When a Dutch enterprise enters the German market, this usually initially occurs from the Netherlands. If business is going well, a decision is made to establish an independent branch in Germany, for which employees are hired.

Applicable law
If the employer and the employee have not agreed on a choice of law, the employment law of the country where the work is usually carried out is applicable. In this case, that means Germany. Upon entering into an employment contract, the employee and the employer may agree on a choice of law. As a result, for instance, it could be declared that the employment contract is governed by Dutch law. If, pursuant to the law, the employment contract were governed by German law, in this case the mandatory statutory provisions of the German law would also continue to be applicable, yet only to the extent those provisions are more favourable for the employee. This could, for instance, entail provisions in respect of the working hours, the right relating to public holidays or protection against dismissal.

In addition, a choice of law may not result in the loss of the employee’s protection from a special mandatory law of the country where he/she is employed. As regards the German law, this concerns, for instance, protection against dismissal for Works Council members, mothers or the severely disabled. Therefore, these provisions of the German employment law cannot be ruled out if Dutch law is chosen by the parties and these must be duly observed.

If an employee is dismissed pursuant to German law, a review must be conducted to see whether the so-called “Kündigungsschutzgesetz” (KSchG) – the law for the protection of workers in the event of dismissal – is applicable.

If an employee has worked for more than six consecutive months at a business and if that business has more than 10 employees (up to 31 December 2003 this was more than five employees), the KSchG is applicable. If an enterprise has branches in the Netherlands and Germany, the employees in the Netherlands are excluded from the determination of the number of employees. The KSchG is not applicable to directors, managers, senior officials and comparable individuals.

KSchG not applicable
If an employee does not fall under the applicability of the KSchG, the employer may terminate the contract. The applicable period of notice of termination must be duly observed. The dismissal must be made known in writing and carried out in a legally valid manner. In contrast with the Netherlands, this may not be done per fax or e-mail.  In addition, a permit from a government body is not required. In the Netherlands, this must be applied for via the Centre for Work and Income (CWI).

Applicability of KSchG
If it becomes evident that the KSchG is applicable, there are several requirements that must be met. An employee may only be dismissed if no other measure exists that is less poignant. Examples of this include transfers, warnings and extra training. In addition, the employer must put forward a reason for the dismissal and be able to demonstrate it. This reason can be commercial in nature, but it can also be found in the person or in the behaviour of the employee.

If commercial reasons are put forward as the reason for the dismissal, the employer must carry out a “social selection” amongst the employees qualifying for dismissal. This means that the employee to be dismissed is the one that has the best “social criteria”, or the one that will suffer the least from the negative consequences of his/her dismissal.

If an employee falls under the protection of the KSchG, he/she may, up to three weeks after receipt of the written dismissal, file an objection to his/her dismissal with the court charged with employment matters.

These proceedings are conducted with some regularity, as a lump-sum payment is often imposed by the court or agreed on between the parties for the purpose of ending such proceedings.

Lump-sum payment
The amount of compensation is limited in respect of a judicial termination pursuant to the KSchG. The court may stipulate a maximum amount of 12 months’ salary. This can be increased to 15 or 18 months’ salary if the employment lasted at least 15 or 20 years, respectively, and the employee is older than 50 or 55 years, respectively.

In order to prevent lawsuits, the German legislature amended the KSchG a number of years ago by incorporating the option that makes it possible to offer the employee compensation in the dismissal letter if he/she waives the right to file an objection to his/her dismissal pursuant to the KSchG.

In that case, the amount of compensation amounts to a half month’s salary for every year that employment existed. It is, however, important that the employer include this compensation in the dismissal letter and not at a later time.

In other words, if a business has fewer than 10 employees, the employee’s protection against dismissal pursuant to German law is less than pursuant to Dutch law. Consequently, an employer must consider well whether he/she wants to cross this threshold or not.