In Germany, corporate HR departments and lawyers need to tread carefully when it comes to terminations. Consensual or unilateral, all terminations are part of working life, but not all grounds for termination will stand up in a German labor court. As outlined in this insightful JD Supra piece by Littler, the potential for legal repercussion is highly favorable to the employee.
In the event that a dismissal is ruled invalid by a German labor court, the employer is required to reimburse the employee for any unpaid compensation post their notice period, a condition known as ‘default of acceptance’. This liability not only covers wages, but can also extend to include insurances, company pension accruals and even vacation entitlements.
This poses significant financial risk to employers as, depending on the number of invalidated dismissals in a particular time frame, the resultant compensatory requirements can escalate quickly. Moreover, the time taken to reach such legal determinations can span years, increasing the financial burden on the employer.
Such a skewed risk distribution between employers and employees has made it imperative for companies based in Germany to guide their HR policies and actions more meticulously, constantly keeping in mind the legal consequences of any potential dismissals. Approaching the matter with a long-term perspective, emphasizing out-of-court settlements, considering legal counsel’s input in the early stages of the dismissal process, and being vigilant towards employment protection laws is, thus, of utmost importance for both local firms and international companies with a foothold in Germany.
The JD Supra piece provides in-depth details and one may find it imperative reading for legal professionals in this area.