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Labor Law

Labor relations between employers and employees are regulated in the Federal Republic of Germany by legislation, collective agreements and contracts of employment. The so-called "freedom of coalition" is guaranteed to employers and employees alike under the Basic Law (Germany's constitution). For the social partners, this ensures the freedom to negotiate collective agreements, i.e. autonomy in collective bargaining.

The overwhelming majority of collective agreements are restricted to particular regions. There are also so-called in-house collective agreements for individual companies.

The legal relationship between an employee and his (her) employer is established through the finalization of a contract of employment. This procedure is generally informal and, therefore, need not be made in writing. Since the contract of employment is a special type of contract for the rendering of services, it is subject to the provisions of the Civil Code. In particular, industrial safety regulations and the arrangements entered into in favor of employees in collective agreements and company agreements must also be observed when filling in the general framework of employment contracts.

The Federal Holiday with Pay Act stipulates a minimum of 20 working days leave per annum for all employees. However, there are also other collectively agreed rules regarding leave which go beyond the statutory minimum period in the old and new federal states.

Employees are entitled to wages/salaries during their leave. An additional payment (holiday bonus) is also made. There is, however, no legal right to this payment unless it is stipulated in a collective agreement or individual agreement.

In Germany employees have a legal right to the continued payment of 80% of wages or salaries in the event of sickness. This right extends to a period of six weeks.

The employer-employee relationship comes to an end by:

-- termination of the contract by mutual agreement
-- end of the term of the contract of employment
-- notice of termination of the contract of employment

According to the Law on Periods of Notice, standard periods of notice apply to salaried employees and wage-earners in the old and new federal states. The basic period of notice to be observed by the employee and employer is four weeks on the 15th or the end of a calendar month. In companies with up to 20 employees, a basic period of notice of four weeks without a fixed date can be agreed on in an individual contract. Depending on the length of service in the company, the periods of notice to be observed by employers when terminating employment are extended. They are increased to seven months at the end of the month for a length of service amounting to 20 years. The length of service is calculated from the age of 25 of the employee.

The parties to a collective agreement are also free to decide on different periods of notice. Employees and employers not bound by a collective agreement may stipulate collectively agreed periods of notice in an individual contract.

Statutory protection against dismissal is not influenced by the Law on Periods of Notice. Irrespective of the individual periods, a notice of termination of the contract of employment may only be issued if it is corroborated by the facts and appears socially justified. In other words, the circumstances of the individual case must be taken into account. In case of large-scale dismissals, the employment office in charge must be notified. The notices of termination of employment do not become valid until they are authorized by the employment office or alternatively until one month has elapsed since receipt of the above-mentioned information. Exceptional dismissal without notice is only possible if there is a reasonable cause due to the behavior of the employee.

Labor cooperation between employers and employees in a company is dealt with by the Works Act. According to this Act, every company with at least five employees must have a works council, whose number depends on the size of the work force. The works council has the right of co-determination in certain social matters, the right of co- determination or participation in certain personnel decisions and the right to information on specific economic matters.

In companies with more than 100 employees, an economic committee is set up to report to the works council on economic matters. In the case of joint stock companies, limited liability companies and cooperatives with more than 500 employees, one third of the members of the supervisory board must be employees. In the case of companies in the iron, coal and steel industry, provision is made for equal representation on the supervisory board by shareholders and representatives of the work force. A director representing the employees with responsibility for social affairs is also appointed (qualified co-determination).

Following the introduction of the Co-determination Act, co-determination was extended on a company basis to other sectors of industry. The law mainly applies to limited liability companies, joint stock companies, partnerships limited by shares and companies which have a controlling interest in another firm (group), providing the company employs more than 2,000 people. This number may be less for group companies if all controlling companies together have a total work force of more than 2,000 employees. Exceptions to the Co- determination Act are those companies which have a political, religious, educational or charitable purpose.




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