Dr. Walter Ahrens | Partner, Frankfurt

The Termination Protection Statute (Kündigungsschutzgesetz) of 1969 is one of the most significant German employment statutes. If an employment relationship falls within the scope of this statute then termination is only possible under the limited terms of that law. An employment relationship falls under this statute if the employee has worked in the employer’s business for more than six months without interruption, and if the employer, in the ordinary course, employs more than 10 employees in a business in Germany. In this case, a termination notice by the employer is unenforceable if it is socially unjustified, that is, if it is not justified by reasons relating to the employee’s conduct, by the employee’s own personal reasons, or by urgent operational requirements. The employee may challenge the termination in court within three weeks from receipt of the notice. If the challenge is successful, the termination is not effective and the employment relationship continues. The labor courts cannot ordinarily award damages instead.

In 2006, Germany enacted the General Equal Treatment Statute (Allgemeines Gleichbehandlungsgesetz or AGG), thereby combining three European Union (EU) antidiscrimination directives into domestic law. The AGG prohibits discrimination on the grounds of race, ethnic origin, gender, religion or belief, disability, age, or sexual orientation, and gives employees who are discriminated against a claim for damages. In this context, one of the most contested issues arising in connection with the passage of AGG was what impact the new statute should have on the protection granted by the Termination Protection Statute. It was feared that the AGG could turn out to be a “second termination protection statute.” The German parliament finally included a provision in the AGG stipulating that termination notices by the employer shall solely be subject to the statutory provisions generally or specifically governing termination protection. This provision has been widely regarded as an exemption from the application of the AGG in termination matters and has been held unenforceable for breach of EU law.

However, in a November 6, 2008 judgment that was recently published, the Federal Labor Court disagreed. The court observed that it would be contradictory to interpret this provision as an exemption from the application of the AGG while other provisions of this statute, in accordance with the EU directives, were explicitly intended to also combat discrimination upon the termination of employment. According to the court, the purpose of this provision is to ensure coherence between antidiscrimination requirements on the one hand and termination protection rules on the other. For the court, this means that antidiscrimination requirements have to be taken into account when reviewing whether or not a termination is socially unjustified. A termination that is discriminatory for reason of race, ethnic origin, gender, religion or belief, disability, age, or sexual orientation will therefore be unenforceable. However, the judgment also means that the three-week deadline for employees to challenge the notice in court applies also under these circumstances, and that the employee cannot claim damages for a termination that is discriminatory.

The judgment also clarifies two related issues regarding potential age discrimination upon termination. First, the Termination Protection Statute requires employers that plan to dismiss employees for urgent operational requirements to make a selection among comparable employees on the basis of four established criteria, one of which is age. Second, the same statute allows employers to exclude employees from such a selection for the purpose of retaining a balanced personnel structure. This has mainly been used to retain a balanced age structure. The court had held that employers are allowed to form employee groups according to age (e.g., employees up to age 25, 35, 45, 55, and 65, respectively), and to allocate the number of employment relationships to be terminated to each of these groups in proportion to the size of the group. This was also the way the employer had proceeded in the case decided by the court. Not surprisingly, the employee had challenged both the selection and the formation of age groups under the AGG.

The court disagreed with the employee. It conceded that taking age into account in the social selection process constitutes disparate treatment because it tends to favor older and to disfavor younger employees. However, the court regarded such disparate treatment as justified under the AGG. For the court, the purpose of this selection criterion is to better protect older employees, whose chances of finding new employment are typically lower than those of younger employees due to their age. This purpose, according to the court, is legitimate, and the means to achieve it are appropriate and necessary. Since it is empirically correct to say that rising age generally reduces an individual’s chances in the labor market, the court concluded that such chances cannot be taken into account without reference to age.

Addressing the formation of age groups, the court also regarded this disparate treatment as justified under the AGG. It confirmed that retaining a balanced age structure may constitute a legitimate aim. As a rule, such legitimate aim must be explained by the employer in court. However, the court is ready to accept that in the case of collective dismissals such legitimate aim can regularly be deemed to exist. It observed that retaining a workforce with various ages is in the interest of both the workforce and the employer. The age groups that had been formed by the employer in the case decided were regarded as appropriate and necessary to achieve this aim. The age groups prevented an increase in average age as well as the termination of nearly all employees below 35 years.

Overall, the judgment appears to strike the right balance. It removes some significant uncertainties that have accompanied collective dismissals since the enactment of the AGG. It can only be hoped that the European Court of Justice does not feel tempted to rewrite this part of German termination protection law also.