The "Kündigungsschutz" and other recent developments in German Labour Legislation

by Rolf C. Voges, attorney at law at Voller Rechtsanwälte in Frankfurt Germany Among several laws regulating the relationship between employers and employees no other than the dismissal protection act has been a cue ball between governments within the last decade by Rolf C. Voges The dismissal protection threshold

A company which employs a certain number of employees and is willing to dismiss one ore more of them has to observe the dismissal protection law.

Under the dismissal protection law an employer can only terminate a contract of labour for a reason concerning the person itself (e.g. severe long during illness), continuing wrongful behaviour or for urgent operational reasons.
The threshold whether this law applies or not has been altered throughout the last decade by the respective governments.
It was raised to ten employees by the Christian Democrats in 1996 in order to enhance employment. It was argued that especially small companies were burdened harder, having to pay salaries in the case of absence due to illness for several months or being forced to release the youngest and most efficient employees first when planning to cut costs and dismiss employees.

In 1998 when the Social Democrats came to power, the threshold was reduced back to five employees according to election promises as a pillar of social democratic policy. After the recession in the years 2000 to 2002 the discussion arose again using the same arguments as in 1996.

The new anti-dismissal law which will come into force on 1st January 2004 tends towards the former legislation but does not go that far. The five employee threshold will remain but additional temporary employees engaged for up to two years will not count.
Employers of an enterprise will then be able to hire staff temporarily and release them without giving a factual reason for up to four years.


The social selection

A company willing to dismiss employees for urgent operational reasons has to observe the social aspects under the dismissal protection act. If the social selection is not correctly done, the dismissal will be socially ineffective. The employee can appeal to the labour court within three weeks after notice of dismissal and plead that his dismissal was invalid.

The justification for the social selection has also been the object of political discussion. Its execution has lead to a lot of uncertainty in the past, because it was unclear which aspects had to be covered. The jurisdiction was mainly looking on the following aspects
- the duration of employment in the company
- the age
- and the number persons the employee has to provide maintenance to

In future only these three aspects will have to be observed when a company wants to dismiss parts of its employees.
Most law suits end up in a discussion about the social justification of the dismissal. If the dismissal is deemed to be invalid the employer sometimes owes outstanding salaries for up to a year or even more.
The social selection can be limited by defining a clear and brief description of the fields of activity.
To avoid long and expensive court proceedings it is advisable to engage a law firm from the recruitment of personnel up to the termination of the employment.

A deserving aspect of the new regulation is the possibility to exclude high potentials from the social selection in order to keep up a balanced structure of labour.


Compensation

A compensation for the loss of office is also being implemented in the new law, if the cancellation is based on urgent operational reasons.
The employer can, without any obligation to do so, offer a compensation together with the letter of notice. The compensation has to be equivalent to half a salary for every year of duration in the company and must be offered beyond the three week period of appeal.

At the first sight this rule seems to minimize the flood of over 250,000 claims of unsocial dismissal which are brought before German labour courts every year in Germany but this is a false conclusion.
On the one hand the employer will only offer a compensation if he fears to lose a case before the labour court, knowing that the dismissal was against the social assortment rules. On the other hand the employee will claim that the dismissal was socially ineffective in order to achieve a higher compensation. Once a compensation of half a salary per year of duration has been offered it will continue to exist, although the case is brought before the court.

It is a common practice to offer a compensation with the letter of dismissal. Therefore this rule is unlikely to lead to a drastic change in the number of disputes on unsocial dismissals.


Obligation to inform

Since July 2003 an employee has the obligation to inform the employment office immediately after being given notice. If he fails to do so, the employment office may postpone payments of unemployment insurance for up to 12 weeks.
This regulation was introduced under the socalled “Hartz law”. Mr. Peter Hartz is a member of the board of directors of Volkswagen who was named by the government to draw up a concept on how to cut the unemployment rate. Mr. Hartz became known nationwide by introducing a 4-day week at the Volkswagen factories in Germany.
He argued that the sooner people searching for employment contact their unemployment office the quicker they will be back in employment.
It is unclear whether the employer has a duty to inform its employees about this legislation or not, but he had better to do so. Otherwise his former employee could claim compensation when being barred from unemployment insurance money due to a lack of information.


Insignificant employment

Like a number of new regulations through the “Hartz laws”, the legislation of insignificant employment or, “mini jobs” was revised after it had been subject to a reform in early 1999.
Up to a monthly income of € 400,- the employee pays neither tax nor social insurances notwithstanding if it is his first or second job. The employer has to pay an additional 25 % (2 % tax, 11 % health insurance and 12 % pension fund).
There is a floating zone between € 400,01 and € 800,00 where the employee has to pay income tax according to his personal income as well as make social insurances contributions from 4% to 21 %. The Employer has to pay the full rates to the social insurances (25 % to 35 %). Depending on type of work required it can be more favourable to employ more people for less hours than vice versa.



The author Rolf C. Voges is attorney at law at
Voller Rechtsanwälte in Frankfurt Germany and specializes in employment law


INITIATIVE MAGAZINE 12/03

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