Brexit is coming – status today – within the next weeks. Competition for professionals is supposed to be accompanied by restricting the protection against termination for bankers. On 21 February 2019, the German Parliament adopted this with the "Brexit Tax Accompanying Act" ["Brexit-Steuerbegleitgesetz"].

A change is made in § 25a para. 5a German Banking Act [Kreditwesengesetz, "KWG"]). Risk carriers (m/w/d) at important institutions whose annual fixed compensation exceeds three times the threshold limit for contributions to the general pension insurance fund will be treated the same as senior employees with regard to termination against protection. The provision accordingly applies in the case of annual fixed compensation of more than EUR 241,200 and an employment at an institution with an annual balance sheet total on average of at least 15 billion Euro. According to the estimates of the Federal Government, this affects around 5,000 employees.

The purpose of the provision is to reduce risks for financial stability. The misconduct of highly paid managers at important banks is stated to be able to endanger the entire financial system. There are already special provisions today in the German Regulation on Compensation of Institutions [Institutsvergütungsverordnung] with regard to compensation structures. These institutions are supposed to be able to more easily separate themselves from risk carriers in the future, in order to be able to avoid risks originating with these persons. Since this is a special instrument for a very limited group of persons under banking supervisory law, the provision, according to the view of the legislature, cannot be applied to other industries.

In legal technical terms, the risk carriers are treated the same as senior employees. In the German Act on Protection against Termination [Kündigungsschutzgesetz] applies to them (pursuant to § 25a para. 5a KWG) subject to the provision that the motion of the employer to dissolve the employment relationship does not require that any reasons be stated. § 14 para. 1 of the German Act on Protection against Termination is not affected. For the first time, the provision on terminations which are received after the expiration of eight months after 29 March 2019 accordingly apply for notices of terminations starting on 1 December 2019.
This means:

• Separation from risk carrier with corresponding compensation still requires a notice of termination.
• A previous hearing of the works council should be conducted if there is any doubt. A risk carrier is not automatically a senior employee. The motion to dissolve the employment relationship, however, will be dismissed if the notice of termination is formally invalid.
• The motion to dissolve the employment relationship does not require that any reasons be stated. The court will grant the motion if the prerequisites are satisfied (fixed compensation >EUR 241,200, employment agreement with an important institution, no invalidity of the notice of termination for other reasons) and declare that the employment relationship is dissolved upon the expiration of the regular notice period. At the same time, the court will order the employer to pay compensation in an amount (normally) of up to twelve monthly salaries.
• The amount of the compensation depends, among other factors, on the reasons forming the basis of the notice of termination. Even if stating reasons is legally not necessary, comprehensive reasons make sense in the case of substantial culpability in litigation on protection against termination, in order to have the compensation be as low as possible. This is worthwhile simply because the compensation is not calculated on the basis of the fixed salary and instead on the basis of the actual earnings.

To the extent that the constitutionality of the norm has been questioned, this concern is not justified. The unequal treatment compared to other industries is justified by the purpose of stability in the financial markets. As a result of being limited to a group of persons with high earnings, the provision is probably also proportionate. Whether this group of persons can even be found in other industries (e.g. insurance companies) is doubtful, as are also the effects of other industries on stability in the financial markets. In order to achieve the goal of the statute, it is necessary to limit protection against termination simply in order to effectively counter the court mandating that the employee continue to be employed at the workplace beyond the effective date of the notice of termination. Which effects there could be on the stability of the financial markets if individual managers responsible for bad speculative transactions can continue to act without any hindrance and litigate their way back to their previous position against the will of the Federal Financial Supervisory Authority [Bundesanstalt für Finanzdienstleistungsaufsicht, "BaFin"] and the bank can hardly be imagined. It would have been even clearer to establish the exclusion from further employment even during the notice period; up to that point in time, temporary restraining orders can also pose a threat.

This is in practice a reasonable means to implement freedom for the businesses. As a result of the link to the annual fixed compensation, it is also readily apparent and controllable for the 5,000 affected bankers, whether they are already outside the scope of protection against termination. If the air becomes too thin: There is still time until 30 November 2019 to negotiate lower base compensation or to change the industry.

Dr Philipp Wiesenecker, Attorney and specialist for employment law
Frankfurt am Main