termination of employment in Germany: laws & severance policies

Legal Grounds for Termination of Employment in Germany

Terminations in Germany are complex. Beyond the probation period, employers must justify terminations, and the process varies based on agreements, contract type, and reasons, with employees protected by the German Termination Protection Act after six months. An employee may be terminated compliantly for one of the following reasons:

 
• Personal Reasons: Circumstances such as long-term illness or loss of essential qualifications that impede the employee's ability to perform their duties.
 
• Conduct-Related Reasons: Instances of misconduct, including repeated breaches of employment terms after prior warnings.
 
• Operational Reasons: Situations where business decisions, such as restructuring or insufficient work due to a shortage of orders, render the employee's position redundant.

It's important to note that termination must always remain an option of last resort. Less severe options, such as redeployment of the employee, have to be considered prior to termination.

Employment Laws and Severance Policies in Germany

Germany has stringent employment laws designed to protect both employers and employees during the termination process. Understanding these regulations is crucial to ensure compliance and fairness.

Notice Period in Germany

The notice period required during termination in Germany varies based on the employee's tenure:

‍During Probation: Typically, a probation period of up to six months is agreed upon, during which either party may terminate the employment with a two-week notice period.

Post-Probation: After the probationary period, employees in Germany are entitled to a minimum statutory notice period of four weeks before the 15th or the last day of the following month. It is contingent upon the duration of their tenure with the company:

• Up to 2 years:  4 weeks (per the 15th or last day of the month)
• 2 - 4 years: 1 month
• 5 - 7 years: 2 months
• 8 - 9 years: 3 months
• 10 - 11 years: 4 months
• 12 - 14 years: 5 months

Employers are obligated to provide written notice, and electronic forms are insufficient. Exceptions to these notice periods may apply in cases of immediate termination due to serious misconduct.

Severance Pay in Germany

In Germany, there is no statutory severance pay mandated by law.  It is often customary, though not legally required, to offer severance after an employee has been with the company for 6 months to mitigate litigation risk.

However, severance payments may arise under certain circumstances:

 
• Social Plans: Agreements between employers and works councils, often established during mass layoffs, may include severance provisions.
 
• Collective Bargaining Agreements: Some industries have agreements that stipulate severance pay.
 
• Mutual Termination Agreements: Employers and employees may negotiate severance to avoid lengthy court proceedings.

The amount of severance is typically calculated as half of the monthly salary per year of service, though this can vary based on negotiations and specific agreements.

Probation Period in Germany

In Germany, probation or trial periods are not mandated by law but are commonly established within collective agreements.

Employers and employees usually agree on a probation period of up to six months at the start of the employment relationship. During this time, either party can terminate the employment with a two-week notice period. This period allows both parties to assess suitability without the extended notice periods required after probation.

Process for Ending Employment in Germany

 
• Consultation with the Works Council: If a works council exists, the employer must inform and consult with them before issuing a termination.
 
• Issuance of Written Notice: The employer provides a written termination notice, adhering to the applicable notice period.
 
• Consideration of Social Criteria: In cases of operational terminations, employers must apply social criteria to determine which employees are to be terminated, considering factors like age, length of service, support obligations, and severe disability.
 
• Final Settlement: The employer settles any outstanding payments, including wages, bonuses, and compensation for unused leave.

Employee Rights During Termination in Germany

Unfair Dismissal Protections

Employees in Germany are protected against unfair dismissal under the Dismissal Protection Act (KSchG). A termination is considered socially unjustified unless it is based on personal reasons, conduct-related reasons, or compelling operational requirements. Special protection is provided to certain groups, such as pregnant employees, those on parental leave, employees with disabilities, and works council members.

Grievance Procedures

Grievance procedures allow employees to raise concerns or disputes regarding workplace issues, including termination. These procedures help resolve conflicts amicably and ensure employees' rights are upheld. Employees can seek advice from counseling centers, such as those provided by the "Fair Integration" project.

Final Pay and Benefits

Upon termination, employers are responsible for settling final pay, which includes wages, bonuses, and compensation for unused leave. The final payment should be made within the regular payroll cycle unless otherwise specified in the employment contract or collective agreements.

What Termination Documentation Is Required by Law?

 
• Written Termination Notice: The notice must be in writing and signed by an authorized representative of the company.
 
• Employment Certificate (Arbeitszeugnis): Upon request, employers must provide a certificate detailing the nature and duration of employment.
 
• Social Security Documentation: Employers are responsible for notifying the health insurance company about the termination and ensuring that the employee is deregistered from social security systems.

How to Stay Compliant as An Employer in Germany

Expanding your workforce across international borders is an exciting step, but it can be a logistical nightmare to hire and pay employees in different countries. And if you need to terminate employment, it’s critical to adhere to local compliance laws. That’s the advantage of using a trusted Employer of Record like Playroll. They can:‍

• ‍Handle international compliance: Different countries each have their own federal and local laws governing employee rights. An EOR helps ensure that you are compliant with the unique set of laws for any country in which your company operates. 
• ‍Run payroll for your global team: An EOR will act as your payroll provider, paying your employees on your behalf in the local currency. The company will also have in-depth knowledge of local tax codes, regulatory practices, and everything else that goes into managing global payroll.
• ‍Scale your team anywhere: Legally hire and swiftly onboard new hires in 180+ regions without the need for entity set-up by leveraging Playroll's infrastructure, so you can freely explore new markets and focus on growth.