula is usually used to determine the severance payment: 1/2 gross monthly salary per year of seniority.

A valid dismissal for serious cause takes immediate effect without observing a notice period.

4. Severance pay

There is no statutory severance entitlement in Germany. As the underlying principle of German dismissal protection law is “in or out”, a judge can only terminate court procedures by a judgment over a severance pay under special circumstances, especially when a continuation of the employment is unacceptable for the employee.

However, as wrongful dismissal procedures often last for a long time and the outcome is tricky to predict, employers usually accept a mutual settlement during the first court hearing, and therefore a termination of the employment relationship in return for payment of severance. The severance pay is usually calculated by the formula: half of the gross monthly salary per year of seniority. Depending on the justification for the dismissal and therefore the employer’s chances for winning the case, this amount decreases or – more likely – increases. In case of dismissal without objective reasons, the severance pay is usually at least one gross monthly salary per year of seniority.

5. Dismissal formalities

All dismissals – both ordinary dismissals and dismissals for serious cause – have to be done in writing to be valid (originally signed by a competent company representative). The reasons for the dismissal do not need to and should not be stated in the notice letter. Compliance with formal requirements and a provable delivery of the notice letter in due time are crucial for an effective dismissal. Particular attention should be paid to these aspects to avoid unnecessary disputes and costs on the employer’s part.

Further requirements for a valid dismissal
If a works council exists, it has to hear about the planned dismissal first, i.e., detailed information about the employee and the reasons for the dismissal have to be provided. Although this information can also be given verbally, written information is recommended for a stronger evidential basis in case of later disputes on the validity of the dismissal. Depending on whether the dismissal is ordinary or for serious cause, the works council has a certain number of work days to process the request. It may consent to the dismissal, object to it, or remain silent. The employer may give notice even if the works council objects. However, notice may only be given after the applicable period for the works council hearing process has elapsed. If the works council is not informed properly, the dismissal is null and void.

6. Special dismissal protection

Certain categories of employees enjoy increased protection against dismissal, including severely disabled employees (Schwerbehinderte), pregnant employees, employees on maternity leave (Mutterschutzfristen) and employees on parental leave (Elternzeit). For these protected categories, dismissals are generally prohibited and only permitted in very exceptional cases and with the prior consent of competent authorities.

Works council members also enjoy special dismissal protection, considering their office within the company. A dismissal of such employees is extremely difficult.

7. Legal means of employees

If an employee wants to challenge the validity of a dismissal (both for ordinary dismissals as dismissals for serious cause), he/she has to file a wrongful dismissal claim (Kündigungsschutzklage) at the competent labor court (Arbeitsgericht) within three weeks from delivery of the notice letter. Otherwise, the dismissal will be effective.

The vast majority of cases is mutually settled in a first court hearing (Gütetermin) – usually against payment of severance (Abfindung). Where in exceptional cases no agreement is reached, a second court hearing (Kammertermin) is scheduled. In this case, the employer has to demonstrate and prove that the applicable requirements for the dismissal were fulfilled. The labor court then rules whether or not the prerequisites for a lawful dismissal were fulfilled. If this was not the case, the labor court will generally judge that the employment relationship has not been terminated effectively and that the employee has to be reinstated.

8. Specific rules for executives

Executives are also covered by the Dismissal Protection Act. In contrast to other employees, the works council does not have to be heard. Apart from that, the general principles of termination also apply to executives.

9. Collective dismissals

To ensure that the employment agencies (Agenturen für Arbeit) are informed in a timely manner about an unusually high number of new unemployed persons, employers are obliged to report mass redundancies in writing (Massenentlassungsanzeige). The obligation to notify depends on the size of the company and the number of redundancies planned in the same period.

A notification of collective redundancies is required if, within 30 calendar days, more than five workers are to be dismissed in an operation (Betrieb) employing normally more than 20 and fewer than 60 workers; 10% of regularly-employed workers or more than 25 workers in establishments employing normally at least 60 and fewer than 500 workers, and at least 30 workers in establishments normally employing at least 500 workers. Managing directors, executives, apprentices and trainees are also considered employees.

The employer must also provide the works council with information in good time and inform the council of various details in writing. In the consultation procedure, the parties must advise on how to avoid dismissals and mitigate their consequences. The notification of collective redundancy must be accompanied by the statement of the works council.

Furthermore, a mass dismissal usually qualifies as an operational change (Betriebsänderung) resulting in the employer’s obligation to enter into negotiations with the works council about a reconciliation of interests (Interessenausgleich) and a social plan (Sozialplan). Whereas the reconciliation of interests covers the conditions based on which the envisaged measure are to be implemented and executed, the social plan provides for actions in order to soften or compensate the disadvantages to the affected employees.

Get in touch
 

Klaus Heeke
Germany
kheeke@deloitte.de | +49 211 8772 3447