Legal Consequences of Dismissals Ruled Unfair – Restatement and Severance Payments
As with Chinese law, German law has a preference for preserving the employment relationship rather than providing severance payments. If an employment tribunal rules a dismissal to be unfair, the employee is normally entitled to reinstatement. However, in practice, most unfair dismissal claims are settled based on a compensation payment. In German cases of dismissals for operational reasons, compensation amounting to half a monthly gross salary per year of service (compared to one month gross salary in China) is a rule of thumb. This is however not fixed by statutory law, but always a matter of negotiation.
If major workforce reductions are envisaged, the works council (a worker representation body which must, on request of the employees, be established on an operational level if there are more than five permanent employees) has wide-ranging co-determination rights. It is important to know that without the works council’s prior consent, an employer is not entitled to implement a restructuring process, e.g. by serving notice. In case of operational changes, the works council usually has the right to require a social plan which often provides for severance payments.
Business Transfers / Change of Operation
While, in the case of a business transfer, Chinese law mainly protects employees by statutory procedures and severance payments, German law – again – primarily aims at maintaining employment relationships. If a business or part of a business is transferred from one party to another, the new owner will automatically assume all rights and obligations arising from employment relations existing at the transfer date (pursuant to sec. 613a German Civil Code). The existing employment contracts may not be amended to the employee’s disadvantage within one year of the date of transfer. Each employee must be duly informed of the transfer and has the right to object the transfer within one month after receiving the notification. Any dismissal that is solely based on a transfer of business is deemed to be unfair.
A change of operation triggers substantial participation rights of the works council. Negotiations with the works council should therefore always be well prepared and legally advised beforehand to allow for implementation on a short notice.
5. Foreign Workers
Employers may employ workers from China and other countries (except EU and EEA countries and Switzerland) only if they have a residence permit that comprises permission to work. As statutory requirements are detailed, vary from country to country and may be limited, legal advice should be sought prior to an application.
About the authors
Alexandra Rose, LL.M., is attorney for corporate law and M&A, China Practice Hamburg, Frank Luo, LL.M., is attorney for labour law, China Practice Shanghai at Byran Cave LLP. www.bryancave.com
Alexandra Rose and Frank Luo are guest authors. || Alexandra Rose und Frank Luo sind Gastautoren.
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