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TOP 5 basic facts to know about employment law in Germany

Relations between employers and employees in Germany are extensively regulated under German labor and employment law. German labor and employment law is strongly biased in favour of employees. For non-German employers it is essential to know some of the specifics of the German labor and employment law when employing staff in Germany. Set out below are some of these basic facts:

1. There is no Employment-at-will.

In Germany, there is no such thing as “employment at will”. Any employment in Germany is necessarily based on an employment contract which can be executed in writing or be concluded orally. In order to ensure that evidence of the details of the employment relationship exists, it is recommended that a written employment agreement be concluded. The agreement may be written in any language; however, a German translation will be required should any disputes be brought before a court. We therefore recommend to use a bilingual contract in order to avoid any disputes about the translation in court.

2. Parties to the employment contract are only in principle free to negotiate the terms of employment.

As a matter of principle, companies and employees are free to negotiate employment agreements. However, the parties must comply with various statutory provisions on employees’ minimum entitlements such as payment of remuneration on bank holidays and during an employee’s illness, minimum notice periods, paid vacation etc. Further, where collective bargaining agreements apply, there may be limitations the parties to employment agreements and additional mandatory entitlements for employees. To make matters worse courts may apply certain fairness standards to evaluate the validity of contract clauses.

3. Social Security is mandatory.

The mandatory Social Security System in Germany consists of health insurance, home care and nursing insurance, pension insurance and unemployment insurance. Generally, it is mandatory that all
employees are insured by the German Social Security System. Health, home care and nursing, unemployment and pension insurance premiums are paid by the employer and by the employee (50% each). Premiums currently amount to approximately 22% of the employees’ gross salary for each employer and employee.

4. Termination of the employment relationship needs to be in writing.

Any notice of termination must be made in writing in order to be legally effective and is to be served to the other party. This means the notice letter needs to be served in a version actually signed by the legal representative of the company. E-mail, fax or text massages etc. are not sufficient! Should the terminating party fail to comply with this requirement as to the written form, the notice of termination is invalid.

5. Act against unfair dismissal applies for companies with more than 10 employees.

In companies employing more than ten employees in Germany, any employee whose employment exists for at least 6 month may only be terminated for operational or organizational reasons, or due to circumstances relating to the employee’s behavior or person. The terminated employee may file proceedings before the Labor Court against such termination within three weeks of having received the notice of termination, on the grounds that no such reason is justifying the termination or it violates the principles of social considerations stipulated by German employment law.