Dismissals in Germany: How Employers Can Help Minimize Financial Risks

Terminations—whether consensual or unilateral—are part of working life. But not all grounds for termination will hold up in a German labor court. If the court rules that a dismissal is invalid, the employer is obliged to reimburse the employee for any remuneration no longer paid after the end of the notice period based on a so-called default of acceptance. Given that it can sometimes take years for a legally binding court decision to be reached, this risk of compensation for default of acceptance often adds up to large amounts. The employee’s side often uses these economic risks as a bargaining chip to obtain a higher severance payment. This article discusses how these economic risks can be significantly minimized.

Employees’ Risk in Doing Nothing Until Verdict

According to Section 615 Sentence 2 of the German Civil Code (“BGB”) and Section 11 of the German Employment Protection Act (“KSchG”), during the existing employment relationship, employees not only have to accept that other earnings actually received are offset against the remuneration owed, but also the value of what they could have earned had they not willfully failed to accept reasonable work. Employees who do not look for a new job until the outcome of the dismissal protection dispute therefore risk losing their entitlement to compensation for default of acceptance. However, the prerequisite for this is that the dismissed employee deliberately refrains from taking up a job that they are aware of and can reasonably be expected to accept.

Employer’s Right to Information

To be able to determine whether the dismissed employee is acting in bad faith, the employer needs information about the employee’s efforts to find a job. A change in the case law of the Federal Labor Court now helps employers to obtain this information.

In its ruling of 27.05.2020 (case no. 5 AZR 387/19), the Federal Labor Court recognized an employer’s right to information from a dismissed employee for the first time. Whereas employers previously had to prove which specific, suitable jobs the employee had not applied for, dismissed employees now have to present and provide evidence of their efforts to apply for and find employment.

Whereas, in its ruling of 30.09.2022 (case no. 6 Sa 280/22), the Higher Labor Court of Berlin-Brandenburg still held the broad view that insufficient job application efforts on the part of the employee preclude the payment of compensation for default of acceptance and that extensive application efforts are required, the Higher Labor Court of Hamburg recently qualified this case law again in its ruling of 06.10.2022 (case no. 9 Ca 119/22) and ruled that concrete job offers are always required.

Therefore, it is no longer sufficient for the employer to simply refer to a labor market or employment opportunities that are favorable for the employee. Rather, the employment opportunities have to be known to the employee during the default of acceptance and be specific, determinable and reasonable. If the employee is sent specific job advertisements, they are required to include these in their application efforts and at least check if they are reasonable. If the position is reasonable, they must respond to the job advertisement. Otherwise, they can be accused of willful omission.

Information the Dismissed Employee Must Provide

The Federal Labor Court and the Higher Labor Court of Berlin-Brandenburg have drawn on the following evidence to determine whether the dismissed employee has willfully refrained from acquiring other employment:

1. Information on placement proposals from the employment agency. Employees are obliged to inform the employer of all the placement proposals they receive from the employment agency or job center, specifying the job, work location, work hours and remuneration.

2. Sufficient evidence of unreasonableness. For each individual application, employees also must conclusively explain why a contract was not concluded or why it was not reasonable for them to do so.

Criteria for unreasonableness include, for example, the work conditions, personal reasons of the employee or the type of work. The job location is also important. A considerable distance from the previous work location can, for example, justify unreasonableness. In this context, it is to be noted that an employee must accept a significant downgrade in their work conditions if they have no realistic prospect of finding a better job in the foreseeable future.

3. Quantity and presentation of specific applications. The total number of applications written can also be taken as an indication of willful omission. To make this assessment, the number of applications is considered in relation to the duration of the unemployment. According to the Higher Labor Court of Berlin-Brandenburg, it can be assumed that in the absence of employment, application efforts should be undertaken for the same amount of time as would be spent in a full-time position and that in case of prolonged unemployment, there is also a corresponding obligation to this effect. Therefore, it cannot be assumed that a dismissed employee is making serious application efforts if they apply for less than one job per week.

4. Quality of the applications. A dismissed employee is also required to submit the specific individual letters of application they have sent. This proof is required so that the employer can check and ascertain the number and quality of the applications written. When evaluating the quality of the applications, among other things, it is relevant that:

• The application submitted or the subject line contains a reference to the position or a keyword designation of the position.
• An individualized form of address was used.
• The application was geared toward the vacant position and/or the potential employer.
• The cover letter is free of spelling mistakes and of an appropriate length.

If the requirements are not met, this is also an indication of willful failure to obtain other employment.

5. Inquiries and follow-up. If the dismissed employee does not receive a response to their applications, they can be expected to follow up after an appropriate period of time and contact potential employers to inquire about the status of their application.

6. Information on the earnings achievable. A lack of information on the actual earnings that can be achieved with potential new employers can be considered a further indication. If dismissed employees do not or cannot provide any information in this regard, this might indicate that they have not been contacted at all.

What Does This Mean for Employers?

Employers are now able to put more economic pressure on dismissed employees. It is recommended that employers regularly send suitable job offers to employees during dismissal protection proceedings and make use of their right to information. The dismissed employees then have to provide the employer with full written information about their application efforts at regular intervals. The big challenge is to regularly find suitable vacancies.

Kim Kleinert is an attorney with Littler in Berlin. © 2024 Littler. All rights reserved. Reposted with permission of Lexology.