Dismissal for behavioral reasons: requirements and examples

In Germany, employers are generally required to provide a valid justification for a “fair dismissal,” which refers to a legally effective notice of termination. One such justification is based on “behavioral reasons,” which arise when an employee commits a material and culpable breach of duty. Such violations may occur in various areas, including performance-related issues (e.g., habitual tardiness) or breaches of company policy (e.g., violating an alcohol ban). While there is a substantial body of case law addressing these matters, there is no statutory definition specifying the precise conditions under which a dismissal for behavioral reasons is deemed justifiable. Nevertheless, the courts impose strict standards for the validity of such dismissals. Typically, the employer is also required to issue a formal warning prior to taking any dismissal action.

Key points:

• Breach of duty required: An employer can dismiss an employee for “behavioral reasons” if the employee is guilty of a material and culpable breach of duty.
• Warning letter: In general, the employer must have given a warning letter to the employee for his behavior before the employer can issue a dismissal for behavioral reasons.
• Ineffectiveness: Without such a prior proper warning letter, the dismissal is usually ineffective.

What is a dismissal for behavioral reasons?

Under German labor law, employers must provide a valid justification to terminate an employment contract. A dismissal without a valid reason is considered ineffective, meaning the employment relationship remains in force, and the employer is required to continue paying the employee’s salary, even if the dismissal is believed to be valid. This often incentivizes employers to negotiate a severance package as part of a termination agreement, if the dismissal is challenged in court.

The German “Protection against Unfair Dismissal Act” specifies three categories of valid reasons for dismissal: personal reasons (related to the employee), behavioral reasons (related to the employee’s conduct), and operational reasons (due to changes in the employer’s business operations).

Application of unfair dismissal act

A fair termination for behavioral reasons requires first and foremost that the employee falls under the Unfair Dismissals Protection Act. The behavioral reasons required by German labor and case law include culpable and material violations of duties arising from the employment contract (e.g. recurrent lateness, refusal to work, criminal offences).

Material breach of duty

A “material breach of duty” is the most important requirement – and the one that is most disputed in the case of dismissal for conduct-related reasons. In addition, the employer must establish a “negative prognosis” and have issued a prior warning – though this can be waived in rare exceptions. The employer must also demonstrate that no milder means than dismissal are available, and the weighing of interests must favor them.

There is no clear definition of when a breach of duty is so serious that it justifies a dismissal for behavioral reasons. However, the many different cases and decisions of the labor courts can be divided into the following four groups of breaches of duty:

• performance
• company organization
• trust
• ancillary employment contract obligations

Note: The individual grounds for dismissal must always be distinguished from one another. You can read in detail about when the employer can terminate the contract and how in our overview of the reasons for dismissal in labor law.

German case law distinguishes between different groups of behavioral reasons:

1. Breach of duty in area of performance

Terminations due to breach of duty in the performance area occur relatively frequently. Typical examples include unexcused absences, late sick leave, constant lack of punctuality (think Deutsche Bahn), and termination due to general poor performance (“low performance”).

There are countless rulings on this subject by the labor courts. However, there is no clear rule as to when a dismissal for behavioral reasons due to a breach of duty in the area of performance is justified. It always depends on the individual case, in particular due to the criteria “no milder means than dismissal” and the “weighing of interests”. However, it is clear that the employer’s dissatisfaction with the employee’s performance alone does not justify a dismissal for behavioral reasons. Dismissal for behavioral reasons requires that the employer can specifically accuse the employee of genuine underperformance as a breach of duty. If the employer cannot prove that the employee “does not perform although he could”, an action for unfair dismissal before the court has very good prospects of success.

Common case: Termination due to “low performance”

A common case is termination due to generally poor performance (“low performance”). In principle, poor performance can justify a dismissal for behavioral reasons (of course only after a prior warning). However, the employer must prove in court that the employee’s performance is significantly worse than average. What does “significantly” mean in this context? The courts generally affirm poor performance or underperformance if the dismissed employee falls short of the performance level by a third or more over a longer period of time (Federal Labor Court, December 11, 2003, Az: 2 AZR 667/02). To do so, the employer must demonstrate the employee’s performance over a representative period of time in relation to comparable colleagues. And in such a way that the court can recognize an accusable underperformance. This rarely succeeds, so that in many cases the employees are proven right.

Caution with “PIPs”

Often, a so-called Performance Improvement Plan (PIP) comes into play before a termination due to “low performance”. Officially, employers design Performance Improvement Plans to enhance the work performance of an allegedly low-performing employee (“low performer”). The PIP should contain specific and realistic goals that the employee needs to achieve within a certain timeframe. If the employee fails to meet these goals within the specified period in the PIP, the employer will often dismiss. The PIP then serves as documentation for alleged performance deficiencies and thus supports the legal validity of the dismissal. In reality, many companies use PIPs as instruments for dismissals.

2. Breaches of duty in the area of company order

A disruption of the operational area concerns, among other things, behavior towards colleagues and customers, e.g. bullying, alcohol in the workplace – but not behavior outside of work. According to the case law of the labor courts, what an employee does outside of the company is generally not the employer’s business. The courts are extremely employee-friendly here, even in the case of extreme behavior on the part of the employee.

An employer can only consider termination if they prove that the employee’s behavior disrupts the peace or violates fiduciary duties, according to case law. Even the criminal assessment of the off-duty behavior is irrelevant under termination law. The decisive factor is the extent of the breach of duty under the employment contract. The case law is stricter for “tendency companies” and in the public sector, especially for civil servants. These must also show moderation outside of work and show that they stand up for the free democratic basic order.

3. Breaches of trust

Examples of breaches of trust include fraud and theft to the detriment of the employer, even if the amounts involved are very small, or fraud in relation to working hours. For example, in the notorious case of Emmely (a supermarket employee), the Federal Labor Court deemed the behavior of a cashier who cashed a deposit voucher that did not belong to her, worth 1.30 euros, to be a serious breach of duty. Regardless of the voucher’s value, the cashier violated the trust relationship with the employer.

Termination with or without a warning?

A common question is whether a dismissal for behavioral reasons is legal without a prior warning to the employee. In principle, yes, but there are exceptions:

Principle: No dismissal for behavioral reasons without a warning

The general rule is that an employer must issue a prior warning letter to the employee. Only then they can issue a dismissal for behavioral reasons. Without such a properly issued warning letter, the dismissal is invalid. For a warning letter to serve as a basis for a subsequent dismissal, it must first be valid itself. The validity of a warning letter is subject to certain conditions that must be met. To justify a dismissal, the written warning must relate to a breach of duty that is similar or comparable to the subsequent dismissal. Only then can the warning letter be used as a reason for the dismissal.

Important: If the employer has already issued a warning letter for a specific breach of duty by the employee, they have thereby “used up” their right to dismiss the employee for this breach. The employer cannot therefore dismiss the employee again for the same breach of duty.

Exception: dismissal for behavioral reasons without a warning letter

In exceptional cases, a dismissal for behavioral reasons can also be effective without a prior warning. However, according to the case law of the Federal Labor Court, this is only the case in two situations:

• If it is already clear at the time of the dismissal that the employee will not change their behavior even after a warning. If, for example, an employee states they do not wish to change their misconduct, a warning becomes meaningless.
• If the breach of duty is so serious that it is objectively unreasonable for the employer to accept it even once. This unreasonableness must also be clearly recognizable for the employee. This is regularly assumed, for example, in the case of theft, defamation or bodily harm in the workplace.

Weighing up interests: When is a dismissal for behavioral reasons socially justified?

A dismissal for reasons of conduct must be socially justified in order to be effective. The interests of the employee and the employer must therefore be weighed against each other. In favor of the employee, the following circumstances, for example, must be taken into account:

• Previous impeccable behavior
• Length of service
• Age
• Maintenance obligations
• Contributory negligence of the employer

In favor of the employer, the following points, among others, would be relevant in the context of the consideration:

• Financial loss
• Disruption to operations
• Risk of repetition
• Protection of the workforce
• Damage to reputation

Dismissal for behavioral reasons: A right for severance pay?

In contrast to a dismissal for operational reasons, for example, a dismissal for behavioral reasons is usually based on reasons that the employee has “caused”. Therefore, an employee normally does not receive severance pay in the event of a valid (!) dismissal for behavioral reasons.

However, many behavior-related terminations are ineffective – or at least disputable. And as soon as a labor court has determined this, the termination is initially “out of the question” – and the question of severance pay is purely a matter of negotiation. In this case, the employee has a right to continued employment and can therefore return to their old job. However, behavior-related terminations often have a history. And after a long court case, both sides – employee and employer – often have little interest in continuing the employment relationship. In this case, a “negotiated solution” through a court settlement is advisable. The usual principles for determining the severance payment amount then apply. Ultimately, however, the result is dependent on the negotiations. The employee (or their lawyer) must negotiate well in order to “get” the best possible result for the employee.

Sometimes, the employer is willing to pay compensation without legal proceedings. This often happens if the termination obviously violates the Dismissal Protection Act. In such cases, it’s important to negotiate tactically to secure the maximum for the employee with strong arguments. In other cases, however, employees can achieve this only in court (see above). Ultimately, employees have a good chance of negotiating a severance payment, even for dismissals based on behavioral reasons.

So far, we have addressed the conditions for an ordinary dismissal for behavioral reasons. In this case, the employer must always observe the notice period.

But what about immediate termination? Overall, the requirements for a termination without notice are very strict. The employer must demonstrate that continuing the employment relationship, even for just one more day, is “unreasonable.” Therefore, it is necessary that there is particularly serious misconduct that can justify immediate termination. Examples of such behavior include theft, fraud, embezzlement, unauthorized leave, and feigned illness. They also include violations of working hours regulations, bullying, sexual harassment, and refusal to work. Only if such a serious breach of duty has occurred a termination without notice can be lawfully carried out. Furthermore, the weighing of interests must not favor the employee.