German Employment & Labor Law – Basics
Sources of the Law
The most important sources of German labor and employment law are employment agreements, statutes, works practices, employer directives, and equal treatment principles. If a works council has been set up, works agreements may apply. Often, in particular in large industries, collective bargaining agreements may determine certain terms of employment, such as the general terms of employment and compensation. Furthermore, the German constitution and, increasingly, European law also influence the interpretation of subordinate law. Finally, labor courts create case law and legal precedence where there are gaps or ambiguous wording in the law.
An employment agreement is concluded between the employer and an individual employee. Essentially, the employer and employee are free to determine the provisions of this agreement. However, contractual freedom is significantly limited by a number of preceding legal provisions. These may arise from collective bargaining and/or works agreements and statutes.
Usually, a written contract of employment is drawn up. A verbal agreement is also possible in principle, but in the event of a dispute this may be hard to prove. There are no fixed requirements concerning the content of an employment contract. However, certain points are usually covered:
- Area of activity with a brief description of tasks
- Date from which the contract is valid
- Daily and/or weekly working hours
- Duration of the probationary period or, for short-term contracts, duration of the agreement
- Leave allowance
- Terms of the notice period
In principle, salaries and wages can be negotiated freely between the employer and the employee. However, wage rates according to collective agreements are often binding, in particular in large unionized industries. Moreover from January 2015 on general statutory minimun wages have been introduced. If not otherwise determined by law or collective agreements the hourly minimum wage amounts to 9.82 € effective January 1, 2022 and to 10.45 €, effective July 1, 2022. However, the new federal government has already stipulated in its alliance agreement that the lower limit should be raised further to 12.00 €.
Termination of Employment
An employment agreement can be terminated by the employer or the employee. Dismissals must be made in writing and both parties must observe the applicable period of notice.
Protection against (Unlawful) Dismissal
Depending on circumstances such as length of service and company size, the German Job Protection Act/Protection Against (Unfair) Dismissal Act (“Kündigungsschutzgesetz”) may apply. In such cases, termination by the employer is only effective if a specific reason for termination exists. This may be for personal, conduct-related or business reasons:
- Dismissal for personal reasons may be considered, for example, in cases of sustained illness or frequent bouts of short illness with a negative future prognosis, or alcohol/drug addiction without the prospect of successful treatment.
- Dismissal for conduct-related reasons is possible, for instance, if the employee frequently arrives at work late, refuses to work, uses the internet for private purposes without permission, is absent without a valid reason, or commits a criminal or violent act at work.
- Examples for dismissals for business reasons are closure of operations, company restructuring or lack of orders.
The Job Protection Act is not applicable for small companies with ten or fewer employees, nor for employment contracts that have existed for less than six months. Here, terminations of employment contracts can be issued without a reason. The company is merely bound to the agreed or legally specified periods of notice.
Termination without Notice
Immediate termination of employment may be considered in cases of serious misconduct rendering it unacceptable for either party to continue the employment relationship.
- For the employer, possible reasons include: continued non-performance of agreed work, disturbance of the peace in the workplace, theft or other criminal acts, disclosure of sensitive information, non-authorized employment in a competing business.
- For the employee, possible reasons include: non-payment of wages, unlawful work etc.
Immediate termination is only effective if the terminating party ends the employment within two weeks after the reasons for termination became known.
Works Council and Co-Determination
The works council is the employees’ representative body. It is elected by the employees of the establishment and represents their interests in relation to the employer. It is not established by virtue of the law; it must be elected by the employees of the establishment. There is no legal obligation to establish a works council. The law merely states that works councils are to be elected in establishments that normally employ five or more employees. However, employees will not suffer any consequences if they fail to comply with this instruction to elect a works council. The establishment will simply have no works council. The employer cannot enforce the establishment of a works council.
The works council has a broad field of activity defined by law in which it can exercise its rights of co-determination. Extensive co-determination rights exist in the areas of social, personnel and economic matters. However, it is important to note that many conditions of employment are regulated by collective agreements, concluded by employers or employers’ associations with unions.
Unions and Collective Agreements
Unions are associations of employees organized to represent their interests vis-à-vis employers or their organizations (employers’ associations). Their principal task is to negotiate and conclude collective bargaining agreements in order to improve working conditions, in particular pay, generally on an intercompany basis. This may include becoming involved in labor disputes and strikes.
The social security system in Germany comprises
- Health insurance
- Pension insurance
- Unemployment insurance
- Nursing care insurance
- Accident/workmen’s compensation insurance