Germany May Ease Labor Regulations On Termination Of Top Managers To Lure British Banks Mr Christoph Crisolli

Author:Mr Christoph Crisolli
Profession:Littler Mendelson

On November 20, 2018, the German Ministry of Finance sent the draft of the Brexit Tax Accompanying Act (the Act) to other ministries and industry associations for their review and input. The draft Act honors the promise—made in the coalition agreement between Chancellor Merkel's Christian Democrats and the Social Democrats in March 2018—to loosen the protection against dismissal for certain highly paid managers. As part of the Act, it may soon be easier for banks in Frankfurt to terminate their top employees.

The departure of Great Britain from the European Union forces banks in the City of London to seek a second foothold on the continent for numerous activities subject to EU financial regulations. Advocates in Frankfurt pushed for relaxing the current protection against dismissal for well-paid bank employees to make the city more attractive and competitive as financial institutions consider where to settle in the EU.

While the termination of employment generally requires a justification in Germany, the Act would eliminate the employer's burden for certain workers in the financial sector. Specifically, an employer's request to terminate the employment relationship of so-called "risk takers" in "significant" financial institutions would be valid without any reason in the future. The rationale underlying the change, in part, is that misconduct at this level could not only lead to high losses for a bank, but could also endanger the entire financial system.

Under German regulatory provisions, "risk takers" are employees whose professional activities have a significant impact on the risk profile of a financial institution. Behind this definition, which at first glance sounds rather vague, stands a catalogue of rather handy qualitative and quantitative criteria, which are regulated in detail in the European Delegated Regulation1 (No. 604/2014, available here). Apart from representatives of executive bodies (board members and managing directors), who are not subject to dismissal protection, the following roles qualify as risk takers:

Heads of risk management, compliance, and internal audit; Heads of key business areas, as well as employees reporting directly to them with management responsibility; Heads of an area responsible for legal matters, finance (including taxes and budgeting), human resources, remuneration policy, or information technology or economic analysis; and Employees...

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