5 things to know about Employment Law in Germany

In this series, Barry Stanton, Managing Partner, is talking to his European colleagues with whom he has worked on numerous projects about five things we should know about employment law in their country. 

In this episode, Barry will be speaking to Daniela Hangarter-Sperling and Julian Leicht from Hangarter Legal, about German employment law. One of the main topics is that of "wet ink" signatures. In an era where digital reigns supreme, learn why Germany clings to this traditional requirement and how it could impact international employers financially. Daniela and Julian clarify the realities of statutory severance entitlements and reveal why many disputes end up in court to avoid the risk of employee reinstatement after protracted litigation and the employee receives a severance which is negotiated between the parties. 

Don't miss this chance to enhance your knowledge with expert advice into German employment law.

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Chapters

• 0:51 "Wet Ink" contracts
• 7:48 Employees cannot be terminated for poor performance
• 13:28 You can terminate a sick employee
• 17:09 Employees are legally entitled to a favourable reference letter
• 20:27 There is no statutory entitlement to a severance payment

Transcript

Barry Stanton: 0:03 

Hello, my name is Barry Stanton, I'm the managing partner at Boyes Turner and I've also practiced as an Employment Lawyer for the past 25 years. In that time, I have seen the growing importance of a knowledge of European and international employment law. In this series, I'm talking to my European colleagues, with whom I have worked on numerous projects, about five things we should know about employment law in their country. 

Today I'm joined by Daniela Hangarter-Sperling and Julian Leicht from Hangarter Legal in Germany. 

Daniela hello. 

Daniela Hangarter-Sperling: 0:32 

Hello Barry, Nice to meet you. 

Barry Stanton: 0:34 

And Julian. Hello, Nice to meet you too. Hi, Barry, Nice to meet you, 

Julian. 

One of the questions that I find interesting is the way in which contracts are formed, and can you tell me because we're now in an era where everybody signs documents electronically is that possible in Germany? 

Julian Leicht: 0:51 

We haven't reached that era yet in Germany, I have to say. So when we thought about what we could discuss today, we came up with a topic and named it Germans love Wet Ink. Now, on second thought, I would say, or argue, that not all Germans love it at least our clients do not but the legislator does, unfortunately, and that's what we have to deal with in Germany. So this wet ink requirement that I'm going to talk about applies to different legal documents and employment law, and the first one it concerns is a notice of termination. So a notice of termination necessarily needs to be signed in wet ink. If it's not, it's simply invalid. So what does wet ink mean? A notice of termination requires a handwritten signature at the bottom with an actual pen. So very old-fashioned meaning no DocuSign, for example, and no scanned signature or the like. The original that is signed in wet ink then also needs to be delivered to the employee. 

Julian Leicht: 1:54 

However, this last part also, well, sometimes leads to problems in practice. For example, just at the beginning of this week, we advised a client in a termination case. They wanted to terminate an employee of theirs, and, well, we drafted the termination letter for them and they took the next steps and sent this draft of the termination letter to their managing director. He printed out this draft of the termination letter, signed it in wet ink, as he should. Then, however, he did not send back the original version of this termination letter, but he just took a photo of it, sent an email with this photo back to the HR employee, who then wanted to print out this photo, put it in an envelope and send this printed out version to the employee. Obviously or for them not, obviously but this is not sufficient. 

Julian Leicht: 2:50 

The signed notice of termination, which is signed in wet ink, has to be delivered to the employee, so they had to get back to their managing director and tell them, or tell him well, sorry, but you have to sign again. However, straight after the managing director had signed the first version of the notice of termination, he went off on vacation. So he's now probably on some lonely island in the Caribbean or somewhere, and we have to get hold of him and have him sign another termination letter, this time in wet ink, and this time he has to send back the original signed version so that we can deliver the original to the employee. And there you already see the practical consequences. Now, in this case, we're lucky because we're still at the beginning of this month, so it's not really a problem with regard to the notice period. But if you're at the end of a month and you have to issue the notice of termination and things have to proceed quickly, this can really pose some problems. 

Barry Stanton: 3:49 

So that was an interesting point, Julian, which came out there. Are you saying that notice periods run from the end of the month? 

Julian Leicht: 3:56 

Yeah. So a notice period, for example, would be one month to the end of a calendar month. So let's imagine a case we would issue a notice of termination still in July and this employee has a notice period of one month to the end of a calendar month. So the end of the next month would be the end of August. And let's say we're already at the end of July and you don't get the wet ink signature as quickly as you should, then you're at the beginning of August and the employment relationship in this case would run until the end of September already. So that is why this wet ink requirement can even have a financial impact, obviously, because you have to pay an additional salary if you don't get the signature well, quick enough. 

Barry Stanton: 4:40 

And it also presumably poses a problem for international employers If they don't have people within Germany. You have the power to sign termination notices. 

Julian Leicht: 4:50 

Oh, absolutely. This is a whole different topic actually, because you in these cases have to prove that this particular person who has to sign it in wet ink, of course is authorized to represent the company. And in Germany that is easy because there is a public commercial register. So you just look it up in this commercial register and you see, ah, this is the managing director of the company. He signed it, fair enough. However, if it's, for example, a US company, this commercial register doesn't exist. So you have to find other ways to prove that this individual is authorized to represent the company. 

Barry Stanton: 5:26 

Are there any other circumstances where wet ink is required? 

Julian Leicht: 5:29 

The one I want to mention is the wet ink requirement also applies to employment contracts. So, arguably, the consequences of not complying with this requirement with regard to employment contracts is not as severe as the one that I just mentioned for the notice of termination, because, of course, an employment contract would still be valid if it's not signed in wet ink. Theoretically, you can even conclude an oral employment contract, even though that would not be recommended, but that is still a valid employment contract. However, it is punishable by a fine of up to 2,000 euros under a well recently amended act which is called the Act on the Documentation of Essential Working Conditions. And this act, or the amended version of the act, it just gives an employee the right that he has to be provided with the essential working conditions of his employment relationship in written form. 

Julian Leicht: 6:26 

In written form, again, meaning wet ink, of course in Germany. 

Julian Leicht: 6:30 

And I mean, where are the essential working conditions stipulated, of course, in an employment contract? 

Julian Leicht: 6:37 

So factually, this creates the obligation to conclude employment contracts in wet ink, the obligation to conclude employment contracts in wet ink, again meaning a wet ink signature by both parties, both the representative of the employer and the employee, and if you do not do that and an authority would find out in some sort of audit, for example, then you could be punishable, or this would be punishable by a fine of up to 2,000 euros. 

Julian Leicht: 7:02 

And that is only one side of the employment contract part. The other one is there is another wet ink requirement that applies to fixed term employment contracts and that is the limitation that is contained in such a fixed term employment contract is only valid if the contract is signed in wet ink. So let's assume you have a contract which says it runs from the 1st of August 2024 until the 31st of December. This would expire, obviously, with expiry of the 31st of December, but only if it's signed in wet ink. If not, an indefinite employment contract would be deemed to exist, which arguably is also a pretty severe consequence of not complying with the wet ink requirement for employment contracts. 

Barry Stanton: 7:48 

Okay, that sounds quite challenging, and in the UK one of the circumstances for termination could be poor performance. Is that a possibility in Germany? 

Julian Leicht: 7:58 

It is not to put it shortly, but I mean it is more difficult than that. So there is the Termination Protection Act in Germany, which I already mentioned, and this particular act applies to a termination if the employee, as I just said, has been employed for at least six months and if the employer employs more than 10 people in Germany, then the Termination Protection Act applies, meaning that you need a reason for termination. So before six months have expired in an employment relationship, you don't need any reason and you could as well terminate someone because he did not perform as you wanted him to. However, after these six months, this is no longer possible and you have to stick to the reasons that are mentioned in the Termination Protection Act, and these are operational reasons. So the case of redundancy, personal reasons, and such personal reasons exist when an employee is unable to perform their job without fault, of fault on their own. So that part is important. For example, this could be sickness right someone is on long-term sick leave and the last one is misconduct. 

Julian Leicht: 9:08 

Now, as you can see, poor performance is simply not listed here. It's not contained in the Act, which means it's not a reason for termination. However, one could consider, depending on the individual case, if poor performance could perhaps establish a personal reason or a case of misconduct. In practice, that is very difficult. However, I'll try to explain to you how this could be done, in theory at least. So, as I said, poor performance exists when an employee is basically, in the case of poor performance, trying their best but they simply have not the physical or intellectual capabilities to fulfil the requirements of the job. So it's not their fault, they just can't do it. That would be a personal reason. However, if you would issue such a notice of termination, it's very likely that the employee would challenge it and it would be very difficult to succeed in court, because, well, obviously it's very hard to prove what an employee can and what he can't do. Because, well, there's one argument on the employee side and this may sound a bit cynical, I suppose but they could say well, actually I just wasn't trying my best. So with that argument, the termination for personal reasons is no longer possible, because you already have proof that the employee, well, he was able to do the job, which eliminates the possibility of a termination for personal reasons, which is why we should also quickly talk about the option of terminating someone for misconduct in case of poor performance. 

Julian Leicht: 10:51 

And now there are two potential approaches to this termination. The first one is that case law says that if an employee constantly works one third worse than their colleagues, that would be a reason for termination because of misconduct. This is very difficult to prove, so this is one way for termination for misconduct related to poor performance. The other one is that and I believe that, or I think that you know this that there are performance improvement plans, because they are especially popular from my experience in the UK and the US which is a plan, and this plan in Germany needs to contain very clear work instructions. So let's assume you have an employee who works in the sales department of a company and you would have to make a work instruction like you have to call 50 customers next week. Then this employee does not fulfil this instruction. He only calls 25 employees. You have a breach of duty because he did not fulfil this particular work instruction. This itself is not already the reason for termination. 

Julian Leicht: 12:09 

You then have to issue a formal warning letter Please do better next time, and if you do not, we must consider the termination of  this employment relationship. This would be a formal warning letter. You issue this warning letter, then you issue another performance improvement plan. He again fails to comply with this instruction. Then you issue another warning letter. And well, this is how you slowly build a termination case in case of poor performance. However, even if you have like 10 warning letters, there is still no guarantee that this would be a valid notice of termination in the end. And that's the whole problem with poor performance, because a court they would always look at the specific breach of duty that you based your notice of termination on. And even if you have 10 warning letters relating to breaches of duties in the past, they would say well, this particular breach of duty is simply not severe enough for a termination. And that, long story short, is the reason why a notice of termination for poor performance is very difficult in German employment law. 

Barry Stanton: 13:17 

So presumably if it's really difficult and employers want to try and cut that Gordian knot, will they try and make money, talk and reach some form of settlement. 

Julian Leicht: 13:26 

They certainly will yeah. 

Barry Stanton: 13:28 

Okay, that's great. Thank you, Julian and Daniela. Before we come to the termination payment issue, Julian was talking about terminating employees for sickness and that sounded really to be quite straightforward. Is that right? 

Daniela Hangarter-Sperling: 13:44 

I wouldn't say it's super straightforward, but it might be a solution. So I first wanted to touch on a different angle of sickness here. First wanted to touch on a different angle of sickness here. So we quite often have clients who want to separate from an employee, either by way of a mutual agreement or by notice of termination, and then it turns out the employee falls suddenly sick just when they want to have a conversation with them. Or maybe they just pretend to be sick. Of course we never know. 

Daniela Hangarter-Sperling: 14:22 

And unlike in other jurisdictions, sickness of the employee does not prevent the employer from terminating the employment relationship. And it's of course true that while the employee is on sick leave, they don't have to participate in any meetings. They can basically just disconnect from the employer. However, the employer can still send them a notice of termination while the employee is on sick leave. The letter can be sent to the employee's home, even if the employer knows that the employee is in hospital, for example. 

Daniela Hangarter-Sperling: 14:58 

And so sick employees do not enjoy any special termination protection because of their sickness. In fact, sickness may even constitute a reason, a justifying reason, for termination under the Termination Protection Act, which Julian already mentioned. In this case, this would then be a termination for personal reasons, the reason being the sickness of the employee. Of course, that doesn't mean that the employer can terminate an employee just because they had the flu for four days, for example. However, if the employee has been sick for more than six weeks each year over several years, or if they are continuously sick with no prospect of returning back to the workplace, then this may justify a dismissal, depending, of course, as always, on the particular circumstances of the case. 

Barry Stanton: 15:51 

But presumably also if you have a sick employee, you have to think about the issue of disability discrimination. 

Daniela Hangarter-Sperling: 15:56 

Exactly, and so if they are not only sick, so to speak, but severely disabled, then they would actually enjoy special termination protection due to their disability, which means that you can only terminate them by notice of termination if you obtain the approval of a public authority beforehand, and that obviously is not straightforward, because you have to have a reason for it and it can also take quite a while. So we've had several cases where we've obtained the approval, but it usually takes, let's say, two to four months, and then you can issue the notice of termination. 

Barry Stanton: 16:37 

And I assume you would need some evidence to go with that to prove why you needed to make that employee or dismiss that employee. 

Daniela Hangarter-Sperling: 16:43 

Yes, certainly so. This could, for example, well be redundancy, but it could also be sickness. But basically you would have to prove that the reason of the termination is not the disability itself. And of course sickness and disability might be connected to each other, and in that case it might not be very straightforward to obtain the approval at all. 

Barry Stanton: 17:09 

Thank you. Julian sort of looking, moving on a stage and talking, thinking about a reference letter, which is always a bone of contention for employees who want everyone to say they've been super brilliant and done a wonderful job, and employers want to say they came, they left and they conquered, in my phrase. What's the position with a reference letter in Germany? 

Julian Leicht: 17:27 

Yes, so there is a statutory entitlement on the part of the employees for a qualified reference letter, actually a favourably worded qualified reference letter. I think it's easiest to explain that by saying what it's not in the first place, and that is a normal or simple reference letter which would only state the position of an employee and the duration they have been employed. However, as I said, they are entitled to a qualified reference letter upon request, which not only contains this information that I just stated, but also a detailed evaluation of their performance and the behaviour of the employee. The detailed evaluation is the reason why such reference letters are often two or even more pages long. Such reference letters are often two or even more pages long and it's not really straightforward to draft them because some very specific wording has to be included. 

Julian Leicht: 18:29 

Basically, the employee is given a school grade, and you may know the grading system in German schools it goes from one to six, one being very good and six insufficient, and from the reference letter it must be clear which grade is given to this specific employee. 

Julian Leicht: 18:41 

This is done by not explicitly stating the grade at the end of the reference letter, for example, but by just including a very well, very specific wording, and that would be, for example, when you want to give the grade one to a very good employee. 

Julian Leicht: 18:57 

It would say we always work to our fullest satisfaction, which, as you can see, is some weird wording, but that's how it's done and obviously you have to know that. 

Julian Leicht: 19:08 

So this is why reference letters are well, mostly drafted by lawyers for our clients, especially for foreign companies. And the reference letter also needs to fulfil two further requirements, the one being, as I said, it needs to be favourable, but also it needs to comply with the principle of truthfulness and, as you already suggested in your initial statement, sometimes these two principles are in conflict with each other, meaning that well, it's difficult to find a middle way, mostly, and this conflict in practice is often resolved in favour of the well principle of favourability, meaning that when you read a German reference letter, you would think well, this must have been a really good employee or it's very exaggerated, and well, that's how most reference letters in Germany look. But I mean, at the end of the day, there is no risk for the company really to provide a good reference letter and it's often well an easy solution, for example, to find a settlement in lawsuit by just providing the employee with a good reference letter, and that is why this is mostly the way that it's done in Germany. 

Barry Stanton: 20:27 

And Daniela. Coming back to you, we touched a few moments ago on severance payments. I wondered if you could tell me something about severance payments in Germany. 

Daniela Hangarter-Sperling: 20:36 

I certainly can. So we already talked quite a bit about terminations here, which require a socially justifying reason under the Termination Protection Act, and of course, they have to be in wet ink, as we know. So once an employee has received such a notice of termination, they can challenge it by filing a termination protection claim with the labour court within a period of three weeks, and the labour court will then assess whether the notice is valid or invalid. If it is valid, the employment relationship will end. After the notice period has expired, the employee does not get a severance, and if the court decides that the notice is invalid, the employee does not get a severance either, but they have to be reinstated in their job and they are also entitled to back pay. So, as you can see, there's actually no scenario in which the employee receives a severance. Having said that, this is quite different in practice, and the reason for that is that employers really fear having to reinstate an employee after years of litigation, and also most employees do not actually want to come back to their employer once they have been dismissed and fought them in the labour court for several years. So in the end actually most cases, I would say about 95% of all cases are settled in court, which means that the parties agree that the employment relationship ends and the employee receives a severance which is negotiated between the parties. 

Daniela Hangarter-Sperling: 22:13 

So a very popular formula for calculating a severance would be monthly gross salary times, years of service, times factor, and the factor depends a lot on how likely it is that the notice will be valid. So, um, in a, let's say, standard case where the chances are about 50 50 for the employer and the employee of winning or losing, um, a typical severance would be half a monthly gross salary per year of service. But if the case is really bad for the employer and the employer really wants to avoid having to reinstate the employee, then they may end up with a much higher factor or something like 1.5. So the sky is really the limit here and in the end this is the price that an employer has to pay for having issued an invalid notice of termination. So there's no statutory entitlement for a severance payment. The court cannot award a severance payment unless in super, super rare circumstances. But in practice most cases actually end up with a severance payment. 

Barry Stanton: 23:23 

And you can see from an employer's point of view why that would be useful, particularly given the fact that a litigation might take one or two years presumably to get to a court and go through layers of appeal. And having to pay back pay to an employee who's not done anything for them would be quite painful, particularly when they were then going to come back into their job and carry on doing what they were or weren't doing before. 

Daniela Hangarter-Sperling: 23:52 

Exactly, particularly having to reinstate the employee in their position after the company has moved on. Everybody knows this person has been terminated, so after. So then they sued the company and then they succeed, and then they come back. Obviously, no employer wants that. 

Barry Stanton: 24:01 

And it sounds like from what you're saying that there's a fairly clearly defined formula that most people will be familiar with, so that probably helps quite a lot in getting to a reasonable settlement. 

Daniela Hangarter-Sperling: 24:17 

Yes, but on the other hand, many people actually think that this formula which I mentioned the half a monthly gross salary per year of service that this is a statutory entitlement. So this is actually quite a misconception. So a lot of employees think this is my entitlement. So this is where the negotiation starts, whereby actually the negotiation starts with zero, whereby actually the negotiation starts with zero. 

Barry Stanton: 24:40 

Is there any way because I'm thinking of litigation that I've been involved with recently is there any way if you think you have a really good claim, but the employee doesn't want to do a deal and wants to have their day in court? is there any way of short-circuiting that? 

Daniela Hangarter-Sperling: 24:54 

Not really. If you are the employer and you really don't want the employee to come back and you don't want to pay a higher severance, then a very popular strategy, but you need a very long time for it would be basically just going through the litigation and the appeal and the whole litigation may take up to two years or even longer, depending on the particular case. And so employees may just be forced to settle for much less money than they initially wanted. 

Barry Stanton: 25:31 

Daniela, thank you very much indeed. 

Daniela Hangarter-Sperling: 25:33 

It's been a pleasure. Thank you for having us. 

Barry Stanton: 25:36 

And Julian to you also. Thank you for your time today. 

Julian Leicht: 25:38 

You're welcome, thank you. 

Barry Stanton: 25:40 

I hope you've enjoyed our conversation today. Coming up in our series, we'll be talking to colleagues from the Netherlands, France, Spain and Italy. If you want to listen to them as soon as they become available, you can follow or subscribe to our podcast.