Answer ... Under German statutory law, an employee who has been employed for more than six months by an employer with more than 10 employees enjoys protection against dismissal under the Law against Unfair Dismissal.

Under this law, ordinary termination is socially justified and thus valid only if either one of the following social justifications specified in the law can be established and, if necessary, evidenced in court by the employer:

• personal grounds (eg, illness);
• poor performance or misconduct (both of which require a formal advance warning); or
• business reasons.

In operations where a works council has been established, the works council must be notified of the intended termination one week in advance (Section 102 of the Employees’ Co-determination Act). The employer must inform the works council about relevant details regarding the termination and the affected employee (in particular, age, seniority, alimony duties, termination date, notice period and reasons for termination). One week after such notification, a notice letter can be given to the employee, who shall be dismissed accordingly. If the notification process is not duly observed, the termination is legally void from the outset.

Answer ... Parties can agree on a certain notice period in the employment contract, which must then be observed in case of dismissal.

In absence of such a stipulation, the statutory notice periods apply. Mandatory extensions of the statutory notice period apply after certain terms of service. The regular and extended statutory notice periods are as follows:

• Regular notice period;
• • two weeks during a probationary period of a maximum of six months;
  • after the probationary period, or in the absence of any stipulation on a probationary period, four weeks to either the 15th or last day of a calendar month.
• Extended statutory notice periods (with effective date always to the last day of a calendar month):
• • one month after two years of service;
  • two months after five years of service;
  • three months after eight years of service;
  • four months after 10 years of service;
  • five months after 12 years of service;
  • six months after 15 years of service; and
  • seven months after 20 years of service.

A collective bargaining agreement or a works council agreement may provide for other (usually longer, but sometimes shorter) notice periods and/or other effective dates, which will then supersede the statutory and contractual notice periods.

During the notice period, normal salary and all contractual and statutory benefits must be paid to the employee.

Answer ... In practice, almost every terminated employee files a claim with the locally competent labour court to contest the validity of the termination. The employee must do so within three weeks of receiving notice; otherwise he or she will lose statutory protection under the Law against Unfair Dismissal.

Answer ... In principle, there is no legal entitlement to severance pay. In order to avoid the risk of invalid termination, employers are usually prepared to terminate a case of dismissal at an early stage.

Another reason for settlement is that, unlike in civil court litigation, in labour law litigation the losing party bears no obligation to reimburse the costs of the winning party. Thus, the employer must bear the costs of defending its case in court even if it finally succeeds. Depending on the age and seniority of the employee, it may be cheaper to pay severance to the employee than to bear the litigation costs.

Settlement negotiations can start before or after notice is given. Litigation does not prevent the parties from continuing to seek an out-of-court or court settlement. Settlement negotiations will usually be based on the following considerations:

• If the employer has a good chance of proving that the termination was valid, a severance offer of 50% of one monthly salary for each year of employment will normally be sufficient to secure a young or short-term employee’s consent to the termination.
• For older and/or long-term employees, the usual severance offer is 75% to 100% of one monthly salary for each year of employment.
• Monthly salary is often calculated as 1/12 of the total annual salary, including average variable remuneration and sometimes other benefits, such as company car and insurance. Higher severance payments must usually be offered to employees with special protection against dismissal (eg, pregnant women, works council members).