German Employee's Dismissal at U.S. Regulator's Behest Ruled Invalid

On July 13, 2016, the Frankfurt Higher Labor Court held the dismissal of an employee in response to demands by the New York State Department of Financial Services (NYDFS) was invalid. (Frankfurt Labor Court, 18 Sa 1498/15). This holding demonstrates that obligations imposed by agreements with U.S. supervisory authorities do not supersede German employment dismissal law.

In this case, a Commerzbank employee in Germany challenged his dismissal, which was made following demands by the NYDFS, a financial supervisory authority. The bank asserted that a consent order stemming from charges brought by the NYDFS forced it to terminate the employment relationship. According to the financial watchdog, employees at the Hamburg branch had concealed certain payments that made it impossible for the bank's New York branch to verify whether the bank complied with U.S. regulations under the Iranian embargo.  

In addition to a substantial fine, the supervisory authority demanded the dismissal of several Commerzbank employees in Germany. The NYDFS argued it wanted to impose sanctions against individuals—the same action it would have taken against individuals in the United States—to serve as a deterrent.

The Frankfurt Higher Labor Court held the dismissal of the employee to be wrongful, approving the Frankfurt Labor Court's decision.  

In considering this matter, the Frankfurt Higher Labor Court left open the question of the conditions under which a bank can argue that it had to terminate an employment contract subject to German law because of such sanctions. The court stated, however, that Commerzbank’s obligation under the consent order was expressly subject to the dismissal being approved by a German court.

The court ultimately ruled that the dismissal was not justified under German labor law. It stated if the aim of a supervisory authority's measure was to impose a punishment that had to be implemented by an employer, this would not meet the conditions for a so-called “dismissal under pressure” previously recognized by German Federal Labor Court precedent.

Under German law, where an employer is put under pressure by an external third party—for example, a customer, a coworker or a public authority—the dismissal may be fair depending on the circumstances. However, the employer cannot rely on the wishes of that third party alone; it must also consider fully the injustice of the dismissal on the employee. Furthermore, the pressure exerted must reach a level of harm the employer cannot avoid. If, on the other hand, the employer is left with alternative options to avert the harm, the dismissal will not be considered justified by the third party’s pressure.

In the case at hand, the NYDFS did provide Commerzbank with an alternative to act other than dismissing the employee. If a dismissal were to be held wrongful, the consent order stated, Commerzbank would have the option to continue the employment, as long as the employee would not be working in the same department. Hence, the consent order did leave Commerzbank with an alternative course of action.

For that same reason, the employee’s win in court will remain a pyrrhic victory for now. The dismissal was held unlawful, but Commerzbank is not obliged to employ him in his old department until the legal proceedings are completed. The Higher Labor Court allowed an appeal to be brought before the Federal Labor Court; the judgment is therefore not yet legally binding.

This decision shows that obligations arising from settlement agreements with U.S. supervisory authorities cannot cancel German dismissal protection law. The same holding is likely to apply to orders or stipulations asserted by U.S. supervisory bodies. These settlements, orders or stipulations therefore do not constitute recognized grounds for dismissal.

In similar cases, German employers must consider that the requirements for effective dismissal under German law apply, regardless of what demands are made by the U.S. supervisory authorities. Therefore, if in doubt, in most cases offering the employee a termination agreement providing for a rather high severance payment would be needed to incentivize the employee to leave voluntarily. 

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.