First, the facts: Effective as of March 29, 2019, § 25a(5a) of the German Banking Act (»Kreditwesengesetz«) has been amended as part of the so-called Brexit Tax Changes Act (»Brexit-Steuerbegleitgesetz«, I BGBl., p. 357); it now stipulates that risk-taking employees of major institutions, with a fixed annual salary in excess of triple the income threshold for statutory pension contributions, are subject to § 9(1) second sentence of the German Protection against Dismissal Act (»Kündigungsschutzgesetz«) with the proviso that the employer does not need to give reason for a request for termination of employment.
In other words, if there are no grounds for termination, resulting in a risk-taking employee’s termination being held to be socially unacceptable, the labor court will nevertheless allow the termination of employment based on a simple request of the employer – with no further justification needed – and set an amount of severance pay in accordance with § 10 German Protection against Dismissal Act. This cancels out the risk of having to keep an employee after losing an unfair dismissal case.
Why Is This Happening?
According to the explanatory memorandum (BT-Drs. 19/7377) for the Act, the new provision will promote Germany’s international attractiveness as a financial center among investors and finance companies. The intention is therefore to soften up local labor regulations so that as many international banks as possible set up shop in Frankfurt once Brexit causes them to flee London.
Who Is Affected?
Risk-taking employees are employees whose professional activity has a material impact on an institution’s risk profile (§ 1(21) German Banking Act; § 2(8) first sentence German Institution Remuneration Regulations [“Institutsvergütungsverordnung”]). Institutions, for these purposes, are credit and financial services institutions as defined by the German Banking Act (§ 1(1b)) and are normally relevant when their average net assets as at the end of the last three full reporting periods reach or exceed €15 billion (§ 25n German Banking Act). The 2019 income threshold for statutory pension contributions, when tripled, is €241,200 gross in the former West Germany and €221,400 gross in the former East Germany. The new provision will apply to all risk-taking employees whose employment is terminated on or after November 30, 2019 (§ 64m(1) German Banking Act). According to the explanatory memorandum, the number of persons affected »is not expected to be more than 5,000 employees«.
The discussion as to whether the new provision is constitutional is an obvious one and is already fully underway. Some emphasize the broad powers available to lawmakers when balancing employer and employee interests and determining discrimination issues. Others complain that risk-taking employees should not be lumped in with managers who similarly do not enjoy any dismissal protection arrangements.
The new provision will provide a few very interesting insights for general labor practices, too:
1. Lawmakers are demonstrating that the principle of dismissal protection under German labor law is not untouchable. Said a little more bluntly, lawmakers are recognizing that grandfathering – at least in its pure form – makes Germany less attractive compared to other countries. It remains to be seen whether § 25a(5a) German Banking Act will be able to set off the necessary dialog regarding the liberalization of Germany’s regulation of employment termination.
2. The employer’s request to terminate employment under §§ 9(1) second sentence and 14(2) second sentence German Protection against Dismissal Act is, to a certain extent, losing its lack of clarity and receiving a »genuine« application. Previously, requests for termination could be made without giving reason only if the employment of a manager – i.e. someone entitled to employ or dismiss employees independently – was being terminated. Finding employees with such authority in practice has been like finding a needle in a haystack.
3. Labor courts will in future have to deal with the specifications of the German Banking Act and German Institution Remuneration Regulations. Entirely new challenges will result from this. Consider, for example, that institutions themselves have to use a risk analysis requiring quantitative and qualitative criteria to examine and ascertain which employees exercise a material influence on an institution’s overall risk profile, which would deem them risk-taking employees. In future, this process will be fully controlled by labor courts.