- Legal advice
- German Labour Law Basics
Adjustment of occupational pensions
Am I entitled to an increase in my current occupational pension?
Every three years, the employer must – without being requested to do so – examine an adjustment of current retirement benefits and decide upon an adjustment at its reasonable discretion. However, the recipient is only entitled to an increase if the employer’s economic situation so allows. Any adjustment entitlement is considered to be fulfilled if the adjustment corresponds at least to the increase in net wages of comparable groups of employees within the company or to the increase in the consumer price index for Germany. Monthly consumer price indices can be viewed on the German Federal Statistical Office’s website at www.destatis.de (“prices”), enabling the percentage increase over the individual adjustment period to be determined. Whether there is any justification for not increasing a pension depends on the individual case. This is accepted in every case, however, if the employer notifies the pension recipient of the company’s economic situation, the pension recipient does not object in writing within three calendar months of receipt of the notification and the employer has indicated the legal consequences of failing to file an objection within the prescribed period. It is vital that pension recipients take this into consideration and contact the VAA lawyers in good time.
Can the individual three-year period for adjusting the occupational pension be exceeded by the employer?
Yes, because it is possible for the employer to adjust the occupational pensions of all recipients just once a year on a specific key date. This can lead to individual pension recipients having to wait longer than three years for their first adjustment. This is the case, for example, if a pension recipient receives his/her occupational pension for the first time in July 2008, but the employer has fixed the annual adjustment date at 31 December. The pension recipient will then receive an increase for the first time in January 2012, after three and a half years. However, this has no disadvantages for him/her since the additional six months must be taken into account when calculating an appropriate increase in favour of the recipient. Subsequently, however, the three-year cycle must be adhered to in all cases.
Agreement on objectives
Do I lose my claim to a bonus if my employer did not conclude an agreement on objectives with me?
If a bonus is promised in an employment contract under the condition that the objectives set in an agreement on objectives are reached in part or as a whole, the employer is in principle obligated to conclude a corresponding agreement on objectives with the employee. This is often left undone without the employee being able to influence the matter. The question then arises whether the employee can nonetheless demand the promised bonus and if so, in what amount.
The German Federal Labour Court (Bundesarbeitsgericht) ruled in a case that the employer makes itself liable to pay damages if it fails to conclude the agreement on objectives and this failure was not the employee’s fault. Regarding the amount of the damages claim, the court noted that an agreement on objectives basically assumes that the set objectives will also actually be able to be attained to the previous degree. The employee can therefore apply the previous degree of attainment to the objectives not set in determining his/her damages claim.
A different provision applies if an agreement on objectives deviating from what had been previously customary would have been concluded due to actual economic or financial conditions and would have led to a different degree of attainment or another bonus target. The employer must present and prove these circumstances in this case, however.
When do I have a legal claim to a bonus payment?
In addition to their pay, employees often receive bonus payments on special occasions (e.g., Christmas, company and long-service anniversaries). These special payments are intended as recognition of services rendered and as an incentive for further services. A legal right to the rendering of a bonus payment exists only if the bonus payment is set forth in a labour contract, a collective agreement or as part of a works agreement or is rendered at least three times without a reservation of voluntary status being applied.
If a reservation of repayment to the employer in the event the employee leaves the employment relationship is agreed in the employment contract, this is permissible according to the established case law of the German Federal Labour Court (Bundesarbeitsgericht) up to 31 March of the following year in the case of bonus payments between about EUR 100 and one month’s pay as well as for a leave date after 31 March at the next permissible termination date in the case of bonus payments amounting to one month’s pay or more. Finally, a repayment agreement is allowed in principle for bonus payments amounting to two months’ pay or more and a leave date up to 30 September. If the promise of a bonus payment in a standard form agreement is subject to a reservation of revocation, the preconditions for the revocation must be set in advance. Otherwise, the provision violates the clarity requirement pursuant to Section 307 of the German Civil Code (Bürgerliches Gesetzbuch).
How does the system of co-determination work in Germany?
The sophisticated system of co-determination in Germany encompasses operational co-determination (Betriebliche Mitbestimmung) and corporate co-determination (Unternehmensmitbestimmung). This is a system that allows employees to influence company decisions at various levels. Along with a responsible wage policy, legally enshrined co-determination is another key to the success of the German economy.
According to co-determination law, the works council influences the remuneration and payment of employees not covered by standard collective agreements. Because even outside of collective wage agreements, the employer and works council have to establish salary brackets and determine their relation to each other.
The aim of corporate co-determination is to get employees involved in key company decisions regarding planning, management and organisational issues. This is achieved through active employee participation in the supervisory board of the co-determined company.
Corporate co-determination takes three forms in Germany: in addition to Montanbestimmung (co-determination in the German coal, iron and steel industry), which is now only practised in a small number of companies, the German Co-determination Act (Mitbestimmungsgesetz) of 1976 governs co-determination for companies that habitually employ over 2,000 members of staff. The One Third Participation Act (Drittelbeteiligungsgesetz) also applies to companies with between 501 and 2,000 employees. Due to the rise in transnational corporate structures, the negotiated form of co-determination in a European company (Societas Europaea – SE) also applies in addition to statutory German co-determination.
Senior executives have a guaranteed seat on the supervisory board in companies whose co-determination is governed by the German Co-determination Act of 1976. VAA members also apply for employee seats and union seats on the supervisory board.
What advantages do the VAA collective agreements have for me?
The VAA Framework Collective Agreement regulates several points of the employment contract for VAA members who fall under this pay scale category as holders of university degrees in chemistry and the natural sciences. These points would otherwise have to be negotiated individually, for instance, periods of notice or post-contractual prohibition of competition. Clearly, these VAA provisions are in principle more favourable than the ones commonly found in individual employment contracts.
The VAA Collective Salary Agreement guarantees a regularly adapted minimum provision for the second year of work, which, in turn, is the foundation for the salary structure in the later years of a career. VAA membership is the only way to obtain these advantages.
Do I have to return my company car immediately if my employment is terminated?
If the employment relationship is terminated, the employee does not generally have to return the company car until the date of termination. In principle, this also applies if the employee is released when the notice of termination is given. A different arrangement only applies if private use of the company car has not been agreed. The employer can then demand the return of the company car at any time, since in this case it is an item of work equipment to which the employee has no right of possession. Even when private use has been agreed, however, the return of the car is often laid out in the vehicle use agreement (Überlassungsvertrag) in the event that the employee is released. However, compensation must then be made for loss of the financial benefit of private use.
Do company officers enjoy special protection against dismissal?
Certain employees with public law functions in the field of environmental protection enjoy special protection against dismissal. The following employees cannot be ordinarily dismissed: the Immission Control Officer under Section 58 (2) of the German Federal Immission Control Act (Bundesimmissionsschutzgesetz), the Major Accident Officer under Section 58 d of the Federal Immission Control Act , the Water Protection Officer under Section 21 f (2) of the German Water Resources Act (Wasserhaushaltsgesetz) and the Waste Management Officer under Section 55 (3) of the German Closed Substance Cycle and Waste Management Act (Kreislaufwirtschafts- und Abfallgesetz) in conjunction with Section 58 (2) of the Federal Immission Control Act.
Ordinary dismissal is prohibited for the duration of the special commission and for up to a year after the relevant appointment has ended. Irrespective of this, the employment relationship with an immission control, major accident, water protection or waste management officer may be terminated for cause without notice if facts are present that entitle the employer to terminate the relationship for a compelling reason without complying with a period of notice under Section 626 (1) of the German Civil Code (Bürgerliches Gesetzbuch).
Are contractual penalties even still allowed?
Contractual penalties are agreed for the case that the employee fails to start his or her work or leaves due to a breach of contract. They are also regularly employed as a way of securing an agreed prohibition of competition. Contractual penalties are permitted in accordance with the principle of freedom of contract. However, contractual penalties must be reasonable in each case and are not allowed to exceed certain maximum rates, normally a maximum of three monthly salaries. If the agreed penalty is disproportionately high, the court can reduce it to a reasonable extent.
What is the significance of cut-off periods (expiry periods)?
If the parties to the employment contract have agreed cut-off periods (expiry periods), any existing claim will lapse if it is not asserted within the period. Such periods may be included in the employment contract, executives’ committee and works agreements or collective agreements. They are intended to quickly provide clarity in the handling of employment relationships. Cut-off periods must be observed ex officio in court without one of the parties having to invoke them.
Where reference is made to collective agreement provisions in the individual employment contract, this reference in the employment contract also covers the applicability of any cut-off periods laid down in the collective agreement provisions. The framework collective agreement for academically educated employees in the chemical industry does not contain any cut-off periods.
The date on which a cut-off period begins to run depends on the content of the agreement. The date on which the claims become due or the employment relationship is terminated is frequently chosen as the date on which the cut-off period commences.
How to assert a claim so that it is not lost can be derived from the cut-off clause (Ausschlussklausel). The clause may provide for an informal, written or judicial assertion. Double cut-off periods are also possible. These provide that a claim must initially be asserted informally or in writing and, if this is unsuccessful, asserted by judicial process.
Dismissal on grounds of suspicion
Does the mere suspicion of a crime suffice for a dismissal?
If there is suspicion of a criminal offence or other serious misconduct under the employment contract, the employer is entitled to declare a dismissal on grounds of suspicion and end the employment relationship.
The prerequisite, however, is that the suspicion undermines the trust of the employer in the employee that is necessary for continuing the employment relationship or strains the employment relationship to an untenable extent. Dismissal on grounds of suspicion assumes in particular that the employer has done everything required to resolve the suspicion and yet a strong suspicion still exists based on concrete facts. If the suspicion later turns out to be unfounded, this fact might even result in a claim to be reinstated.
Dismissal with the option of altered conditions of employment
What do I need to know about dismissal with the option of altered conditions of employment?
Dismissal with the option of altered conditions of employment consists of two parts: first, the employer terminates the employment relationship. Secondly, the notice of dismissal must be accompanied by an offer to the employee to continue the employment relationship under altered conditions. Dismissal with the option of altered conditions of employment is a genuine dismissal and is therefore subject to the general principles that apply to termination of employment.
The notice of dismissal with the option of altered conditions of employment must be given in writing. The same periods of notice apply as to normal terminations of employment. The difficulty for a recipient of a notice of dismissal with the option of altered conditions of employment is that there are various response options open to him/her, and the implications and effects of these options are often difficult to assess.
After a notice of dismissal with the option of altered conditions of employment has been given, three options are available:
- If the employee accepts the offer of altered contractual conditions within three weeks, the employment relationship is continued under these new conditions from the date when the notice of dismissal would have become effective.
- If the employee rejects the offer of altered conditions, it depends whether the termination of employment included in the notice of dismissal with the option of altered conditions of employment is now effective or not. If the employee wins the dismissal protection lawsuit that he/she has brought, the employment relationship continues under the existing conditions. If the employee loses this lawsuit, his/her employment relationship ends.
- Section 2 of the German Protection Against Dismissal Act (Kündigungsschutzgesetz) provides that the employee may accept the employer’s offer to continue the employment relationship under altered conditions with the proviso that this alteration of the conditions of employment is not socially unjustified. The employee must declare this proviso to the employer within the period of notice, but at the latest within three weeks of receipt of the notice of dismissal. If the labour court considers the alteration of the conditions of employment to be socially justified, the proviso becomes redundant and the employment relationship is continued under the altered conditions. If the labour court regards the conditions of employment that are to be altered as unacceptable on social grounds, the existing content of the employment contract remains unchanged.
Acceptance of the altered conditions of employment subject to proviso eliminates the risk of the employee losing his/her job completely if the dismissal (with the option of altered conditions of employment) protection lawsuit is lost. In individual cases, only in-depth consultation with the VAA can clarify which response best corresponds to the specific interests of the party involved. Dismissal with the option of altered conditions of employment is not permitted if the employer can achieve its goal by the less severe means of reassignment or transfer.
When must I expect a disqualification period for unemployment benefits?
The employment office imposes a disqualification period on you as an employee for giving up your job if you dissolved the employment relationship yourself or caused its dissolution by conducting yourself in breach of the employment contract, thereby bringing about unemployment intentionally or through gross negligence. During this disqualification period, the claim to unemployment benefits is suspended for twelve weeks. The disqualification period shortens the total period for drawing unemployment benefits. There is the risk of a disqualification period even with severance agreements in which a severance payment is agreed for the loss of the job.
By order of the German Federal Employment Agency (Bundesagentur für Arbeit), a disqualification period is dispensed with if the valid period of notice in a severance agreement is complied with and a severance payment in the order of one quarter to one half of monthly earnings is promised per year of employment. No confirmation has yet been given on whether cases involving higher severance payments are to be subject to the same treatment.
Employee disclosure obligations
What information must be disclosed in job and recruitment interviews?
A distinction must be made here between two different types of disclosure. First, there are matters that must be disclosed in response to a relevant question from the employer. Secondly, there are matters that are subject to a general duty of disclosure and that must be disclosed even if the employer does not ask the relevant question.
According to the established case law of the German Federal Labour Court (Bundesarbeitsgericht), (potential) employees must disclose a prison sentence to be served, a health cure that will be taken in the near future or an existing prohibition of competition without being asked by the employer. An existing illness or severe disability only needs to be declared if it prevents the employee from carrying out the work agreed in the contract. As a general rule, female employees do not need to disclose any information about pregnancy.
The employer has a right to ask about the professional background and health of the employee insofar as this affects the employee’s ability to do the designated job. The employer may also ask about a serious disability if required to do so by the prospective job, about completion of military or alternative service if this is due to take place in the near future or about a health cure that has already been approved or for which there are definite plans. Fundamentally, employers have no right to ask about pregnancy. Likewise, the employer has no fundamental right to ask any questions about the employee’s trade union membership.
If an employee has not complied with his/her disclosure obligations in the job interview, the employer has the option of giving a notice of termination. Moreover, the employer may challenge the employment contract on the grounds of fraudulent misrepresentation. Any challenge results in the invalidity of the employment contract from the date of the challenge.
My employer has made me a proposal for inventor remuneration that seems too low to me. Do I have to accept the proposal?
The employee inventor is entitled to appropriate remuneration if the employer has made unlimited or limited use of the employee invention. The employer may make a proposal for remuneration, which is negotiable. If no agreement is reached, the employer must stipulate the remuneration. The employee inventor may submit a written objection to this stipulation within two months. If an agreement is still not reached, the parties may appeal to the Arbitration Board (Schiedstelle) at the German Patent and Trade Mark Office (Deutsches Patent- und Markenamt). Taking an appeal to the Arbitration Board is mandatory before an action for compensation is brought.
Is it more advisable to receive periodic remuneration or a lump-sum payment?
Lump-sum remuneration payments are a good idea if the commercial exploitation of the invention can be reliably estimated. This is rarely the case in the early stages of operational use. However, lump-sum remuneration is frequently agreed for the remaining term of the proprietary right once commercial exploitation has passed its peak.
I agreed on a lump-sum remuneration payment with my employer several years ago. However, turnover has increased to an exceptional and unexpected extent. Can I make additional claims?
The employer or employee can ask the other party to agree to a different remuneration arrangement if there is a significant change in the circumstances that were a key factor in determining or stipulating the remuneration. These also include unexpected and exceptional increases in turnover. The Arbitration Board has accepted a significant change in the case of an increase in the underlying annual volume of turnover by more than one half.
I have ended my employment relationship. I was forced to accept the inventor remuneration arrangement with my previous employer. Can I ask for it to be changed?
Agreements on employee inventions or remuneration stipulations are invalid if they are unfair to a significant degree. Employers and employees may only invoke the unfairness of an agreement or remuneration stipulation if they assert the unfairness by means of a written declaration to the other party no later than six months after the employment relationship has ended.
What advantages does an employee loan have?
An employee loan refers to a sum of money provided as a loan by the employer to the employee in addition to his or her pay. The loan is offered at more favourable interest and repayment terms than are customary in banking practice or on the market. If the employer provides a loan that is either interest-free or on more favourable conditions than standard market terms, these interest benefits are remuneration – irrespective of how the loan is used – and must be taxed as such. According to current wage tax regulations, amounts of up to €2,600 can currently be lent as an interest-free employee loan. If the agreed interest rate on a loan of over €2,600 is less than 5%, the difference of up to 5% must be taxed as a financial benefit.
If the employee leaves the employment relationship, the loan does not automatically become due for repayment. However, immediate or early repayment of the outstanding debt is often contractually agreed, at least after termination for cause, conduct-related termination or if the employee resigns. If no agreement has been made on repayment arrangements or the repayment date, the loan may be cancelled in accordance with legal regulations and subject to the period of notice.
Whom do executive committees represent?
In a pluralist works constitution, employees in executive positions (Leitende Angestellte – LA) are represented by the executive committee, which defends their interests in dealings with the company management. VAA members are in the majority in the executive committees representing senior executives in all major companies in the chemical industry. In the vast majority of cases, the VAA also provides the chairperson. Non-executive employees not covered by the standard collective agreement (außertarifliche Angestellte – AT-Angestellte) are competently represented by the VAA in the works council.
The association supports, advises and instructs its executive committee members on all manner of legal issues: everything from applying for a candidacy to the day-to-day work in the executive committee. The association also supports its elected representatives when it comes to conducting plenary assemblies of the executive employees in the company.
The VAA provides information about the election procedure and the management of the executive committee, as well as the co-determination rights and the conclusion of executive committee agreements. Pay schemes and company pensions are also a frequent topic of consultation.
Members of executive committees convene twice a year at conferences and meetings, where they are brought up to date on matters relating to legislation and jurisdiction by the association lawyers. The VAA also influences scientific discourse with a commentary on the Executive Committee Act (Sprecherausschussgesetz).
As a member of the executive staff, do I enjoy protection against dismissal? What is the distinction compared to executive staff under Section 5 (3) of the German Works Constitution Act (Betriebsverfassungsgesetz)?
Executive staff members are employees, which means the German Protection Against Dismissal Act (Kündigungsschutzgesetz) basically applies to them as well. The widely held misconception that executive staff have less protection against dismissals results from a frequent misinterpretation of a provision in the Protection Against Dismissal Act, namely, Section 14 (2) sentence 2 of that act. This provision stipulates that in a dismissal protection lawsuit, the employer’s petition for dissolution of the employment contract shall not require substantiation. So, it is ultimately always about the rendering of a severance payment, not about the continuation of the employment relationship.
Whereas the employer must substantiate the petition for dissolution in detail in all other cases, no substantiation is required for executive staff as defined in the Protection Against Dismissal Act (referred to there as “salaried employees in managerial positions”). In industry, however, this type of executive staff member as defined in the Protection Against Dismissal Act (i.e. salaried employee in a managerial position) is rarely found in comparison to the executive staff member as defined in Section 5 (3) of the Works Constitution Act because the latter must be empowered to hire and fire on his or her own. This type of executive staff is rare in larger companies because hirings and firings in such companies are generally performed by at least two people. Ultimately, it must be stated that nearly all executive staff pursuant to Section 5 (3) of the Works Constitution Act enjoy the same protection against dismissal as all other employees.
Fixed-term employment relationship
Under what circumstances can employment relationships be fixed in term?
This is regulated in the German Part-Time Work and Fixed-Term Employment Act (Teilzeit- und Befristungsgesetz). According to this act, a fixed-term employment relationship is permissible for a duration of up to two years without an objective reason for the fixed-term contract. Up to this total duration of two years, a fixed-term employment relationship may be extended a maximum of three times. However, the existing content of the contract may not be changed in the event of an extension. The content of the renewed contract must correspond to that of the original contract. If a fixed-term or permanent employment relationship has already been in place with the same employer, however, a new fixed-term contract is no longer permissible without an objective reason. The employee would then need to be ‘re-hired’.
Furthermore, a fixed-term employment relationship is permissible if there is an objective reason for it. This is the case, in particular, if the company only has a temporary need for the work to be performed, the fixed-term employment follows a training course, for example, to facilitate the employee’s transition to a subsequent job, or the employee is taken on as cover for another employee. Naturally, there are a number of difficult questions of interpretation here, which can only be answered in a personal consultation.
Special regulations apply to older employees over 58, for whom a fixed-term employment relationship of up to five years is permissible if there is an objective reason. However, there are still doubts here as to whether these regulations comply with EU requirements.
Do I have to accept my employer’s rejection of a claim on the grounds that it has been forfeited?
A claim can be forfeited if it is not asserted for a period of time and the other party can conclude from the overall circumstances that the claim will no longer be asserted in the future either. This is because there is an interest precisely in labour law to obtain clarity after a certain time about who still has claims against whom and which claims they are.
For this reason, cut-off periods (see “Cut-off periods”) are agreed in many companies. If this is not done, the forfeiture objection can be raised, resulting in a situation where a claim that undoubtedly exists can no longer be enforced. The alleged forfeiture of a claim is often used as a pretext to circumvent the statutory limitation provisions (see “Limitation”), however. Caution is therefore always called for in these cases and advice should be sought from the VAA lawyers.
On the other hand, the claim for the issuing of a job reference (see “Reference”) can already be forfeited after six months if the relevant superiors are no longer available and no one else is present who can assess responsibilities and performance.
When is there a freelance working relationship rather than an employment relationship?
Freelance work is independent business activity performed by an individual for an external company on the basis of a service or work contract. As a general rule, a freelance worker is someone who is essentially free to organise his/her activity and working hours. An employee, on the other hand, is dependent on an employer who can decide on the content, location and time of the work performed by the employee within a certain time frame.
Health insurance contribution
I am voluntarily covered by statutory health insurance. What happens if my employer or I do not pay the contributions?
Unlike in the case of compulsorily insured individuals, the health insurance fund can refuse to provide benefits to the voluntarily insured if they fail to pay the contributions. Moreover, the health insurance fund can demand payment not only from the employer but also directly from the insured party in the case of voluntarily insured individuals – unlike in the case of the compulsorily insured. Voluntarily insured individuals can even lose their insurance coverage completely in statutory health insurance (and as a rule, without a right of return) upon failure to pay the due contributions for two months. A loss of insurance coverage only applies, however, if the health insurance fund previously referenced this matter and the outstanding contributions were not paid by the next payment date.
Is the employee entitled to leave compensation if holiday cannot be taken because of a leave of absence preceding the time of termination?
The employee is not entitled to leave compensation if the employer justifiably gave the employee a leave of absence and the offset against the remaining holiday leave is provided for in the contract or is clarified with the leave of absence.
Industrial and commercial secrets
What are industrial and commercial secrets?
Secrets relevant to labour law are facts that are related to a business operation, that are not public knowledge and are only known to a limited group of people, that the employer wishes to keep secret and that the employer has a legitimate interest in keeping confidential. Industrial secrets relate to the technical operating procedure, while commercial secrets refer to the commercial side of an enterprise.
It should be noted that the protection of industrial and commercial secrets cannot be equated with the obligations of a post-contractual prohibition of competition and that the professional know-how acquired may in principle also be used in a later position.
My company has declared insolvency. Does my employment relationship now end automatically?
No. Neither the request to open insolvency proceedings nor the opening of insolvency proceedings by the court ends the employment relationship. However, it often happens in the course of an insolvency that a business is shut down or personnel is reduced. In these cases, the insolvency administrator is entitled to terminate personnel if business conditions so warrant. In deviation of the employment contract or collective and statutory provisions, the insolvency administrator need only comply with a period of notice of at most three months. In principle, however, normal dismissal protection also applies during the insolvency. Certain less stringent applications of dismissal protection advantageous to the insolvency administrator apply only if an agreement on reconciliation of interests has been concluded between the insolvency administrator and the works council in which the employee to be dismissed is specified by name.
When do the claims arising from an employment relationship become statute-barred?
If a claim is statute-barred, the obligor is entitled to refuse performance pursuant to Section 214 (1) of the German Civil Code (Bürgerliches Gesetzbuch). If the obligor fails to lodge the plea of limitation, he/she is still obligated to render the performance and is convicted in the trial. Unlike cut-off periods (expiry periods), the labour court does not examine limitation ex officio.
For employment relationships, the most important limitation periods are as follows:
- Pursuant to Section 195 of the Civil Code, most claims arising from the employment relationship become statute-barred within three years. This provision covers all contractual claims regardless of whether they pertain to remuneration (severance payments, work pay, commissions on sales, waiting allowance in connection with a non-competition clause), performance in kind or service or whether they are based on fraudulent conduct or on a breach of duty. The legal claims become statute-barred accordingly, in particular those arising from a wrongful act including intentional damage contrary to public policy, from strict liability and from unjust enrichment.
- Legally determined claims and claims from enforced settlements and deeds become statute-barred in thirty years. Claims to occupational pensions (Rentenstammrecht) pursuant to Section 18 a (1) of the Act to Improve Occupational Pension Plans (Gesetz zur Verbesserung der betrieblichen Altersversorgung) also become statute-barred within this period whereas claims to regularly recurring benefits from occupational pension plans are subject to the standard three-year limitation period.
Pursuant to Section 199 (1) of the Civil Code, the standard limitation period of three years (Section 195 of the Civil Code) begins at the end of the calendar year in which the claim arises.
I am a managing director of a limited liability company (GmbH). As such, can I remain a member of the VAA?
Managing directors of limited liability companies and other representatives of company bodies who do not hold a material stake in the share capital and who do not execute responsibilities in an employer or business association can remain ordinary members. Otherwise, there is the option of an extraordinary membership entailing 50 percent lower membership dues.
What advantages do I have as a member of the VAA?
As an ordinary and also as an extraordinary member, you are entitled to the entire range of cooperation and information services of the VAA. In particular, you are given access to the protected members area MyVAA and to the VAA Magazine. You may also avail yourself of free legal advice on all issues pertaining to your employment relationship. This advice includes in particular assistance in reviewing managing director contracts. If a dispute with the company arises, you also have the option of having one of the VAA lawyers serve as your out-of-court representative but only if you are an ordinary, full-paying member. In the case of court proceedings, you receive legal protection (i.e. in-court representation) free of charge from the VAA as an ordinary member if the jurisdiction of the labour court was agreed in your managing director contract.
Do the protection provisions under labour law also apply to managing directors of limited liability companies (GmbHs) and other representatives of company bodies?
In principle, managing directors and other representatives of company bodies are not subject to the protection provisions under German labour law and to the following individual German laws: the Protection Against Dismissal Act (Kündigungsschutzgesetz), the Labour Court Act (Arbeitsgerichtsgesetz), the Working Time Act (Arbeitszeitgesetz), the Works Constitution Act (Betriebsverfassungsgesetz), and the Severely Handicapped Persons Act (Schwerbehindertengesetz). This fact must be kept in mind, in particular, by employees who give up their status and become company officials. Especially the elimination of termination protection associated with this change can give rise to substantial disadvantages, which corresponding provisions in the managing director contract of employment are meant to mitigate. A consulting session with the VAA on a case-by-case basis is therefore essential.
What happens to holiday entitlement if a female employee avails herself of the three-year parental leave immediately after the paid maternity leave? Can she be compensated for acquired holiday leave?
If the female employee was unable to take her holiday leave before the start of the protective periods, Section 17 (2) of the German Maternity Protection Act (Mutterschutzgesetz) stipulates that she can in principle be granted the holiday leave acquired up to that point after the end of the protective period in the current year or in the next leave year. If the holiday cannot be granted because the parental leave immediately follows the paid maternity leave, the holiday leave is again carried over to the end of the parental leave. The employer must then grant the remaining holiday leave after the parental leave in the current or the next leave year (Section 17 (2) of the German Parental Allowances and Parental Leave Act (Bundeselterngeld- und Elternzeitgesetz)).
Can the employee change his/her parental leave at will once it has been applied for?
Requests for parental leave are irrevocable upon receipt of the employee’s declaration. Employees remain bound by their declaration even if they committed themselves long before the statutory minimum periods in the interests of the employer. Employers must be able to make arrangements to cover the announced period of absence. If an employee applies, for example, to take one year’s parental leave straight after the prohibition of employment under maternal protection law, he/she will no longer be entitled to take leave in the year immediately thereafter.
Is the request for part-time employment tied to any requirements of a formal nature or related to time periods?
If a business has at least 16 employees, the employee can express his/her wish to work part-time after a waiting period of six months, i.e. this also includes exempt employees (i.e. those not covered by standard collective agreement and pay scale) and executive staff. This wish must be expressed at the latest three months before the commencement of the part-time employment. No formalities apply. However, a written request communicating the reduction of weekly working hours and the scope of the reduction is recommended. Unless barred by special business interests, the employer must comply with the request.
Does the employer have to reimburse the employee for back taxes arising from the top-up amount that is subject to the progression clause?
Top-up amounts are subject to the progression clause (Progressionsvorbehalt), i.e. the remaining taxable income is subject to the tax rate that would arise if the tax top-up amounts were taxable. However, this is first calculated by the tax office by means of the income tax assessment, which is therefore obligatory. Since the progression clause cannot be applied until the income tax assessment is done, this clause can lead to back payment of income tax. The employer is not obliged to reimburse additional tax payments incurred by the employee as a result of the progression clause. Hardly any cases are known in which a refund has been obtained by means of negotiation.
This tax relief will also be maintained for new partial retirement contracts that commence after 31 December 2009, while subsidies from employment agencies will cease in future.
Period of notice
I want to terminate my employment relationship myself. What period of notice must I comply with?
Pursuant to Section 622 (1) of the German Civil Code, the basic period of notice is four weeks to the 15th of a month or to the end of the month. The employment contract can give rise to a longer period of notice, in particular if both parties have agreed to the longer statutory periods of notice under Section 622 (2) of the Civil Code that depend on how long the employment relationship with the company has lasted. If the Framework Collective Agreement for University Graduates applies, the period of notice amounts to between three months to the end of the month and twelve months to the end of the quarter, depending on how long the employment relationship with the company has lasted.
Period of notice in the event of insolvency
Does my period of notice end in the case of insolvency?
Under Section 113 of the German Insolvency Statute (Insolvenzordnung), an employment relationship can be terminated by the insolvency administrator or the employee in case of insolvency without consideration to an agreed contract term or to an agreed exclusion of the right to routine termination. The period of notice amounts to three months to the end of the month unless a shorter period is applicable. Longer periods of notice under employment contracts or collective agreements are hereby rendered null and void.
May I inspect my personnel file?
Employees may inspect their personnel files at any time on giving reasonable advance notice. The personnel file must be provided to the employee in its entirety. Removing documents beforehand or storing documents separately is not allowed. This provision also applies if the recorded information has been given to the employer with the request that it be kept confidential, as occasionally happens when information is obtained in connection with applications. This right of inspection includes the power to make notes and copies. Employees can have photocopies made at their own expense. Employees are not permitted to demand that the file be surrendered to them. The employer or a third party it authorises may be present during the inspection.
Prohibition of competition
When can my employer prohibit me from performing an activity at a competing company?
Any competing activity is prohibited (under Section 110 of the German Industrial Code (Gewerbeordnung)) for the duration of the employment contract, in other words also after release from duties until expiry of the period of notice. The situation is different after the end of the employment contract. Then, an activity at the competitor is prohibited only if a post-contractual prohibition of competition has been previously agreed that complies with the complicated statutory provisions (Section 74 et seq. of the German Commercial Code (Handelsgesetzbuch)) and, where applicable, with the additional regulations of the VAA Framework Collective Agreement for University Graduates. This must be done in writing and takes effect only if it is accompanied, for the duration of the prohibition, with a compensation amounting to at least half of the most recent remuneration received from the old employer. Under the VAA Framework Collective Agreement for University Graduates, the compensation amounts to 100 percent of the previous earnings!
As this is a highly complex legal matter, you are urgently recommended not to act on your own but instead to obtain legal advice and support from the VAA lawyers. This applies not just to the assessment of whether the prohibition of competition complies with the limits of the law but also to issues involving the crediting of other earnings or in connection with a release from the obligations or the revocation of the prohibition of competition.
A violation of the prohibition of competition can have grave consequences ranging from a ban on employment or compensation for damages to a contractual penalty. Therefore, once again: It is preferable to inquire with VAA beforehand.
When do I have the right to a reference (an interim reference)?
Under Section 630 of the German Civil Code (Bürgerliches Gesetzbuch), a person may ask for a reference to be issued upon termination of the employment relationship. This reference must extend to the services performed and the conduct in service only at the employee’s request. An interim reference can generally be requested if the employment relationship was terminated or a change in superiors occurs. Each reference must be formulated in a favourable way that promotes the person’s career.
Right to continuation of employment
Does the right to continuation of employment exist for the employee after the employer has dismissed him or her and the period of notice has expired?
In accordance with long-standing established case law of the German Federal Labour Court (Bundesarbeitsgericht), a right to continuation of employment does exist if the dismissal is obviously ineffective, for example if the dismissal was indisputably declared without a prior hearing of the works council or the executives' committee or the employer dismissed a pregnant employee of whose pregnancy it was aware and did so without the consent of the competent authority.
Moreover, a right to continuation of employment exists if the labour court of first instance has ruled the dismissal to be invalid and no special circumstances exist to substantiate the overwhelming interest of the employer to refrain from further employing the employee. An overwhelming interest of the employer may exist, say, if substantial damage is to be expected from the continued employment, for example by business secrets being endangered or the peace of the company being disturbed.
A special right to continuation of employment arises from Section 102 (5) of the German Works Constitution Act (Betriebsverfassungsgesetz). If the works council has objected to a routine dismissal and if the employee has filed a dismissal protection lawsuit, the employer must keep the employee in its employ, at the latter’s request and with no change in work conditions, after expiry of the period of notice pending the final resolution of the litigation. The employer can oppose this action under certain conditions with the help of an interim injunction. This applies not just to senior staff members who are represented by an executives' committee.
Right to issue instructions
What does the employer’s right to issue instructions encompass?
The right to issue instructions describes the employer’s right to issue instructions unilaterally that put in concrete terms the employee’s work duties, which are otherwise depicted only in general terms in an employment contract. In the process, the employer can unilaterally determine the hours, place and content of the work within the bounds of the employment contract and with reasonably exercised discretion (Section 106 of the German Industrial Code (Deutsche Gewerbeordnung)).
Right to reinstatement
Do I have a right to reinstatement in the case of termination?
In the case of terminations, the German Federal Labour Court (Bundesarbeitsgericht) has ruled that the employee has the right to be reinstated by the employer until the expiry of the period of notice if the reason for termination becomes inapplicable and the employee’s interests worthy of protection outweigh the employer’s. This is not the case if the employer made arrangements in good faith that the termination was valid. Like a dismissal protection lawsuit, the claim should be asserted within three weeks after the reasons for reinstatement are made known to the employer.
May the employee pursue secondary employment?
The employer’s consent is generally not required for the pursuit of secondary employment. In an employment contract, the employee merely undertakes to perform the promised services in the scope of the contractually set work times or the company’s work times. However, the employee is obligated to notify the employer of planned secondary employment if it could affect the employer’s interests. This happens in particular if the work times conflict with each other – the statutory maximum work times are not allowed to be exceeded with secondary employment either –, excessive demands are put on the worker or other conflicts occur. Of course, pursuing secondary employment at a competitor’s is prohibited.
Is it permissible to agree in an employment contract to a duty to disclose secondary employment or even a prohibition of secondary employment?
It is generally permitted and also not unusual to agree in the employment contract to a duty to disclose secondary employment or a reservation of consent. The employer may only refuse its consent, however, if and insofar as the secondary employment can adversely affect the contractually owed performance or there is fear of a conflict of interests.
How can the VAA help me with a severance agreement?
Severance agreements are an effective means of terminating an employment relationship that one or both parties no longer wish to continue without loss of face or a legal dispute. It is important that the key issues – determination of outstanding contractual payments, date of termination and, if applicable, severance pay – are negotiated professionally and in compliance with labour and social law requirements. Otherwise, serious disadvantages may occur in terms of tax or social security law despite what appears at first glance to be a positive outcome to negotiations (see, for example, “Disqualification period”). To prevent this, the VAA legal service provides invaluable assistance.
My employer wants to terminate my employment. How much severance pay am I entitled to?
The law provides for only one case in which the employee has an entitlement to severance pay upon dismissal by the employer: under Section 1 a of the German Protection Against Dismissal Act (Kündigungsschutzgesetz), the employer must make a severance payment amounting to half a month’s salary for each year of service if the employee is dismissed for operational reasons and the employer has promised this severance payment if the employee does not take legal action to protect himself/herself from dismissal. The employee is free to decide whether he/she makes use of this offer, however. If an employee calculates that he/she will have better prospects in a dismissal protection lawsuit, he/she will tend to bring an action. Once this has happened, however, the employee can no longer take up the severance pay offer made by the employer – if the lawsuit goes adversely, for example.
Otherwise, there is in principle no legal entitlement to severance pay upon dismissal. Only in the rare and exceptional case of legal dissolution of the employment relationship must the labour court determine a severance payment dependent on age and length of service, up to a maximum of 18 months’ salary, under Section 10 of the Protection Against Dismissal Act, with the amount of severance pay generally ranging from half a month’s to one month’s salary per year of employment, depending on the individual circumstances. In addition, entitlement to severance pay may also be regulated in a redundancy programme, collective agreement or individual contract. As a rule, the amount of severance pay is determined by the parameters of age, length of service and gross monthly earnings.
However, most severance pay entitlements are regulated in severance agreements (Aufhebungsverträge).
Social insurance contributions
Who owes the social insurance contributions, do I or does my employer?
In principle, the employer is obligated to pay the statutory compulsory contributions to social insurance. If it fails to pay the social insurance contributions, the social insurance authority (health insurance fund, German Federal Insurance, Federal Employment Agency) cannot demand the outstanding amounts from the employee. An exception applies to voluntarily insured individuals, however – namely, even if the employer normally pays the contributions. In this case, the health insurance fund can also demand the contributions directly from the employee if they are not paid by the employer.
My employer did not pay the social insurance contributions. Do I face disadvantages with respect to benefits?
There is the threat of disadvantages in the statutory pension insurance and for voluntarily insured individuals in health insurance. This is because in the statutory pension insurance scheme, contributions are basically only considered to increase the pension if they have actually been paid to the statutory pension insurance institute. In unemployment insurance and in compulsory health-care and nursing-care insurance, a claim to benefits exists regardless of whether the employer has paid the contributions. By contrast, for individuals who voluntarily take out health insurance, the health insurance fund can refuse to provide benefits and in extreme cases, even end the insurance upon giving prior notification.
Standard business terms
How important are standard business terms (in German: AGB) for my employment contract?
Since 2002, standard business terms (Sections 305 et seq. of the German Civil Code (Bürgerliches Gesetzbuch)) have applied to employment contracts if the terms have been pre-formulated by the employer, as is generally the case. In this respect, employees are regarded as consumers.
The practical consequence is that employment contracts are now subject to much greater control by the labour courts as to whether the principles of balance of mutual rights and obligations and the rules on clarity and comprehensibility are being complied with. Overall, however, the special features of labour law as compared to other legal relationships continue to be decisive. However, since the development in case law on the new legal situation has not yet been completed, it is particularly important to obtain competent advice from the VAA.
Standard form agreement
What is a standard form agreement?
According to the validity of the standard business terms (Allgemeine Geschäftsbedingungen, AGB) for employment contracts, which was introduced with the reform of the German law of obligations (Schuldrechtsreform), any employment contract that is pre-formulated by the employer is a standard form agreement. This agreement is subject to the increased requirements in terms of balance, transparency and clarity that are of key importance to standard business terms and, in this respect, is also subject to review by the labour courts (see also “Standard business terms”).
How do employees participate on the supervisory boards?
Corporate co-determination is achieved through active employee participation in the supervisory board of the co-determined company. The supervisory board is responsible for supervising and advising the company management. The supervisory board, the executive board and the management are responsible for their own duties: they are obliged to work for the benefit of the company and to protect it from harm.
VAA members occupy the senior executive seat on almost all supervisory boards of co-determined chemistry companies. VAA candidates are also regularly successful in their applications for employee seats and union seats. VAA supervisory board members are constantly adding to the expert knowledge required for duties to be performed in a competent manner. The association offers its supervisory boards two conferences a year and holds seminars for members of audit committees to ensure this is the case. All VAA supervisory board members pay a portion of the compensation received for supervisory board work to the association.
The VAA’s supervisory board candidates belong exclusively to the company and act for the benefit of the workforce as a whole. Based on their expert knowledge and their operational roles, they know all about the company and its structures. They work closely with other employee representatives on the supervisory board, as well as with works councils and executive committees.
Must the termination of an employment relationship be rendered in writing?
Termination comprises a one-page declaration of intent requiring acknowledgment of receipt. Since 1 May 2000, each termination has required written form to attain legal validity as per Section 623 of the German Civil Code (Bürgerliches Gesetzbuch). The requirement of written form applies to all types of termination: Termination by the employer as well as self-termination by the employee, routine termination (subject to a period of notice and other statutory or contractually agreed conditions), termination for cause (without notice) as well as dismissals with the option of modified conditions of employment.
In accordance with Section 126 (1) of the Civil Code, the termination of notice drawn up by a person authorised to terminate and signed by him/her with his/her name in his/her own hand is deemed written form. The electronic form of a notice of termination does not replace written form in accordance with Section 623 of the Civil Code. This means the statutory written form requirement is not satisfied if the notice is sent by telegraph, fax or e-mail. As per Section 623 of the Civil Code, the same applies to the validity of a separation agreement (Auflösungsvertrag).
Termination for cause
When may the employer give notice of termination for cause?
Termination for cause, which is also referred to as termination without notice (fristlose Kündigung), is permitted if there is a compelling reason. This means that facts must be present on the basis of which, and weighing the interests of both parties to the contract, the party giving notice cannot reasonably be expected to continue the employment relationship to the end of the period of notice. The decisive factor is whether there is a “compelling reason” pursuant to Section 626 of the German Civil Code (Bürgerliches Gesetzbuch). It is important that the termination without notice is given within two weeks. The period of notice commences with the date on which the employer or a representative authorised to give notice obtains knowledge of facts conclusive for the notice of termination. If the employer misses this period of notice, termination without notice is invalid for this reason alone.
A notice of termination for cause may also be given “with no period of notice” (“entfristet”) in order to grant the employee in question a certain transitional period. As with any other termination, termination for cause must be challenged within three weeks by means of a lawsuit at the labour court. It is always advisable to seek assistance from the VAA in this situation. In addition, the right to termination for cause cannot be waived in advance by contractual agreement.
How long can I claim unemployment benefits?
The length of time for which you are entitled to unemployment benefits is determined by the duration of the employment relationship (during which you were paying compulsory insurance) within the applicable period, which is normally two years, and by your age. The latter is only significant if you are over 55, however. If you are under 55 and were employed for 12 months, you are entitled to unemployment benefits for a total of six months. This entitlement increases to eight months after 16 months of employment, to ten months after 20 months of employment and to 12 months after 24 months of employment.
If you are over 55, your age is also important. From 55, the length of time for which you can receive unemployment benefits increases to 15 months after 30 months of employment and to 18 months after 36 months of employment. If you are over 58 and were employed for 48 months, the length of time for which you can receive unemployment benefits increases to 24 months.
I have received a warning notice from my employer; what should I do now?
You have three options when responding to a warning notice:
- You do nothing for the time being. If, at a later date, a notice of dismissal is given on grounds of conduct and reference is made to the warning notice, you still have the option to challenge the warning notice in a dismissal protection lawsuit. In this case, the employer has the full burden of proof for the content and legality of the warning notice. If the warning notice was issued some time ago, employers often find it difficult to prove that the warning notice was correct in any subsequent dismissal protection lawsuit.
- You can prepare a written rebuttal and submit it to your employer. In accordance with the case law of the labour courts, your employer is obliged to include this rebuttal to the warning notice in your personnel file. If you are subsequently dismissed and your employer wishes to invoke the warning notice, it is obliged to submit the rebuttal alongside the warning notice at a works council or executives’ committee hearing.
- You can bring an action at the competent labour court to have the warning notice removed from your personnel file. In this case, the labour court will consider whether the warning notice is justified. Should the warning notice be unjustified, it must be removed from your personnel file. However, this course of action involves the risk that the labour court will issue a judgment declaring that the warning notice is justified. Such a warning notice can then no longer be challenged in any subsequent dismissal protection lawsuit.
Are employees in non-executive positions not covered by the standard collective agreement represented by works councils?
Employees in non-executive positions not covered by the standard collective agreement can only be legally represented via the works council. Many of the VAA works council members belong to this group themselves and are therefore very familiar with the concerns of their clientele. Drawing on the knowledge of company structures they have gained in positions of leadership, employees not covered by the standard collective agreement help to settle conflicts of interests between the works council and the company management.
In order to represent the interests of employees not covered by the standard collective agreement (außertarifliche Angestellte – AT-Angestellte), the association also campaigns for the economic, social and legal concerns of employees at operational level. When employees not covered by the standard collective agreement participate in the process of operational co-determination, this helps to ensure a climate of social harmony within the company.
The VAA works council members regularly convene at meetings and seminars. As well as providing an opportunity to find out about the latest developments in works constitution law, a particular emphasis here is on exchanging experiences. Each year, the VAA also offers the works councils a number of seminars on matters relating to works constitution law and individual labour law.