German Labour Law - An Overview

The major sources of German labour law are federal legislation, collective bargaining agreements (“Tarifverträge”), works council agreements (“Betriebsvereinbarungen”) and case law, the latter playing a key role. There is no one consolidated Labour Code but instead minimum labour standards are laid down in separate acts on various labour related issues. Constitutional rights and principles also play a role in labour law, for example the principle of equal treatment (Art. 3 of the German Constitution). The legislation of the European Union has an increasing impact on German labour law.

German labour law is divided into two subcategories, individual labour law and collective labour law. Individual labour law governs the relations between individual employers and their individual employees. Collective labour law determines the legal relations between employers, trade unions and employee representative bodies. Collective labour law aims at creating uniform working conditions and encompasses the law relating to freedom of association, collective bar-gaining, conciliation and arbitration, industrial disputes, employee representation and co-determination.

In a labour law context, social security essentially means the compulsory membership of employees in social security institutions and the obligation (of employers and employees) to pay contributions to these institutions.

Individual Labour Law

Individual labour law centres on the relationship between a person at work and their employer, as governed by the employment contract between them. Both employee and employer are affected by these rights and duties. A number of different laws ensure certain minimum rights, e.g. the Law on Minimum Wages (“Mindestlohngesetz”) which currently obliges employers to pay a statutory minimum wage of EUR 9.60 gross per hour to employees working in Germany (as of July 2021). German individual labour law is entirely employee protective law, i.e. its standards can generally not be waived to the detriment of the employee, whereas contractual regulations favouring the employee compared to the statutory minimum are permissible.

Employment Contract

Employment contracts should be concluded in writing. However, an employment relationship will come into existence even without a written contract, e.g. if the employee takes up work with the employer's knowledge. Employment contracts can be concluded orally, but this is not advisable for the employer.

Elements of the Employment Contract

Employment contracts generally contain the following minimum elements:

• the name and the address of the contracting parties,
• the start date of the employment relationship,
• the duration of the employment relationship in case of a fixed-term employment relationship,
• the place of work,
• a short description of the employee's tasks or position,
• the composition and the amount of the remuneration, including other benefits in kind like bonuses and supplementary grants or other elements of the remuner­ation and their due date,
• the working time,
• the duration of the annual vacation,
• the notice period,
• where applicable, a general reference to collective bargaining agreements, works council agreements or establishment agreements (the latter in the public sector) which are applicable to the employment relationship.

Unlimited and Fixed-Term Employment

The restrictions on limitations in time of an employment contract and the legal consequences of an invalid fixed-term contract are governed by the Act on Part-Time Work and Fixed-Term Employment (“Teilzeit- und Befristungsgesetz”). Fixed-term employment contracts come to an end automatically upon the expiry of the contractual term. During the contractual term, a fixed-term employment contract may be terminated with the agreed notice period if the possibility of such termination is agreed in the em­ployment contract itself or in the applicable collective bargaining agreement. In general, a fixed-term contract for up to two years can validly be concluded, but only if the employee has not been in a previous employment relationship with the employer. It is also permitted to base the fixed-term limitation (without the two-year restriction) on certain objective reasons, as defined by the Act.

Sick Leave

The rights and duties of employees who are unable to work due to sickness are set forth in the Continuation of Remuneration Act (“Entgeltfortzahlungsgesetz”). Employees are obliged to notify the employer of their inability to work and its probable duration without undue delay. Fur­thermore, if the inability to work lasts longer than three calendar days, an employee must, at least by the next working day, present a medical certificate from a doctor confirming the inability to work and its presumed duration. However, the doctor must not disclose the reason for the employee's inability to work unless the employee has released him from patient/physician confi­dentiality.

Any employee who has been employed with the same employer for at least four weeks is eligible for continued remuneration in case of inability to work due to sickness. During a maximum period of six weeks, the employer is obliged to con­tinue to pay the full remuneration to the employee.

If the employee is still unable to work due to the same sickness after the expiry of the six weeks’ period, the employer's payment obligation ceases to apply. Employees who are insured in the statutory health insurance (“gesetzliche Krankenversicherung”) are subsequently entitled to sickness allowance (“Krankengeld”) to be paid by the statutory health fund for a period of up to 72 weeks. Whether or not an employee with a private health insurance is entitled to a similar benefit from their health insurance provider depends on the individual insurance policy.

Annual Leave / Vacation

According to the Federal Leave Act (“Bundesurlaubsgesetz”) a minimum statutory vacation claim of 20 working days per calendar year based on a five-day working week (i.e. the equi­valent of four weeks) has to be granted. However, employment contracts in Germany usually grant additional holidays of five to ten further working days per year, thereby bringing the yearly holiday entitlement to an aggregate of 25 to 30 working days.

Severely disabled employees may claim another five days of vacation per year on top of their statutory or contractual entitlement.

(Temporary) Part-Time Work

Since 1 January 2019 employees may request part-time work for a limited period of time only. The so-called “part-time bridge” (“Brückenteilzeit”) allows employees to adapt their working time to temporary changes and demands in their lives. Previously, employees were entitled to a permanent reduction of their working hours only. The “part-time bridge” provides them the option to reduce their working hours for a fixed period only and, by doing so, have the right to return to their initial working hours. The period of the temporary part-time has to last at least one year yet no longer than five years at the maximum.

Equal Treatment

The principle of equal treatment is laid down as a fundamental right in the German Constitution. Any discrimination by public authorities against any persons on grounds of sex, race, nationality, disablement, religion, political opinion and trade union membership is illegal and void. This fundamental right was taken over by jurisdiction as a basic principle of labour law, the so called “principle of equal treatment in labour law”. Unjustified unequal treatment of employees is thus unlawful.

In order to fulfil the obligations arising from EU directives, the principle of prohibition of dis­crimination was reinforced in 2006 by the General Act on Equal Treatment (“Allgemeines Gleichbehandlungsgesetz”). As a consequence, the employer is obliged to protect the employees against discriminatory acts, including discrimination based on sex or age.

General Protection against Dismissal

Any employee who is employed for more than six months in an operation (“Betrieb”) with regularly more than ten employees enjoys protection against dismissal under the Protection against Unfair Dismissal Act (“Kündigungsschutzgesetz”). For employment relationships which already existed on 31 December 2003, the Act applies if the company then employed more than five employees on a regular basis and if there still are more than five employees at the time of the termination of the employment contract.

Under the Protection Against Unfair Dismissal Act, an ordinary termination of the employment by giving an employer’s notice of termination is “socially justified” and thus valid, only if either one of the three social justifications specified in the law can be established and, if necessary, evidenced in court. The possible social justifications are:

• personal grounds (e.g. long-lasting illness),
• mal-performance or mal-conduct which, however, generally requires prior formal warnings against the employee,
• business reasons.

Employees in smaller operations or with less than six months seniority do not enjoy such pro­tection against dismissal; however, they may enjoy special protection against dismissal. In very exceptional cases a termination of their employment may be invalid because it is immoral or arbitrary (e.g. if the employee was dismissed only because they are a trade union member).

In operations where a works council is established, the works council must be notified about the intended termination in advance (sec. 102 Works Constitution Act – “Betriebsverfassungsgesetz”). The employer has to inform the works council about all relevant details regard­ing the termination and the affected employee (in particular: age, length of service, alimony obligations, severe disability, termination date, notice period and reasons for the termination). Generally speaking, the employer can give termination letters to the employees who are to be dismissed no earlier than one week after the due notification of the works council. If the notifica­tion process is not duly observed, the termination is legally void if challenged by the employee before the labour court.

Any notice of termination of an employment contract must be in written form to have legal effect.

Special Protection against Dismissal

Some groups of employees enjoy special protec­tion against dismissal, irrespective of the num­ber of employees in the operation. For example, a notice of termination is void if it is given to

• pregnant employees along with mothers within four months after the birth of the child,
• employees during parental leave (the maximum period of which is three years), or
• severely disabled employees,

unless the prior approval of the competent state authorities has been obtained in each of these cases.

Works council members and spare members of the works council as well as election candidates for the works council and election committee members can be dismissed only by extraordinary notice for cause and only after the approval of the works council has been obtained. Employees who undertake preparatory actions for the establishment of a works council and have submitted a publicly certified declaration stating that they intend to establish a works council may also only be dismissed for good cause. The same applies for the first six employees who invite to an employees' assembly and the first three employees who apply for the appointment of an election committee. Exceptionally, notice of termination can be given in the event of a complete closing of an operation of an operational department, in the latter case, however, only if the works council member cannot be transferred to another department.

Notice Periods

The parties to an employment contract can agree on a certain notice period in the employment contract. This notice period will then have to be observed by the employer as well as by the em­ployee. However, the agreed notice period must not be less than the statutory (minimum) notice periods.

In the absence of a contractually agreed notice period, the statutory periods of notice apply. Mandatory statutory extensions of the notice period apply after certain service terms for notices given by the employer. These statutory (minimum) notice periods are as follows:

1. two weeks during an agreed probationary period of a maximum of six months;
2. four weeks to the 15^th or end of a month after the probationary period or in the absence of an agreement on a probation­ary period;
3. prolonged statutory notice periods, mandatory only for notices of termination given by the employer (with effective date to the end of a month in each case)

• one month after two years of service,
• two months after five years,
• three months after eight years,
• four months after ten years,
• five months after twelve years,
• six months after fifteen years, and
• seven months after twenty years.

A collective bargaining agreement can provide for other (usually longer, but sometimes shorter) notice periods and/or other effective dates, which would then supersede the statutory and contractual notice periods. During the notice period, the salary and all contractual and statutory benefits must be paid.

In exceptional cases (e.g. theft of company property) the employer may have the right to terminate the employment by giving notice for good cause thereby terminating the employment relationship with immediate effect.

Court Review

The employment law jurisdiction has three levels, namely the Local Labour Courts (“Arbeitsgerichte”), the Regional Labour Courts (“Landesarbeitsgerichte”) and the Federal Labour Court (“Bundesarbeitsgericht”), the latter being the final instance.

In practice, almost every dismissed employee will file a claim with the competent Local Labour Court and contest the validity of termination. The employee must do so within three weeks after notice of termination has been delivered to them, otherwise they will lose the stat­utory protection, especially according to the Act on the Protection against Unfair Dismissal. The Labour Courts will decide only upon the validity or the invalidity of the termination. The courts cannot award a severance payment which they consider reasonable to the employee who, in return, would have to accept the termination of their employment. Unless the employer can establish and prove a more or less airtight case (which is seldom the case in practice), he will usually not risk going through the normally two to three years of court litigation as in case of loss he would have to pay to the winning employee all salaries for the total time of court litigation as well as reinstate the employee. To avoid this risk, employers tend to settle claims for unfair dismissal against severance payments.

Another reason for settlements is that in the first instance, there is no obligation of cost reimbursement imposed on the losing party in labour law litigation. Thus the employer would have to bear the costs of defending his case in court even if he won the case against the employee in the first instance.

Settlement of Disputes / Severance Payments

There are no legal guidelines as to the amount of severance which the employee can demand if the dismissal lawsuit is to be settled in court. However, the Labour Courts have developed a rule of thumb which they apply when proposing a settlement. If the employer has a good chance to prove the validity of the termination a severance offer of 50% of the monthly salary for each year of employment will normally be sufficient to gain an employee's consent to the termination; for older and/or long-term employees, however, the usual severance offer is 75% to 100% of a monthly salary for each year of employment.

If the employer’s chances of proving the validity of the termination are weak the employee will usually claim at least a severance of 100% of a monthly salary for each year of employment. The “monthly salary” is often calculated on the basis of 1/12 of the total annual salary including average variable remuneration and sometimes other benefits like company car, insurance etc. While settlements are in practice the typical outcome, neither the employee nor the employer can be obliged by the court to accept a settlement.

Employee Leasing

The leasing of employees is governed by the Employee Leasing Act (“Arbeitnehmerüberlassungsgesetz”) which sharpens up the leasing of employees as a temporary instrument to cover labour supply needs and strengthens the position of leased employees. Hiring out employees on a commercial basis requires the permission of the competent authorities. Leased employees have the right of equal treatment compared to workers of the hirer concerning working and employment conditions. They are entitled to be paid in the same way as comparable workers of the hirer after nine months of work in the company. The leasing of employees causes rights of information for the works council, which has to be informed about the leasing as such and the conditions of the leasing of employees in the operation, in particular about the duration of the lease (working days and working hours) as well as the individual leased employee's tasks and place of work.

The leasing of an employee is allowed for a maximum duration of 18 months only. In order to avoid circumvention of this rule, a previous lease is counted in the 18 months’ time limit if the gap between the lease periods is shorter than three months.

Lessors who violate the time limit risk a cancellation of their leasing permit (“Arbeitnehmerüberlassungserlaubnis”) and a fine of up to EUR 30,000. In case of a breach of the time limit the contract between lessor and leased employee becomes void. Consequently, an employment relationship between the hirer and the leased employee comes into existence, unless the leased employee disagrees in written form and confirms the initial contract with the lessor within one month after the expiry of the maximum time limit in a highly formalized procedure.

Pursuant to the Works Constitution Act certain co-determination rights of the works council depend on a minimum number of employees regularly working in the operation. With regard to these thresholds, leased employees count as employees of the hiring company in the same way as the hirer’s own staff. Leased employees also count for thresholds relevant for corporate co-determination after having worked in the hirer's operation for more than six months.

Collective Labour Law

Collective labour law can be subdivided into two parts: On the one hand there is collective bargaining law which deals with the relations between trade unions and employers' associations or individual employers. On the other hand, there is the law on labour relations at the workplace, dealing with the relations between an employer and the works council in individual operations. The latter is laid down in the Works Constitution Act.

Collective Bargaining Law

The right of trade unions and employers' associations to negotiate pay and employment condi­tions without state interference (i.e. their “collective bargaining autonomy”) is protected by the German Constitution. The two sides of industry thus take responsibility for the pay and other agreements they conclude. The pay and employment conditions for most jobs in Germany are still covered by such collective bargaining agreements. This in itself shows how important collective bargaining autonomy is in this country.

Collective bargaining agreements are drawn up either between trade unions and employers’ as­sociations, or between trade unions and individual employers. They are the most important in­struments available to the two sides for promoting their members’ interests and bringing their influence to bear on working and other economic conditions. However, an employer is not auto­matically entitled to apply such collectively agreed employment conditions. Collective bar­gaining agreements apply only

• if the employer belongs to the employers’ association (or the employer is a direct party to the collective bargaining agreement) and if the employee is member of the trade union,
• or if the collective bargaining agreement has been declared to be generally applicable (“allgemeinverbindlich”) by the relevant public authorities.

Works Constitution Act

According to the Works Constitution Act, the employees are entitled to establish a works council (although there is no legal obligation to do so). Such works council shall work together with the employer in a spirit of mutual trust for the benefit of both the employer and the workforce. For the following thresholds, temporary agency workers (“Leiharbeitnehmer”) must also be considered as employees of the hiring company (“Entleiherbetrieb”).

Works council establishment

According to the Works Constitution Act, a works council can be established in operations with at least five employees who are over 16 years of age, provided that three of these employees are also over 18 years of age and have for at least six months been employed in the operation or have worked mainly for the operation as homeworkers ("Heimarbeiter"). The number of works council members depends on the number of employees in the operation, i.e. from one member up to more than 35 mem­bers in operations with more than 9,000 employees.

The works council is elected by the workforce. Legal representatives of the company such as managing directors (“Geschäftsführer”) or board members (“Vorstände”), and senior executives (“leitende Angestellte”) are not eligible to vote.

Furthermore, in companies with regularly more than 100 employees, a so called “economic committee” (“Wirtschaftsausschuss”) has to be formed by the works council. The employer has to inform the economic committee about commercial matters whereas the works council mainly has co-determination rights in relation to social, personnel and economic matters.

Responsibilities of the Works Council

In social matters, the works council has substantial rights unless statutory rules or collective bargaining agreements apply. The employer cannot implement changes re­garding these matters without the works council’s consent. Out of the 14 topics deemed to be “social matters” by sec. 87 Works Constitution Act, the following are particularly important in practice:

• issues concerning the order of the operation and the conduct of the employees in the operation,
• beginning and end of the daily working hours (not the amount of weekly working hours),
• temporary extension or reduction of the usual working hours in the operation (e.g. the introduction of short-time work),
• introduction and implementation of technical facilities suitable for monitor­ing the employees' conduct and performance,
• determination of basic rules concerning the nature and methods of remuneration, in particular implementation of new methods and changes therein.

As a result of the Corona pandemic and the advancing digitalization a further social matter has recently been added to the list. Now, the works council also has a right of co-determination in the organization of mobile work performed by means of information and communication technology.

If an agreement between the employer and the works council cannot be reached, the matter has to be brought before a so-called conciliation board (“Einigungsstelle”). This board is composed of an equal number of representatives from each side and a neutral chairperson. The decision of the conciliation board is binding for both parties.

Employers are also required by law to inform the works council about all general and individual personnel matters (such as personnel planning, manpower requirements and individual measures arising therefrom). If companies employ more than 20 employees the consent of the works council is required for any new hiring or for the transfer or re-grouping of employees. If the works council refuses to grant its approval, the employer will have to apply to the competent Labour Court for a substitution of the works council’s consent. According to sec. 102 Works Constitution Act, the employer is required to inform the works council about all individual dismissals. A notice of termination is invalid unless the works council has been comprehensively informed about all relevant circumstances in due time prior to the dismissal.

In companies with more than 20 employees reorganizations and other “operational changes”, in particular mass dismissals of employees, trigger co-determination rights of the works council. In these cases, the employer and the works council must negotiate a balance of interests (“Interessenausgleich”) and must conclude a social plan (“Sozialplan”). The balance of interests defines why, when and how the reorganization will be carried out whereas the social plan provides for measures to compensate hardship for the employees affected by the reorganization (e.g. severance payments, reimbursements for moving expenses etc.). The employer must not implement the operational changes until he has reached agreement with the works council on a balance of interests or until negotiations on the balance of interests have finally failed. The con­clusion of a social plan can be enforced by the works council. The employer should be aware that it may take up to four months (in normal cases) to finalize the negotiations. There is no statutory time limit however.

In addition the works council has some statutory responsibilities, such as monitoring the company's compliance with statutory labour law requirements and dealing with individual complaints. In order to carry out these responsibilities, the works council has to be informed in advance and in (due) time by the employer of any relevant actions which the employer intends to carry out. In this context, the works council also has the right to review the relevant documents.

Costs of the Works Council’s Activities

The members of the works council fulfil their duties without receiving any extra remuneration. However, the works council members have a right to be released from their normal working duties under the employment contract when they have to exercise their works council duties.

Additionally, the employer is obliged under the Works Constitution Act to bear all costs necessary for the proper fulfilment of the works council's tasks and to reimburse the works council and its members for all necessary expenses. The costs of the works council's activities to be borne or reimbursed by the employer include the following:

• premises, office staff, materials (desk, paper, pens, computer, telephone, fax, copier, printed legislation, technical literature) for meetings, consultations and day-to-day management;
• training courses (provided by unions or independent organizers) to provide ap­propriate training to the works council members and spare members; the costs of training, travel, accommodation and subsistence must be paid;
• lawyers’ costs incurred in the clarification of difficult points of collective employment law and/or in the event that the works council is required to assert its rights under the Works Constitution Act in the courts. This applies even if the employer is the opposing party in the proceedings and even if the works council loses the case.

Reimbursement is due for all costs and expenditures which are objectively necessary to enable the works council to perform its tasks properly. The costs must be proportionate in relation to the significance of the task.

Time off Work for Works Council Members

Only in operations employing 200 people or more are works council members entirely released from their duty to work. In operations employing between 200 to 500 people one member is released from duty; in larger operations the number of members to be released increases. The members to be released are selected by the works council after consultation with the employer.

Where the operation has less than 200 employees no works council member needs to be entirely released from work. In this case the works council members are required to continue performing their working duties. However, the works council members are to be released without any reduction in pay to the extent that their works council activities require. To give examples, the works council members must be released for

• the attendance of works council meetings and works assemblies,
• consultations (generally during working hours),
• attendance of meetings of the joint works council (“Gesamtbetriebsrat”), the group works council (“Konzernbetriebsrat”) or the economic committee, and
• training, both introductory (i.e. at the beginning of the period of office) and advanced (throughout the period of office).

The works council itself decides which member(s) shall be entrusted with which duties. The respective works council member is required to take leave of absence from their workplace and sign on again after the works council-related task has been completed. However, the works council member is not required to inform the employer which works council-related task they will perform during their leave of absence.

The employer’s obligation to release works council members from work is not restricted to merely allowing the works council members to leave their post. The employer is also required to reduce the works council members’ workload accordingly.

As works council members must not suffer any financial disadvantage due to their being re­leased from work, they continue to be entitled to receive their contractual remuneration. This includes gratuities, bonuses, general salary increases etc. Nor must the works council members suffer any disadvantages in career advancement as a result of their complete or partial release from work.

If works council activities need to be performed outside working hours the works council member is entitled to a subsequent release from work under continued payment of remuneration within one month. If such a release is not possible for operational reasons the works council member is entitled to receive overtime pay for the time dedicated to the works council activities.

The German Social Security System 

Social security in Germany is - for historical reasons - organized in connection with em­ployment. Generally speaking, both the employee and the employer have to bear an equal share of the social security contributions, the amount of which is calculated from the employee’s gross salary. As a rule of thumb the aggregate social security costs currently amount to 40% of the employee's gross salary. This means that the employer’s overall costs with regard to the employment relationship will, all in all, amount to approx. 120% of the employee's gross salary.

Membership in the statutory social security system is compulsory. An exception applies with regard to health and nursing care insurance where employees with a higher income (currently EUR 64,350 per year) can opt out of the statutory system in order to be privately insured.

German social security currently consists of the following five branches:

• Statutory Accident Insurance (“Gesetzliche Unfallversicherung“),
• Statutory Pension Insurance („Gesetzliche Rentenversicherung”),
• Statutory Unemployment Insurance (“Gesetzliche Arbeitslosenversicherung“),
• Statutory Health Insurance (“Gesetzliche Krankenversicherung”), and
• Statutory Nursing Care Insurance (“Gesetzliche Pflegeversicherung“).

Statutory Accident Insurance

Statutory Accident Insurance has a special status insofar as it is the only statutory insurance where the employer has to bear the entire contributions. Statutory Accident Insurance is currently provided by nine industrial Accident Prevention & Insurance Associations (“Berufsgenossenschaften”) which are established by the different branches of industry. The amount of the employer's contribution is calculated on the basis of a risk calculation system (“Gefahrenklasse”), taking into account the annual salary of the entire workforce.

Statutory Pension Insurance and Statutory Unemployment Insurance

The Statutory Pension Insurance and the Statu­tory Unemployment Insurance are provided by various federal and state authorities. In practice the employer generally deals with the Statutory Health Insurance only insofar as it collects the aggregate contributions for the Statutory Health Insurance, Unemployment Insurance, Pension Insurance and Nursing Care Insurance.

The contributions to the Statutory Unemployment Insurance and to the Statutory Pension Insurance are calculated by fixed contribution rates in accordance with the individual employee’s gross salary. The contribution rates are subject to modifications. Currently, the contribution rates for the Statutory Pension Insurance amount to 18.6% of the employee’s gross salary and for the Statutory Unemployment Insurance to 2.4% of the employee's gross salary. The calculation basis, i.e. the gross salary, is - for the purpose of the calculation of the social security contributions - limited by so-called statutory contributions ceilings (“Beitragsbemessungsgrenzen”). The statutory contribution ceiling for 2021 is EUR 85,200, both for the Statutory Unemployment Insurance and the Statutory Pension Insurance in Western Germany (for East Germany: EUR 80,400). This contribution ceiling is adjusted on a yearly basis. Any salary exceeding the contribution ceiling will not be considered for the calculation of the social security contributions.

In principle, the contributions are borne equally by the em­ployer and the employee. The employee's part of the contribution is deducted from their gross salary.

Statutory Health Insurance and Statutory Nurs­ing Care Insurance

The Statutory Health Insurance and the Statutory Nursing Care Insurance work almost alike. There are, however, some significant differences:

• The contribution rates of the Statutory Nursing Care Insurance amount to 3.05% (for employees with at least one child) and to 3.3% (for employees without children) of the employee’s gross salary. In case of Statutory Health Insurance, the general contribution rate amounts to 14.6% of the employee’s gross salary.
• The statutory contribution ceilings for the Statutory Health Insurance and the Statutory Nursing Care Insurance are lower than in the Statutory Unemployment Insurance and Pension Insurance. In 2021, they amount to an annual gross salary of EUR 58,050.

Employees whose annual gross salary exceeds the amount of EUR 64,350 (for 2021) may - contrary to the other branches of the social security system - replace their insurance in the Statutory Health and Nursing Care Insurance with a private health and nursing care insurance. Private insurance companies are frequently in a position to reassess the individual risk and therefore offer lower contributions and better benefits than the Statutory Health Insurance. If an employee chooses a private health insurance the employer is still be obliged to pay half of the contribution. This is however limited to half of the average contribution rate of all statutory insurance companies.

Handling

Usually it is the employer who organizes the complete framework of the employee’s insurance in the statutory system. To this end employers have to collaborate with the individual Statutory Health Insurance companies which collect the aggregate social security contributions with them Accident Insurance.

Health and Safety at the Workplace

Legal regulations oblige employers in Germany to protect their employees from dangers arising at work. German law establishes a system of rules and regulations to protect the employees' health and safety at work. Such rules and regulations comprise rules on technical protection as well as rules on social protection.

Rules on social protection include inter alia working time regulations and regulations protecting special groups of employees such as adolescents, pregnant woman and severely disabled people. Rules on technical protection particularly deal with the safety of machinery, devices and work places as well as the ergonomic layout of the workplace.

As in other EU countries most of the more recent regulations are derived from EU directives. While this leads to a number of similarities of pertinent rules in various EU countries, differ­ences in the law of the Member States do occur depending on how exactly a directive was transformed into national law. Differences in the law of Member States also exist regarding penalties and regarding the enforcement of the given regulations.

Technical Protection

It is characteristic of the technical rules that they are partly enacted by the legislator and partly by the Accident Prevention & Insurance Associations. The difference is one of importance as a breach of rules enacted by the legislator will re­sult in other (usually more severe) fines and penalties.

Rules Enacted by the Legislator

Employee Protection Act (“Arbeitsschutzgesetz”)

The Act sets out the fundamental duties of the employer and the employees regarding health protection. It places the employer under an obligation to assess the hazards of the workplace and to take the appropriate preventive measures as well as to instruct the employees about these measures. The employer must make precautions for especially hazardous workplaces (warning and information signs, etc.) and situations (for example first aid, firefighting, evacuation, etc.). He must also provide preventive occupational health care.

In connection with the Employee Protection Act, the German government has issued numerous regulations, thereby transforming various EU directives into German law. One of the most practically relevant is the Workplaces Regulation (“Arbeitsstätten-VO”) which specifies how fac­tories, workshops, offices, warehouses and shops must be laid out and equipped with as far as dimensions, walls, ceilings, roofs, windows, doors and gates, ventilation, heating, (day-)lighting, temperature, noise, clean air conditions, traffic and transportation routes, safety exits etc. are concerned. It furthermore defines and establishes standards for teleworking jobs. The regulation does not apply to mere mobile working, e.g. the use of a laptop or mobile phone during a train journey. However, the Statutory Accident Insurance coverage for employees working from home has now been expressly adapted by law to that of employees in the business premises.

There are a number of other regulations, for example regarding health and safety at construction sites, the safety of equipment and machinery, hazardous substances, biological agents etc. These regulations will as a rule be applicable to manufacturing undertakings rather than to warehouses or office buildings.

Safety at Work Act (“Arbeitssicherheitsgesetz“)

This Act places employers under a duty to appoint and train appropriately qualified officers (external or internal) to support them in occupational health and safety matters, including ergonomic workplace design. The duties of the occu­pational health and safety experts include advising employers in the entire range of health and safety factors in the working environment. This begins with the planning of operating facilities and the purchasing of equipment and extends to advising employers in the assessment of working conditions.

Furthermore, the Act obliges certain employers to provide for company doctors. Whether or not a company has to have a company doctor depends on the specific accident and health risks in the company which are determined by the scope of activities performed by the employees, by the size of the company and by the number of employees. There is no specific definition in statutory law as to which industries are accident-prone and how many employees must be em­ployed to trigger the requirement of a company doctor. However, if the exposure to accident and health risks is high, even a company with a small number of employees can be obliged to provide for a company doctor.

Rules Enacted by the Accident Prevention and Insurance Associations

According to German statutory law, the prime responsibility of the Accident Prevention & Insurance Associations is to prevent work-related accidents and diseases and to eliminate all work-related health hazards. In case of a work accident or work-related illness employees must turn to the competent Association to get indemnification and/or support. In general, both the employer and the employee’s colleagues are fully released from any liability for work accidents and work-related diseases. This rule has two exceptions:

• In case of an intentional breach of his statutory obligations regarding the prevention of work accidents, the employer is fully liable to the employees or dependants suffering from the accident at the workplace.
• In case of an intentional breach of such duties or a grossly negligent omission to fulfil such duties, the Accident Prevention & Insurance Association can take re­course to the employer.

In order to provide for appropriate accident prevention, German statutory law authorizes the Accident Prevention & Insurance Associations to issue regulations and codes regarding the prevention and avoidance of occupational accidents and diseases. These Accident Prevention Rules (“Unfallverhütungsvorschriften”) are legally binding for their members (i.e. the employing companies) and for the insured employees.

The Accident Prevention Rules mainly provide for measures to be undertaken by the employer to prevent occupational accidents and for specific regulations for work equipment and machinery. Such measures and regulations will vary depending on the industry concerned.

Technical Standards

Both statutory law and the Accident Prevention Rules often use very general and undefined terms (e.g. “state-of-the-art” or “generally accepted technical rules”). These general terms have been substantiated by a series of technical standards, for example by the DIN standards issued by the German Institute for Standards (“Deutsches Institut für Normung”). These standards are as a rule not legally binding. However, as experts or courts tend to refer to them to substantiate the general legal terms, they must be considered as practically binding.

Enforcement and Consequences of Infringements

Compliance with employee protection laws enacted by the legislator is monitored by various governmental and public authorities and institutions, for example the Labour Inspectorate (“Gewerbeaufsicht”) and the Technical Inspection Authority (“Technischer Überwachungsverein”). The law enforcement authorities are provided with wide-ranging enforcement powers including the right to enter the company's premises, to search for documents and to examine the work equipment and the personal safety equipment. As a rule these authorities are authorized to impose fines for infringements of employee protection provisions, which can result in a maximum penalty of EUR 25,000.

Compliance with protection laws issued by the Accident Prevention & Insurance Associations is monitored by the Associations themselves. They are authorized to impose fines for infractions of employee protection provisions which can amount to a maximum penalty of EUR 10,000.

Social Labour Protection

Working Time Legislation

The legal working time protection as regulated in the Hours of Employment Act (“Arbeitszeitgesetz”) stipulates that the regular number of working hours per day must not exceed eight hours. The working time can be increased to a maximum of ten hours per day provided that the overtime is compensated for and balanced out to result in an average eight hours per day within six calendar months or 24 weeks. This allows for some flexibility with regard to individual working time models.

The Hours of Employment Act further lays down minimum breaks during working hours and minimum periods of rest after work for the protection of the employees' health and safety. Spe­cific protection is provided for night workers. There is a general ban on Sunday and holiday working with exceptions stipulated in the Act.

The European Court of Justice has declared that on-call duty performed in a place determined by the employer (“Bereitschaftsdienst”) constitutes working time in its totality even where the employee is permitted to rest at their place of work while their services are not required.

Regulations for Groups of Employees Requiring Special Protection

Adolescents

The Young Persons' Protection in Employment Act (“Jugendarbeitsschutzgesetz”) prohibits the employment of people younger than 15 years of age. Furthermore, the Act provides for the special protection of employees who are between 15 and 18 years old. It provides for example for reduced working hours under particular circumstances and lists a number of restrictions and prohibitions regarding the assignment of certain tasks to such young em­ployees.

Mothers

The Maternity Protection Act (“Mutterschutzgesetz”) in particular prohibits the assigning of certain jobs to pregnant women to protect them from excessive physical strain or emissions. Mothers-to-be may not be assigned to work that might jeopardize the life or health of mother or child. Likewise, pregnant women can request to be released from work in the last six weeks prior to the forecast delivery date of the child. Mothers must not be employed for eight weeks after the delivery. During pregnancy and for the first four months after delivery, a woman enjoys special protection against dismissal.

Parental leavers

Under the Parental Allowance and Parental Leave Act (“Bundeselterngeld- und Elternzeitgesetz”), fathers and mothers may apply for unpaid leave for up to three years (with a - more or less theoretical - job guarantee).

Severely disabled people

Severely disabled employees enjoy special pro­tection against dismissal pursuant to Social Code IX ("Neuntes Sozialgesetzbuch"). Prior to the dismissal of a severely disabled employee, the consent of a special public authority, the so-called Integra­tion Office ("Integrationsamt") has to be ob­tained. The Social Code IX further provides for the establishment of a representative body for severely disabled people in the operation. Fur­thermore, severely disabled employees are granted additional vacation days of up to five days per year.

Company Pension Schemes in Germany

There is no general obligation under German law for an employer to provide for an employer-financed company pension scheme. However, where an employee wants to convert parts of their salary into future pension rights (so-called salary conversion (“Entgeltumwandlung”), the employer must - within certain limits - provide a pension vehicle for this salary conversion.

Most of the existing pension schemes in Germany are defined benefit plans. Defined contribution plans are allowed since 2018, only. But there has been and still is a hybrid between a de-fined contribution plan and a defined benefit plan, where the employer pays contributions to an external pension provider, but remains indirectly liable in the event the external pension provider does not pay the owed pension benefits to the beneficiaries.

German law currently knows five different company pension vehicles, namely direct pension promises (“Direktzusagen”), support funds (“Unterstützungskassen”), pension fund societies (“Pensionskassen”), direct insurances (“Direktversicherungen”) and pension funds (“Pensionsfonds”).

Direct pension promises

Having given a direct pension promise to the employee, the employer himself will be directly liable for the pension obligations which usually arise upon the employee’s retirement, death or invalidity. This means that the employee’s pension claim will be immediately directed against the employer.

Employers granting a direct pension promise must establish book reserves for pension obliga­tions arising from direct pension promises and

are obliged to participate in the Insolvency Fund for Old-Age Pension Schemes (“Pensionssicherungsverein”) to which the employer has to pay contributions.

Direct pension promises do not qualify as an externally funded pension scheme under the International Accounting Standards (“IAS”) and US Generally Accepted Accounting Principles (“US GAAP”) either.

Support Funds

When operating the company pension scheme by means of a support fund, the employer enables the employees to participate in a support fund's scheme. Upon the employee's retirement, death or invalidity, the support fund will grant benefits to the employee or their dependants, re­spectively. A support fund is an independent legal entity in the form of a registered society, an incorporated foundation or a (German) private limited company. Although statute does not provide for an em­ployee's claim against the support fund, case law has given employees such a claim in practice. Moreover, the employer remains indirectly liable for the benefits. Again the scheme does not qualify as an externally funded pension scheme under the IAS and US GAAP rules.

Pension Fund Societies

When operating the company pension scheme through a pension fund society it will be the pen­sion fund society which grants the benefits to the employee or their dependants in case of retire­ment, death or invalidity. A pension fund society is an independent legal entity in the form of a mutual insurance associa­tion (“Versicherungsverein auf Gegenseitigkeit”) or a public limited company. Pension fund societies are subject to German insurance supervision law, which in particular means that pension fund societies may only make risk-free investments. An employer offering a company pension scheme by way of a pension fund society does not have to pay contributions to the Insolvency Fund for Old-Age Pension Schemes. The employees have a direct claim against the pension fund society whilst the employer remains indirectly liable for the benefits. The scheme qualifies as an externally funded pension scheme under IAS and US GAAP.

Direct Insurances

When granting a company pension by way of a direct insurance, the employer takes out a life insurance policy for the employee. The employee is the beneficiary of the policy and has a direct claim against the insurance company. Again, the employer remains indirectly liable for the benefits.

Pension Funds

A pension fund is a public limited company or a mutual pension fund association (“Pensionsfondsverein auf Gegenseitigkeit”) which is legally independent from the employer. Employees have a direct claim against the pen­sion fund whilst the employer remains indirectly liable for benefits. Pension funds have a greater freedom in the in­vestment of assets than pension fund societies or direct insurances. Although an employer offering participation in a pension fund must contribute to the Insolvency Fund for Old-Age Pension Schemes, the contribution rates are reduced in comparison to those for direct pension promises or support fund schemes. A pension fund is also consid­ered an externally funded pension scheme under IAS and US GAAP.

Geschrieben von Kerstin Neighbour und Tim Joppich.