Undoubtedly driven by an interest in drawing UK-based banks to Frankfurt and becoming an EU hub for US banks post-Brexit, the German government recently picked up a proposal to relax dismissal protection for high-earning bankers. So it may very well soon be easier for banks in Frankfurt to part with their top employees.
Current Dismissal Protection Does Not Distinguish Between High-Earning Bankers and Blue Collar Workers
Under current legislation, high-earning bankers basically enjoy the same dismissal protection as blue collar workers do: If the employer regularly employs more than ten employees in Germany and the individual has been employed for more than six months, under the Dismissal Protection Act (Kündigungsschutzgesetz – KSchG) dismissal must be supported by
- reasons in the employee’s conduct (e.g., criminal acts),
- personal reasons (e.g., long-term sickness) or
- operational reasons (e.g., redundancy scenarios)
Employers rarely can prove an airtight case, which is why they often do not take the risk of going through court litigation (which may take well up to two or three years), but prefer to settle the case in return for a severance payment. The rather strong dismissal protection creates significant bargaining power on the employees’ side. This may now change for in-scope risk takers.
In-Scope Risk Takers Exempt From Dismissal Protection Act
The draft law, internally presented within the government on November 20, 2018, is to fulfill the promise in the coalition agreement to loosen the protection against dismissal for in-scope risk takers (Risikoträger). In the future, the employer’s request for termination of the employment relationship of such risk takers will not require any justification under the Dismissal Protection Act.
So Who is a Risk Taker?
Risk takers include employees whose annual base salary is higher than three times the contribution assessment ceiling (Beitragsbemessungsgrenze) for the statutory pension fund. This is currently equivalent to EUR 234,000, currently equalling roughly USD 266,000/GBP 208,000.
For the probably rather rare case that the top banker is working in the East of Germany, it would be EUR 208,000 or roughly USD 237,000/GBP 185,000. The Ministry of Finance estimates the number of risk takers likely to be affected by this change at up to 5000 individuals.
The new law will only apply for a clearly defined group of highly paid risk takers employed by major banks with a balance sheet total of more than EUR 15bn or if it the institution is subject to supervision by the European Central Bank. Risk takers in non-significant institutions and non-risk takers in the financial sector will not be affected by the changes.
However, it is doubtful whether this proposal is in line with the principle of equal treatment as laid down in the German constitution and the general principle of equal treatment employers have to observe under established case law.
Frankfurt’s Campaigning Successful?
No doubt, the withdrawal of the UK from the EU forced the banks from the City of London to look for a second foothold on the continent. Hesse, where Frankfurt is located, had been campaigning to improve its chances in attracting institutes by loosening the strong German protection against dismissal for well-paid banker.
Months ago the Christian Democratic Union (CDU/CSU) and the Social Democratic Party (SPD) have agreed on this in their coalition agreement. Finance Minister Olaf Scholz (SPD) now has taken up this delicate issue for his traditionally employee-friendly party and prepared the draft legislation.
Even if legislation is being adopted quickly, Frankfurt’s Brexit pitch likely is too late, given that most banks have pulled the trigger on their Brexit contingency plans a while ago. Moreover, even though the strong termination protection is known beyond German borders, it seems unlikely that banks looking for a new home on the continent will pay special attention to the question of termination protection for a fairly limited number of well-paid employees.