Germany: Understanding the Termination

With that in mind, employers and employees should understand those protections in order to enhance employee experiences and achieve regulatory compliance.

What is Termination by Agreement?

In Germany, ‘termination by agreement’ describes a situation where both employer and employee reach mutual agreement about the end of an employment. Termination by agreement is generally the easiest form of termination for all parties but involves an administrative process. More specifically, employees and employers must both sign a termination agreement, which should include the following details:

• The employment termination date
• Non-competition and confidentiality clauses
• The effect of the termination on pension arrangements
• Payment of severance packages
• Requirements for employees to return company property

What is Termination with Cause?

‘Termination with cause’ is applied for cases of employee misconduct, when operational requirements justify termination, or when employees end their employment for personal reasons.

When termination with cause is justified, the amount of time an employee has worked for their employer affects their notice period in the following ways:

• Less than 2 years: At least 2 weeks’ notice (to the 15th or the end of the calendar month)
• More than 2 years: One month’s notice (to the end of the calendar month)
• Up to 20 years: A sliding scale of up to 7 months’ notice

In cases of very serious misconduct, the notice period regulations may be waived.

How Are Employees Protected Against Dismissal?

Businesses in Germany that have more than 10 employees must comply with certain employment protection statutes. When employees have at least 6 months of service, employers must justify their termination in the following ways:

• Employee conduct: Terminations may be justified when an employee breaches their contractual duties. Employees must be given a warning prior to their termination. Justifications for conduct-based terminations may include criminal behaviour or underperformance.
• Personal situation: Employees that take long absences (due to sickness, for example) may not be able to provide the level of service their employers need. In this situation, employers may be able to terminate their employment on personal grounds.
• Operational: Employers may be forced to reduce their workforce or eliminate positions due to economic downturns (such as Covid-19 restrictions) or other adverse business conditions. In these circumstances, employees may be terminated on operational grounds.

In all cases of dismissal, employers may be required to produce evidence and records during any subsequent arbitration process.

Dismissal protection guidelines do not apply to businesses with fewer than 10 employees and employers in these businesses may generally cite any reason for letting an employee go. Regardless of the size of their business, employers must always submit exceptional reasons to terminate employees on maternity or paternity leave, or employees with severe disabilities.

If you are interested in doing business in Germany, find out everything you need to know about payroll, tax, social security, employee benefits, work permits, employment law and more in the activpayroll Guide to Doing Business in Germany. This is available as a free PDF to download.