The Brexit Transition Act (“Brexit-StBG/Steuerbegleitgesetz” – The Act) will allow banks in Germany to terminate the employment of their high paid employees without following the usual strict requirements of German labor law. The Act is still under discussion within the German parliament. This blog provides an overview of the proposed simplification of termination protection.
A potential consequence of Brexit is that financial institutions currently based in London may look to relocate to other European financial centres. In Germany, this has led to a discussion around concerns that the German financial metropolis Frankfurt was facing a major disadvantage against competing cities such as Paris, Zürich and Barcelona. German Employment protection laws were at the top of the list of concerns. In particular, the key issue was how employers would be able to terminate the employment of high paid (investment) bankers under strict German labor laws?
The solution proposed is not surprising: the Act shall provide banks with the right to file a motion to end employment without providing reasons (Sec. 9 para I 2 of the German Termination Protection Act/KSchG) thereby deviating from standard German termination protection proceedings. Under the new Act – if enacted – banks may benefit from the simplified termination proceedings provided the following prerequisites are met in order to trigger the respective motion to end employment by the banks:
– the employee is a so-called risk taker (”Risikoträger“) pursuant to Sec. 25a of the German Banking Act (Sec. 25a para 5a KWG);
– the annual fixed remuneration of the in-scope employee is higher than three times of the pension contribution limit i.e. currently € 241000 p.a.; and
– the terminating bank is considered a so-called significant financial institution pursuant to Sec. 25n of the German Banking Act/KWG i.e. throughout the last three years on average a € 15 billion balance sheet amount must have been reached or exceeded.
Risk bearers don’t need to be key executive employees (“leitende Angestellte“) in the meaning of Sec. 14 para II 1 of the German Termination Protection Act/KSchG. It’s irrelevant under the Act whether the risk bearers are entitled to independently hire or fire staff. Further the new Act shall not apply to insurance companies but is limited to banks. It will, however, apply to banks already in business in Germany and not only to London/UK based banks which plan to transfer staff to Germany.
The above described modifications to German termination protection law will result in a statutory limitation of severance payments for risk bearers of between 12 and 18 months’ gross salaryas maximum severance sum in the event of separation.
Should the Brexit Transition Act be enacted the Act shall enter into force on the day on which the EU withdrawal agreement between the UK and the EU enters into force – which is currently still expected to be 29 March 2019 (although the position remains unclear). The termination simplification terms of the Act will, however, become only effective as of 29 November 2019, i.e. eight months post enactment of the Act pursuant to Sec. 64m of the German Banking Act/KWG.
Hence, it will apply only to terminations/separations, which will be served after the effective date of 29 November 2019.
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