Reduced Dismissal Protection for Top-Banker

On 21 February 2019 the German Bundestag has passed the Brexit Accompanying Tax Act (Brexit-Steuerbegleitgesetz). Part of this Act is an amendment of Section 25a of the German Banking Act (Kreditwesengesetz, KWG) whereby the protection against dismissal for top banker in major institutes will be reduced. The objective of the Act is to make Frankfurt more attractive to London’s financial institutes in the course of the upcoming Brexit.

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In future, specific employees in major institutes will be equated with executive employees (leitende Angestellte) according to the Dismissal Protection Act. In general, the Dismissal Protection Act also applies for executive employees, but with certain restrictions. The Dismissal Protection Act allows for the dissolution of the employment relationship on request of the employer by the court against payment of a compensation. A requirement is that the employer can justify why a continued employment with the employee seems to be impossible. By way of derogation from this requirement, the employer’s obligation to justify his request does not apply in case of a dissolution of the employment relationship with an executive employee.

This exception now also applies for certain employees in major institutes which will be equated with executive employees.

One requirement is that the employee can be qualified as a risk taker according to the Regulation for Institutional Remuneration (Institutsvergütungsverordnung) and receives an annual fixed remuneration that exceeds three times the income threshold for the general pension insurance. Currently, this would apply to risk takers with an annual fixed remuneration of more than €241,000 gross in Western Germany and €221,000 gross in Eastern Germany. Any bonuses or other variable remuneration shall not be included in this calculation. Apart from that the employing entity has to be a major institute. According to the Regulation for Institutional Remuneration (Institutsvergütungsverordnung) a company can be qualified as a major institute, if its balance sheet exceeds €15bn on average over the last three years or if it was considered to be a major institute by the regulatory authority. Only if the above requirements are met, an equal treatment with executive employees applies by law. For all other employees, the Dismissal Protection Act continues to apply unchanged without the exception.

Statement

The practical relevance of this new Act beyond the political message remains to be seen. On one hand, it addresses constitutional concerns in view of equal treatment, as employees or risk taker of major institutes will be in a worse position than those employed with institutes which do not fulfil this requirement. Moreover, there will be an unequal treatment towards other service providers and industries. One may justify the unequal treatment with the systemic relevance of the institutions concerned. Nevertheless, it is to be expected that affected employees will argue in a dispute that the provision is not applicable due to constitutional invalidity.

The discrepancy between the pursued objective and the relevance in the judicial practice may be even greater. Besides, Section 25a KWG (new version) will apply only to around 5000 employees throughout Germany.

On one hand, only a small number of institutes will be “major” according to the Regulation for Institutional Remuneration (Institutsvergütungsverordnung). Section 53 KWG clarifies that branches of foreign companies which are engaged in banking activities and provide financial services, are regarded as independent institutions. The branches are subject to a separate accounting and financial reporting obligation. Systematically, it can therefore be assumed that the assessment of the balance sheet has to be made separately for the branch instead of a total assessment together with the foreign parent company. This applies already for independent legal entities, such as subsidiaries of foreign companies. In particular, branches of foreign banks as well as market participants from the cooperative sector or savings banks (Sparkassen) are unlikely to reach the balance sheet threshold.

On the other hand, the definition of a risk taker has to be examined by the labour courts as a requirement on a case-by-case basis. The previous case law in individual cases shows a certain reluctance in treating employees less favourable because of regulatory requirements for the employer. Finally, it can be stated that the number of cases in which resolution requests are granted are statistically manageable. The labour courts are reluctant in qualifying employees as "executive employees" within the meaning of the Dismissal Protection Act. The same is to be expected with regard to Section 25a KWG. Political symbolism and practical relevance are therefore likely to fall apart.

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