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12 June, 2012 - 16:29 By News Desk

Employment Law Guide - Germany

Berlin

1 Do the main laws that regulate the employment relationship apply to:

1.1 Foreign nationals working in your jurisdiction?

Yes, the main laws regulating the employment relationship apply to foreign nationals working in Germany.

1.2 Nationals of your jurisdiction working abroad?No, they do not apply to German nationals working abroad.

2 Are there any age or nationality restrictions on managers or company directors? If so, please give details.They must be at least 18 years of age; nationality does not matter.

3 Are any grants or incentives available for employing people? If so, please give details.There are grants and incentives for employing senior staff or unemployed persons (in particular those who are hard-to-place). Examples of benefits include subsidies, and fewer restrictions in respect of the limitation of the term of a contract.

4 What permits do foreign nationals require to work in your country?Citizens of the European Union (except Romania and Bulgaria) do not require a residence title for their entry and stay in Germany. They only have to register with the authorities (declare their residence in the local community office), just as German citizens have to. Foreign nationals from outside the EU (as well as Bulgarian and Romanian citizens) need a residence title to work in Germany, either a temporary (residence permit) or a permanent (settlement permit).

4.1 Please explain how these permits are obtained.The foreigner has to apply for a permit at the Aliens Department. He has to complete the required application form and present a concrete job offer, which includes a detailed description of the job. The permit will be granted if the local employment department affirms that no employees from Germany or the EU are available to fulfil this job. This requirement does not apply if the salary will be €66,000 or more.

4.2 Please explain how much they cost.The fees are €60 for a temporary permit and up to €200 for a permanent permit.

4.3 Please explain how long the process takes.In most cases, the process will take approximately two months because the employment department will determine whether there are any preferential employees by advertising the offered job for one month.

5 What terms govern the employment relationship? In particular:

5.1 Is a written employment contract or statement of employment terms required?Although the law explicitly stipulates that any employee may request a written contract, there is no sanction if the employer does not issue a written employment contract. An employment relationship may be constituted and binding by oral agreement or simply by start of work (the employer offers a place of work and assigns a task to the employee).

5.2 Are there any terms implied by law into the employment contract?According to the Nachweisgesetz (Act on Documentation) the employment contract must contain:

•          name, address of the parties

•          start date

•          any limitation in relation to duration

•          place of work or clarification that work shall be undertaken at various locations

•          description of work duties

•          remuneration

•          working time

•          amount of annual leave

•          notice period

•          applicable collective agreements, or works agreements

5.3 Are collective agreements with trade unions or employee representatives common (generally or in specific industries)?For some sectors, such as automotive, chemical industry, banks, public services and others, collective agreements are common. For other sectors, for example, some social services, artists and sales, no collective agreements exist. If collective agreements do exist, it may be binding for all companies of the respective sector, whether the company is based in Germany or not, it will depend on the agreement and various other factors (e.g. membership of the employers’ association). The collective agreements of some special (mostly low budget) industries have been extended to all companies within the industry.

6 Is there a minimum wage? If so, please give details, in particular whether it applies to all employees, regardless of their age and experience.There is a minimum wage in:

•          construction;

•          cleaning;

•          postal services;

•          security;

•          some mining businesses;

•          dry cleaning;

•          garbage disposal (incl. street cleaning and winter services);

•          some education services; and

•          support services.

It applies to all employees, regardless of their age and experience.

7 Are there restrictions on working hours? If so, please give details.Generally, employees will not exceed 10 hours per day and 48 hours per week. Compliance with these stipulations is only examined in large companies with many employees. In employment contracts, it is common to have a working time of 40 hours and five working days per week.

8 Is there a minimum holiday entitlement? If so, please give details. How many public holidays are there in a year and are they included in the minimum holiday entitlement?The statutory minimum holiday entitlement is equal to 4 weeks per annum, although most employers will grant 5 to 6 weeks per year.

Mainly due to different religious backgrounds, the number of public holidays will depend on the German state (Bundesland) in which the Company is situated and varies from 9 to 13 days per year. Those public holidays are not included in the statutory vacation entitlement.

9 What rights do employees have to time off in the case of illness or injury? Is that time off paid? Can an employer recover from the state sick pay granted to its employees?In the case of illness or injury (supported by a medical certificate), the employee is free to refrain from work. He is entitled to sick pay for up to 6 weeks for the same illness. Another illness will start a separate 6-week period, which may be repeated. Sick pay will be equal to the employee’s salary. At the end of 6 weeks, the employee’s health insurance will pay 70 % of their last gross income for up to 78 weeks. In Companies with no more than 30 employees, the employer may recover a percentage (usually 60 - 80 %) of the sick pay from the public health insurance, provided he can present a medical certificate for each day of the employee’s illness.

10 What are the statutory rights of employees who are parents or carers (including those of disabled children and adult dependants)? How is employee’s pay affected during periods of leave?Mothers and fathers may request unpaid parental leave for up to 3 years, which can be shared. There are public subsidies for parents during this time.

Employees may claim a release of work, without remuneration, for caring for disabled or ill relatives in an emergency situation or for a longer period (up to 6 months).

Any termination of employment of pregnant women or employees whilst on parental leave will require a prior approval of a special agency. The approval will only be granted in case of a serious cause (e.g. severe misconduct) if the cause is independent from the pregnancy or parental leave.

Carers of disabled or ill relatives are protected the same way.

11 Does a period of continuous employment create benefits for employees?Yes, after 6 months of employment, they are protected against unfair dismissal if the Company employs more than 10 people (calculated on the basis of fulltime employees). In that case, a termination is only permissible if it is on the grounds of redundancy, the employee’s behaviour or personal reasons. In the case of redundancies, a fair selection, based on social criteria elements such as: seniority, age, family duties and disabilities, must be made.

Due to this selection requirement, one element of which is seniority, the protection of an employee against a termination for redundancy will increase with the employee’s service.

Statutory notice periods will also vary depending on the length of service (see below notice periods question 16.1).

11.1 If individual employees are transferred to a new entity, are they deemed to retain their period of continuous employment?Employee’s continuity will only be retained if there is a transfer of an establishment or a part of an establishment (ARD). The character of the fulfilment of tasks must be conserved.

12 To what extent are temporary and agency workers entitled to the same rights and benefits as permanent employees?Temporary and agency workers are entitled to the same fundamental employment conditions that apply to a comparable permanent employee, including salary and bonus payments, payments in relation to absence due to sickness, holidays, working time and rest hours. A collective labour agreement may also allow additional conditions to be extended in respective of temporary workers, provided they have not been employed with an associated company within the last six months.

13 What statutory data protection rights do employees have?Employers are only allowed to collect, process or use employees’personal data for employment-related purposes, where necessary for hiring decisions or, after hiring, for carrying out or terminating the employment contract, or to investigate criminal offences.

14 What protection do employees have from discrimination or harassment, and on what grounds?According to the German General Anti-Discrimination Act employees are protected from discrimination on the grounds of race or ethnic origin, gender, religion or ideology, disability, age or sexual orientation. In the event of a culpable violation of the prohibition of discrimination by the employer, the employer shall compensate for any damage arising therefrom. Where the damage arising does not constitute economic loss, the employee may demand appropriate monetary compensation. This compensation shall not exceed three months’salary in the event of non-recruitment, if the employee would not have been recruited but for the discrimination.

15 Do whistle-blowers have any protection? If so, please give details.According to continued jurisdiction they are protected against termination and/or any discrimination if they have done everything possible before to present their grievance to the employer and if their claim is true and brought correctly.

16 What rights do employees have when their employment contract is terminated? Please provide information on:

16.1 Notice periods.During probationary period: 14 days if stipulated in contract.

After probationary period or if no probationary period was stipulated: 4 weeks or effective by the 15th or the month end, whichever comes first;

•          after 2 years’service, 1 month’s notice, effective by the end of the month;

•          after 5 years’service, 2 months’notice, effective by the end of the month;

•          after 8 years’service, 3 months’notice, effective by the end of the month;

•          after 10 years’service, 4 months’notice, effective by the end of the month;

•          after 12 years’service, 5 months’notice, effective by the end of the month;

•          after 15 years’service, 6 months’notice, effective by the end of the month;

•          after 20 years’service, 7 months’notice, effective by the end of the month.

16.2 Severance payments.If a large number of employees are dismissed in a company with a works council, the amount is usually agreed by a court to avoid the risk of the dismissal being held invalid (the employment relation would continue).

16.3 Any procedural requirements for dismissal.Dismissals must be in writing (not by email or facsimile etc.) and must be signed by an authorised representative of the employer (Managing Director as registered in the Companies registry, or a longstanding head of Human Resources and known in the firm). There is no need for the notification to contain the grounds for the dismissal, in order for it to be valid.

17 What protection do employees have against dismissal? Are there any specific categories of protected employees?In business entities employing more than 10 employees, employees are protected by law against unfair dismissal, after six months’service. Dismissal is then only allowed due to redundancy, personal reasons (e.g. long illness) or behavioural reasons (e.g. theft).

Pregnant women, employees on parental leave or caring for disabled persons and members of a works council are protected by different Acts against unfair dismissal at different stages.

18 What rules apply on redundancies?In the case of redundancy, a termination is fair, provided the employer has used the social criteria, to make their selections for redundancies between comparable employees. If the requirement for redundancies can be proved and the choice was fair according to the social criteria (and any works council was properly informed and consulted), the termination is valid and no severance is due. In the case of a total foreclosure the requirements are easier to fulfil than in the case of a reduction of workforce.

19 Are employees entitled to management representation (such as on the board of directors) or to be consulted about issues that affect them?

•          Businesses with more than 2,000 employees, employees have equal representation on the supervisory board;

•          Businesses with more than 500 employees, employees are entitled to 1/3 representation on the supervisory board; and

•          Businesses with more than 100 employees with works council and an economic committee (Wirtschaftsausschuss), the committee must be informed of economic issues relevant to the employees, on a regular basis.

19.1 Is employee consultation or consent required for major transactions (such as acquisitions, disposals or joint ventures)?If the employees are at risk of being disadvantages due to the operational changes, foreclosure or sale or a separation of parts of the company, or due to the structure of the transaction that has been chosen, a co-determination with the works council may be required. This co-determination may go as far as the requirement to negotiate an agreement on social matters (Sozialplan) that will compensate for any disadvantage caused (including severance payments for redundancies of up to 1 or 2 times their salary for each year of service) before the transaction may be realised. In case of a sale of all or some shares of a legal entity no participation of the works council falls due.

20 What are the remedies that are available if an employer fails to comply with its consultation duties?In the event that there is a failure to consult before or during a major transaction, the works council can stop the process of the transaction by getting a court ordered injunction. Employees may be eligible for damages (e.g. severance for redundant employee because there was no agreement on the social matters).

20.1 Can employees take action to prevent any proposals going ahead?Depending on how important the proposal is (e.g. operational change) and how strongly it affects the employees, the works council may take such action and stop its implementation. In companies without a works council, employees have no such remedy.

21 Is there any statutory protection of employees on a business transfer? In particular:

21.1 Are they automatically transferred with the business?In the case of a transfer of business (according to ARD), the employees are automatically transferred with the business, unless they refuse the transfer. If they refuse to be transferred, the old employer may terminate the employment on the grounds of redundancy, provided he does not sustain the same kind of business after the transfer. In the case of ARD, the employee must be informed in writing, which must be very detailed, of all the consequences and his right to refusal. He may exercise his choice within 1 month of the receipt of such information to comply with the law.

21.2 Are they protected against dismissal (before or after the disposal)?Employees must not be dismissed for reasons due to the transfer of business. A dismissal for any other reason may remain possible.

21.3 Is it possible to harmonise their terms of employment with other (existing) employees of the buyer?Mutual agreements are allowed, however, as the transfer completes, the employees’ previous conditions of employment continue, and they may not wish to accept such harmonised conditions. If collective agreements are applicable in the new business these will override any rights gained from collective agreements applicable to the former business.

22 Do employer and/or employees make pension contributions to the state in your jurisdiction? If so, please give brief details.Employees and employers have to make equal contributions (half each) to the national pension scheme (Deutsche Rentenversicherung) which is collectively 19.9% of the gross salary at the moment. Thus the employer has to add 9.95 % to the gross salary. The remainder (9.95 %) is to be deducted from the gross salary at the expense of the employee. These contributions are only payable from salary, up to a limit of €5,500 per month or €66,000 per year (for the western part of Germany, less in the eastern part).

23 Is it common to reward employees through contractual or discretionary bonuses? Are there restrictions or guidelines on what bonuses can be awarded? If so, please give details.Bonuses are quite common in producing or selling industries, banking and finance, etc. Bonus schemes must be fair, clear and the employee must be able to predict the outcome. Unclear stipulations or schemes may result in full entitlements without corresponding achievements. The employer is generally not allowed to discontinue a bonus-scheme once implemented. After the grant of a bonus for the same amount over three consecutive years, without any reservations concerning the coming years the employer is obliged to continue the grant. A bonus may vary between a few hundred Euros or half to two year’s salary.

24 If employees create IP rights in the course of their employment, do the employees or the employer own the rights?The rights will belong to the employee. According to the Act on Employees Inventions, the employee may be obliged to allow the employer to use his invention. Consequently, the employer may be obliged to pay a special remuneration to the employee inventor if the invention is very advantageous to the employer. To a certain extent, it is likely that the employment contract will stipulate that this remuneration is covered by the employee’s salary.

25 Is it possible to restrict an employee’s activities during employment and after termination? If so, in what circumstances can this be done? Must an employer pay its former employees remuneration while they are subject to post-employment restrictive covenants?During employment employees are not allowed to compete with their employer. Thus, no further contractual stipulation is necessary.

An obligation not to compete with the employer after termination of employment requires mutual agreement between the employee and employer. The duration of the post-contractual non-compete obligation, may not exceed 2 years and the employer must provide compensation of at least 50% of the employee’s latest remuneration including all fringe benefits, for the entire duration of the restriction.

26 Are there any proposals for major reform of employment law or pensions law in your jurisdiction?There are plans to extend the employees’ data protection.

27 Does an employer need to have a subsidiary company, branch or other legal entity to employ people? If so, is there a requirement for a general manager or other key personnel?No, any foreign entrepreneur may employ people in Germany either by himself or via any foreign legal entity. He may also establish a branch or subsidiary to employ people in Germany.

28 Does salary need to be paid in the country in which the work is done?Salary can be paid anywhere over the world. However, the employer must deduct and pay income tax to the German tax authorities if, and to the extent, the employee is taxable under German law and contributions to the German social security scheme must also be paid.

29 Do meetings and documents need to be in your local language even if both parties speak good English?No, documents only need to be in German in the case of a court claim, however, a certified translation of the documents may be presented.

30 What legal limitations are there on the notice period the parties can agree (for example minimum notice periods)?The parties are not allowed to reduce the statutory notice periods (see question 16.1). Only trade unions and employers or employer associations may stipulate shorter notice periods in collective agreements.

31 What benefits does the employer have to provide in addition to salary?There is a German law called ‘Fifth Act on Establishment of (Private) Funds.

This provides that employees may conclude a contract with a bank on savings for a flat/house or pay their debts for the house they live in or pay money into a life insurance or into investment fund or a bank savings plan. An employee is entitled to matching grants from his employer if he does not earn more than:

•          €20,000 if single,

•          €40,000 if in a couple, and pay taxes as a couple.

If the funds are paid in for the acquisition of real estate the maximum income is lower (€17,900 and €35,800 respectively).

The employer is due to conclude a contract on the investment of parts of his income into one of the above mentioned savings with the employee if the employees requests that in writing.

There are collective agreements with specific stipulations on the establishment of private funds by employees. Some collective agreements even stipulate that the employer must bear the entire investment, regardless of the employee’s income level.

The employer has to pay

•          20% of the monthly investment, at most €400 per year on :

•          savings plans; or

•          purchase of stocks / shares.

•          9% of the monthly investment, at most €470 per year on:

•          The purchase / investment in of a flat / house

Both matching grants (20% and 9%) may be claimed together, thus the employer may be obliged to match up to €870 per year invested by the employee.

The employee is exempt from income tax on his investments, provided he has the free choice of where to invest in.

The employer should not make any payments without having a copy of the corresponding contract (savings plan, purchase contract…) and he should make sure that the investment complies with the Act (5. VermBG).

32 Are there circumstances where it is possible to engage someone as a consultant rather than an employee? If so, what are those circumstances?The consultant must be a real freelancer. Thus he must not be integrated in the business of the employer (no desk, business-cards, PC, phone, sick pay, leave, direct extension number etc.). He must bear his own risk of loss, like other businessmen. He should also have other clients and it should be up to him where, when and how he works.

32.1 Where applicable, what are the advantages and disadvantages of engaging as a consultant rather than an employee?When a consultant is engaged, no contributions to the social insurance scheme have to be paid. There are no statutory employment rights (leave, work time, sick pay etc.) and there is no protection against dismissal. If the employer hires a consultant and treats him like an employee, he may be compelled to account for the contributions of the employer and the employee to the social insurance for up to 4 years.

33 What other key issues should a company employing someone be aware of?

•          The employer should comply with work safety regulations, as far as applicable.

•          The employer may become a tax subject under German corporate tax and is liable for any income tax of the employee, which he did not deduct from his income (a good tax advisor and payroll provider required!).

•          It may need a labour lease licence if he wants to let his employees work for his clients/affiliated companies within their premises and under their supervision.

•          A termination for behavioural reasons is only permissible after one or more written warnings, unless the behaviour was obviously unacceptable.

•          Any employer must register at the local public health insurance as they collect the social insurance premiums.

For further information please contact

Roger James

DDI: +44 (0) 1223 225286

Email: roger.james [at] taylorvinters.com

www.taylorvinters.com

Articles in this publication are intended as an overview of the subject area and should not be relied on as legal or other professional advice. You should seek specific legal advice before taking action on any of the issues raised.

Taylor Vinters is a trading name of Taylor Vinters LLP. Taylor Vinters LLP is a limited liability partnership registered in England and Wales (registered number OC343503) which is authorised and regulated by the Solicitors Regulation Authority and is authorised and regulated by the Financial Services Authority for investment business. A list of members is available from our registered office.

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