Member Article

1. TERMS OF EMPLOYMENT

1.1 STATUS OF EMPLOYEE

In Germany, an employee (Arbeitnehmer) enjoys a special status that is described as the personal obligation to perform work upon the employer’s instructions, without entrepreneurial risks and in a situation of economic dependence (to a certain degree) on the employer.

Employee protection rights do not, therefore, generally apply to directors and board members of companies – as they act mainly without instructions from superiors. Where protection rights derive from European Union Directives, such board members and directors are treated as ‘employees’ under German law as well.

1.2 CONTRACTUAL RELATIONSHIP

Basically, the employer and employee are free to negotiate employment agreements. These agreements may be put down in writing or be concluded orally. There is no general form requirement under German law. The employer is only obliged to provide the employee with a text that provides the core terms and conditions of the employment. Obviously, a written agreement is advisable to ensure that evidence of the employment relationship and its terms and conditions exists.

If employment is concluded for a fixed term, the fixed-term clause must be concluded in writing – meaning true ink on paper; otherwise the fixed-term clause is void and the employment agreement is considered to have been concluded for an indefinite period of time.

Furthermore, any post-contractual non-competition obligation must be agreed upon in written form as well. Again, such a clause is void if the requirement for a written form is not fulfilled. The employment agreement can be written in any language; German is not required by law. A German translation is nec-essary only should any dispute be brought before a court. The employment agreement should stipulate commencement and the terms of the employment relationship, place of employment, job, remuneration, working hours, annual vacation, notice period for termination, and applicable collective bargaining agreements.

1.3 WORKING HOURS

Work hours during working days may not exceed eight hours — §3 sentence 1 ArbZG (Working Hours Act, Arbeitszeitgesetz) — and 48 hours per week for a six-day work week. This can be extended to ten hours per day if the average shift within six months or 24 weeks does not exceed eight hours a working day (§3 sentence 2 ArbZG). As most employees in Germany work a five-day week, that means in effect that employees may work up to 9.6 hours per day; then, the weekly maximum of 48 hours is not exceeded and, in addition, on average (based on the six-day-week calculation of the law) a daily working time of eight hours is not exceeded.

Usually, weekly working hours of 35 to 40 hours are agreed upon in most collective bargaining agreements. If the daily work does not exceed six hours, a break (unpaid) of at least 30 minutes is statutory; if the daily work does not exceed nine hours, the break must last at least 45 minutes.

After their daily work, employees must have a continuous rest period of at least 11 hours (§5 (1) ArbZG) starting upon leaving the workplace; shorter rest periods may be, and often are, agreed in collective bargaining agreements. Pursuant to §7 ArbZG, extensions of working hours are possible on the basis of a collective bargaining agreement or a works agreement.

In addition, further restrictions are applicable for special groups of employees, in particular, pregnant or breast-feeding employees, and employees younger than 18 years.

It is certainly worth mentioning that, pursuant to a recent decision of the European Court of Justice (14 May 2019 – C-55/18) each European member state is obliged to impose on employers the implementation of systems enabling the duration of time worked each day by each worker to be measured.

Before that decision, it was – at least in office environments – quite common to have a so-called ‘trust-working time’ where the employers did not monitor the actual time worked by their employees and thus, avoided the payment of overtime.

1.4 COMPENSATION

With effect from 1 January 2017, the MiLoG (Minimum Wage Act, Mindestlohngesetz) stipulated a minimum wage of EUR8.84 gross per hour for any employee in Germany. The minimum wage does not apply to minors, apprentices, volunteers, former long-term unemployed workers and some trainees, however. In particular with regard to trainees/ interns, the minimum wage is always subject to a case-by-case assessment. Since 1 January 2018, the statutory minimum wage has been in force in all sectors without exception. If the minimum wage is not paid, employees can claim the difference between their actual pay and the minimum wage from their employer. These claims cannot validly be excluded. Infringements of the MiLoG can result in fines of up to EUR500,000.

In general, overtime work must be paid in Germany – except where stipulated differently in the employment agreement. A general exclusion of overtime pay is permissible only with employees who earn more than the social security contri bution ceiling (currently EUR80,400 gross per year for the former West German federal states and EUR73,800 for the former East German federal states); for all other employees, an exclusion of overtime pay is permissible only if the exclusion is limited to a specific number of working hours and the overtime is not more than 20% of the weekly working hours.

Payment of overtime premiums is obligatory only where stipulated by a collective bargaining agreement or by employment agreement. Such premiums are, however, market standard in Germany. If employees travel as part of their job (either as sales representatives or ‘just’ to get to an internal/external meeting), that time spent must be paid as well. According to a decision of the Federal Labour Court, however, employer and employee could agree on different pay levels for mere (passive) travel time; even an agreement to include a certain number of travel hours in the base salary is possible. It must, however, be explicitly addressed; otherwise (unless the general ban of overtime work is permissible) the employer has to bear the extra payment costs.

EXECUTIVE COMPENSATION

There are no regulatory requirements with regard to executive compensation; an employer can freely choose this form of compensation. According to European and German regulatory requirements, however, the remuneration of employees in the financial services sector is subject to several restrictions. These restrictions are aimed, in particular, at cutting back annual bonuses and aligning the long-term targets of the employer and the employee. As a consequence, in this industry, the percentage of bonuses as part of the total compensation is limited; furthermore, it is necessary to have long-term incentives rather than (only) short-term incentives; and last but not least, part of the compensation must be held back to cover the future detrimental effects of a business that triggers bonus payments.

^{First published by Chambers & Partners.}