Both the employer and the employee may end an employment relationship by giving notice of termination. As the employment generally is an employee's sole and most important source of income to sustain his/her livelihood, the law protects employees by requiring that employers, who wish to terminate an employment contract, provide a good reason for the termination.
Any dismissal without a good reason is ineffective, which means that the employment relationship continues to be valid and in force. As a consequence, the employer has to pay the remuneration (wage) even if he relied on the effectiveness of the dismissal and actually no longer employs the employee. This generally results in high additional payments to the employee and the social insurance provider. This risk should not be underestimated especially as additional costs might be incurred in the legal prosecution.
The employer may terminate the employment relationship by regular termination subject a notice period or by an extraordinary dismissal without notice. While a good reason for the dismissal is required in both cases, the reason must be a so-called important reason in case of an extraordinary dismissal. The requirements for an effective extraordinary dismissal are much higher. It is permitted in exceptional cases only, for example, when the employee has committed a criminal offence against the employer.
A regular termination also always requires a good reason, a dismissal without good reason is ineffective and does not terminate the employment relationship.
If an employee falls under the German Protection against Unfair Dismissal Act (Kündigungsschutzgesetz; "KSchG"), the requirements on the employer for an effective dismissal increase. Otherwise, the labor courts only check whether or not the employer had a good reason to dismiss the employee. The Protection against Unfair Dismissal Act is only applicable in companies having more than ten employees without counting apprentices and trainees. In addition, the Act only applies to employees who have been employed with an employer for a period of no less than six months, which is the so-called qualifying period. This means that small-company employers (ten or less employees) are relatively "free" in giving notice of termination.
Managing directors of limited liability companies under German law (GmbH) and board members of stock corporations (AG) are basically not protected against unfair dismissal under the Protection against Unfair Dismissal Act, unless such protection is expressly agreed. As members of the company's executive bodies they actually represent the employer. As a consequence, their employment may be terminated without any specific reason at any time. Special provisions also apply to management employees (leitende Angestellte). The Act makes it easier for employers to terminate their employment contracts by so-called cancellation contracts in return for a severance payment.
In the event that the Protection against Unfair Dismissal Act is applicable, the dismissal must be warranted in social terms, i.e. there must be a good reason for the dismissal and the dismissal must be proportionate. The Protection against Unfair Dismissal Act provides a lists of good reasons for a dismissal including reasons relating to the person (reasons relating to the person of the employee), reasons relating to conduct (reasons relating to the employee's conduct) and reasons relating to changes in business operations (redundancy).
The reasons relating to the employee's conduct include for example:
Reasons for dismissal relating to the person include:
Redundancy is warranted if
As it is generally very difficult to furnish proof that redundancy conditions are met, it is very important to seek advice from an experienced attorney specializing in labor law. The same applies in cases of dismissals for personal reasons, especially if the dismissal is due to illness.
In the event of a conduct-related dismissal, the employer should additionally be aware that the dismissal is only warranted, and hence effective, if the employer has previously effectively warned the employee for a similar conduct. Without a warning from the employer, the dismissal will be ineffective for that reason alone.
Giving an ineffective dismissal entails substantial costs for an employer. First, the employer continues to owe the employee his/her wage, and second, the employer will have to pay the costs of a labor court procedure against unfair dismissal. Therefore, before issuing a dismissal, you should always consult an experienced attorney specializing in labor law.
Your contact person for any questions relating to good reasons for dismissal and protection against unfair dismissal, and, more generally, relating to labor law issues, is Attorney Dr. Eric Uftring (Certified Specialist for Employment Law). Please do not hesitate to contact us with your questions. The easiest way to contact us is via e-mail (email@example.com) or telephone (+49 (0)69 76 75 77 80).
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Specialist for Employment Law Dr. Eric Uftring contributed a detailed chapter on staff leasing agreements. Order here.