A Guide on Employee Termination in Germany

In the unlikely event of conflicting interest or unforeseen developments which might require the termination or dismissal of an employee in Germany, contact Universal Hires immediately. We are committed to align our strategy with your individual needs. Together with our clients, we work on solutions to avoid damage to any party involved.

Termination before official employment

Unfortunately, there are cases in which an employer wants to cancel a signed employment agreement before the actual start of work. Usually, this situation is similar to termination on the first day of work and the law treats it accordingly. That’s why an employee finding himself in such a situation may claim payment for parts of the salary. However, this only applies to the notice period during the probation period. Thus, the employee may claim two weeks of his regular salary.

Termination in Germany during probationary period

Both, employer and employee can terminate the employment during the probationary period. They can terminate the employment without giving a specific reason, within a 2 weeks’ notice period. Still, the provisions regulating special termination protection (see below) as well as other general requirements (see below) apply.

Termination in Germany during continued employment

Completion of the probationary period has a profound effect on conditions of employee termination. Namely, a company may only terminate or dismiss an employee on the two conditions explained below. The German Termination Protection Act (KSchG) is the overarching framework that regulates all matters of termination in Germany.

In general, the KSchG defines details and general requirements of any termination in Germany. They must be considered for all kinds of terminations of employees.

The German Termination Protection Act

Generally, restrictions apply to the termination of an employment relationship in Germany. The Termination Protection Act (KSchG) applies in all cases and summarises definitions and protection clauses:

• Employees working in a business employing more than 10 full-time employees (FTEs) are subject to benefits from protection under the German Termination Protection Act.
• Employee working for an employer for more than six months when receiving the written notice of termination.

The reasons covered in the KSchG that permit termination in Germany include:

1.) Reasons related to the personal situation of the employee awaiting dismissal (e.g. long-term sick leave)

Rarely, illness can be a relevant and applicable reason for termination. However, only a certain set of circumstances allow this pathway for employee termination. For instance, with no recovery in the foreseeable future, illness can serve as a critical reason for termination.

Usually, due to the sensitivity of this matter, most courts do not uphold a termination because of illness.

2.) Reasons related to the behaviour of the person to be dismissed (e.g. underperformance, theft, or fraud with damage done to the employer)

An employee’s poor performance can be a valid reason for termination. But again, this is not a universal reason that applies in every case. Usually, the performance must be dramatically poor to qualify as enough reason for terminating an employee. However, it is up to the employer to make this transparent and it does not reflect the reality of the recruiting process.

The employer needs to undergo several rounds of feedback to the employee and give him a fair chance to improve. In addition, the employer needs to present documentation of the process in court in case the employee decides to challenge the decision.

On the other hand, a serious offence such as theft, violent behaviour, or sexual harassment allows for immediate termination of the employee.

3.) Reasons related to the business situation of the employer (for example restructuring efforts including a reduction in headcount).

Commonly, an economic downturn or deterioration of the business situation in the sector or company lead to the majority of dismissals. Some of these business reasons are foreseeable and some take companies by surprise.

In such a case, it is vital for a company to provide evidence that there are no other options to prevent the dismissal. For instance, a different positions in a different branch or location of the company might be equally suitable. In addition, the employer needs to take into consideration various social factors e.g. age, length of service, family obligations, and disability to justify the dismissal of one employee among peers. Ultimately, the employer must present the reasons for his selection upon request.

In this context, the economic situation of Universal Hires is most relevant for the employee termination, not necessarily the client’s situation.

General Requirements

Normally, a dismissed employee does have the chance to challenge the dismissal in court. There can be a strong feeling of unfairness leading to claims of continued employment. In comparison employees in Germany do enjoy a certain level of protection from termination.

An employer need to keep the following general requirements in mind for any case of termination:

• The employer must give an official written notice of termination to the employee. Any other form chosen for the notice of termination – for example verbal or via email or fax – is void and will not be accepted by a court. This includes eMail, fax, or a verbal notice.
• The mentioned written notice of termination must bear the signature of the employer. For a legal entity, a legally authorized person must sign it e.g. the Managing Director of a GmbH (German LLC).
• If the employer and the employee have mutually agreed upon a longer contractual notice period, the longer notice period enjoys priority.

From a legal perspective, we advise our clients to deliver the notice in person. Additionally, this gives the employer the chance to ask for a conformation of receipt in writing. Alternatively, the German Post offers registered letters with optional written confirmation or a courier can be used.

Special Termination Protection

For some cases, a special protection against unlawful dismissal applies. This is relevant in following scenarios:

• an employee on parental leave
• or during pregnancy
• an officially acknowledged handicapped person

The appropriate German authorities need to approve any dismissals in these scenarios so it is mandatory to reach out to them prior.

Severance payment

• Generally, an employee has no right for a severance payment.
• However, if the termination of an employee turns out invalid, the employer might need to reemploy the employee. In the case where this is not practical, the employee can be compensated accordingly. Furthermore, the employee might be eligible to receive compensation for the time of unjust unemployment before the verdict of the Labour Court.
• Usually, severance payments are paid out to prevent a lengthy legal process. The amount depends greatly on the context and individual business environments. As a rule of thumb, it can be calculated following this (non-binding) formula: Monthly gross salary x years of employment x Y (Y is a factor between 0.5 and 1) equals severance payment.

Acquired Rights

Generally, acquired rights do not apply in our PEO context. Universal Hires serves as the new employer but has neither acquired any other company nor is it in a corporate relationship with the company that has. However, we still advise clients to check for legal issues regarding acquired rights in each applicable situation.