Managing Dismissals and Restructurings in the German Hotel Industry

This article explores the key risks and strategic points that German hotel employers seeking to terminate employees for operational reasons need to consider in the case of business transfer of the hotel.

Introduction

Amid growing transaction volumes and corporate restructurings in the German hotel market, including by major hotel chains, the matter of employee dismissals has increasing relevance and important legal implications for hotel business owners and operators.

Continuity of Employment Contracts in case of a business transfer

In the event of a business transfer of a hotel, which can arise in the context of a sale but also in the case of a partial sale of assets or outsourcing, it is imperative to ensure the validity of existing employment contracts and consequently their subsequent transfer to the new owner. This guarantees that the acquisition of a hotel includes its workforce. 

However, in Germany it is possible for an employee to object to such transfer. If the employee objects to the transfer of the employment contract, the (old) employer might have the right to terminate the employment contract for operational reasons. However, generally speaking, the hurdle to justify operational redundancies in Germany is pretty high and each case needs a thorough review. 

Dismissal justified by operational reasons

An employee of a business with more than 10 employees and that has been employed for at least six months is entitled to protection under Germany’s Dismissal Protection Act (“Act”). The Act requires that an employer must have a justified reason to dismiss an employee, one of which is justified operational reasons. 

If an employee believes their dismissal is unjustified, they can file a dismissal protection claim against their employer at the Labour Court within three weeks of receipt of the termination notice. This is not uncommon. 

To determine if dismissal for operational reasons is justified, a Labour Court would examine the following steps (each with different hurdles and generally the employer having the burden of proof): 

1. There are urgent operational requirements for the dismissal caused by management decisions (e.g. closing, suspending or reorganizing the business),
2. In the case of dismissal of only part of the business’s employees, a proper social selection process has been carried out to determine the dismissed employees (NB: social selection usually takes place by way of point schemes approved by the Federal Labour Court that reviews comparable employees on same levels and assesses who is to be terminated (first), criteria are children and other support obligations, age, company seniority and disability), and
3. There are no alternative means of employing the employee, e.g. no open positions for alternative employment within the company.

Consequences of a successful employee claim

If an employee claim is successful and the dismissal is deemed invalid, the standard legal remedy in Germany is not to award severance money but reinstatement of employment. It often happens that courts rule on reinstatement and depending on the length of the proceeding, employees might return to a company years after their dismissal. 

In addition, the employee may generally claim from the employer the agreed remuneration that was not paid as a result of the invalid dismissal, without being obliged to provide subsequent performance because the employer was in default in accepting the employee's performance (Annahmeverzugslohn). However, the employee is obliged to seek new employment during the period in which the validity of the dismissal is not yet clear. Therefore, the amount that the employee earned or could have earned during that time had he not refused in bad faith to accept reasonable employment shall be deducted from the wage claim. This can be used to the employer's advantage by sending the dismissed employee offers of employment that match his or her qualifications, thus counteracting the risk of default wages (and to raise some pressure to achieve a settlement that clears the risks of both parties).

Conclusion

Restructurings in the hotel industry present significant challenges in relation to employee-related matters such as dismissals and contract transfers. In the event of a business transfer, employers must be aware of the legal right of employees to object to the transfer of their employment contract. 

In cases of dismissals for operational reasons, to mitigate the risks of successful employee claims, it is crucial for employers to:

• Seek legal counsel at the outset to ensure a strong starting position, 
• Strongly negotiate potential settlement agreements (to avoid a lawsuit being finally determined by a court), 
• Formulate strong grounds to justify a dismissal for operational reasons and have proper supporting documentation and evidence, and
• In cases of mass redundancies, equal treatment and the risk of a factual precedence must be considered.

Dos and Don’ts

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