by King & Wood Mallesons


Employment law is very strict and highly regulated in Germany which often comes as a surprise to foreign investors.

Collective employment law

Employment relations are not only regulated by employment agreements negotiated between the parties, but also by agreements between the trade unions and individual employers / the employers association and by agreements between the works council and the employer.

A works council is elected by the employees of a company. It has to be consulted when hiring or dismissing employees. They have a number of co-determination rights, for example with regard to holiday roster, working time regulation and remuneration structure. The works council also needs to be involved when a company is restructuring its business. A works council cannot prevent a restructuring process, but can delay it considerably.

A trade union is an organization typically formed by the employees of one industrial sector (e.g. metals, chemicals, pharmaceuticals etc.). They collectively negotiate employment conditions for their members (e.g. salary, working time) with the respective employers association or individual companies directly.

The trade union has a right to call for a strike in order to enforce its demands, for instance to obtain a pay rise for its members.

Good management of collective labour relations is the key to a successful investment.

Individual employment law

German employment law has very strong termination protection. Depending on the size of the company, the employer will not be allowed to dismiss an employee unless he can justify the dismissal based on a number of reasons acceptable by law. Any lay-off or redundancy should therefore be strategically planned in advance.

Acquiring employment relationships

If an investor acquires a business in Germany, he will acquire the respective employment relationships including any employment conditions agreed with the employees. Employees may object to the transfer of their employment relationship within one month of being informed about the future transfer. The employment conditions may not be changed unilaterally by the new employer.

Social security

The burden of social security is shared between employer and employee. Pension, unemployment, health and nursing care insurance are shared between employee and employer. Roughly 20% of the employee’s gross salary will have to be paid by the employer on top, limited roughly to EUR 1,000 per month and employee. Every employer has to pay contributions to an accident insurance. Each industry operates its own scheme and the amount contributed varies from industry to industry depending on the frequency of accidents in that industry. In return, employees cannot claim any damages from the employer even if the work-related accident occurred due to gross negligence on the part of the employer.

Where, in the context of a project, establishment of a business or a joint venture, special expertise is needed, we closely co-operate with other specialised law firms and other experts in a seamless manner for the benefit of our clients.

Such seamless collaboration with other advisors in Germany or other jurisdictions forms a natural part of our daily work. We are equally used to leading such collaboration and providing expert input to projects led by other advisors.