Tips for successful establishment: insight into German employment law

The most important thing first: There is not a standard employment law in Germany; the legal situation is instead made up of a number of different laws in different fields, which have to be considered in relation to each other:

•    Basic Law: Guarantee of equality before the law and freedom of personal development

•    Civil Code (BGB): Regulations on employment contract

•    Protection Against Unfair Dismissal Act: Relevant for a company with ten employees or more

•    Federal Leave Act

•    Tariff agreements

•    Collective promises and company practice: additional agreement that becomes binding if repeated, for example bonuses or Christmas money; should therefore always only be granted subject to reservation of voluntary status

•    Operational safety regulations

This governs the employment contract

The most important basis for you working together with new employees is the employment contract. Apart from remuneration for the work, it governs other important details, for example the possibility of fixed term under certain circumstances. This exists, among other things, if there are reasonable grounds, for example assignment abroad. But even without such reasons, a fixed term is legal, for example with a fixed term of two years for older employees or for companies that have existed for four years or less.

The definition of a probationary period, which can between three and nine months depending on the job profile’s qualifications and requirements, is also included in the employment contract. Employers may extend the probationary period under certain circumstances; within this period both parties have the right to give two weeks’ week notice without stating any reasons.

Part-time employment and notice

An employment contract also governs the work of employees who are not full time, for example student trainees and €450 mini-jobbers. The advantage for employers with these types of employment: social contributions are dropped or covered by a flat-rate. Full-time employees in your company also have the right to switch to part-time employment, and in fact without mandatory mutual consent; namely if more than 15 employees are employed by the company, the employee has already been employed for longer than half a year and if part-time does not have any significant impact on the business interests. What’s important for both sides: the part-time agreements should be documented in writing beforehand (at least one month before coming into effect).

Once the employment contract is signed and the probationary period is over, protection against unfair dismissal exists for every employee, which is governed by the Protection Against Unfair Dismissal Act. Dismissal is possible as a result of various reasons, for example due to conduct, illness or from an operational point of view. Before the dismissal is announced, employers should always assure the legal situation though, for example with regard to previous warnings or job cuts according to a social plan. The dismissal must always be in written form, the period depends on the length of employment. Women who are pregnant or on maternity leave, severely disabled employees or works’ councils enjoy special protection against unfair dismissal.

Tips for foreign investors

As a foreign company that wants to establish itself in Bavaria, you will possibly also want to hire employees who do not come from Germany. In this case, you not only have to take the aforementioned provisions into account but also the Residence Act. Are you not only looking for professionals from abroad but also need a CEO for your newly established GmbH? In this case you can weigh up the two options of appointing a CEO with or without a contract as the executive body position as legal representative of a GmbH is initially separate from an employment contract. However, it does provide you with additional security, which you should consider when making your decision:

•    The remuneration amount is set out in writing.

•    The CEO’s power of representation towards the company can be restricted. As a result, certain decisions and transactions can only be made after consultation at the shareholders’ meeting – an additional control mechanism for you.

•    You benefit from greater transparency as regards the tax authorities, for example in relation to remuneration.


Are you thinking about establishing yourself in Bavaria and do you still have a few more questions? Then contact us, we offer you free and confidential support.