Germany: Beginning of the Two-week Period for Issuing an Extraordinary Termination in case of Complex Compliance Investigations

The background to the decision of the Federal Labor Court was the extraordinary termination of a sales manager who was employed by a company active in the defense sector. The clients of the defendant company included the German Armed Forces and the German Ministry of Defense. After a hint about secret documents circulating within the company, the employer hired a law firm to conduct an internal investigation. Eleven months later the managing director was informed about the findings in a report that concerned the sales manager and 88 other persons. Before issuing the report to the managing director, only the head of the compliance department had been frequently informed about the investigation, however, he was not entitled to decide on the termination of the employment relationships with the investigated employees. 12 days after the managing director had been informed, the sales manager was terminated with immediate effect based on the findings in the report.

The Federal Labor Court found that the termination is valid and, in particular, the two-week period stipulated in Section 626 para. 2 of the German Civil Code (BGB) had been complied with. Pursuant to this regulation, an extraordinary termination of an employment with immediate effect is only valid if the termination is issued to the employee within two weeks after a person authorized to decide on the termination became aware of the circumstances justifying the termination. In the case at hand, issuing the termination to the sales manager 12 days after the managing director was informed about the findings of the investigation meets this requirement. The prior knowledge of the head of the compliance department was irrelevant as he was not authorized to give notice to the sales manager.

However, the Federal Labor Court did point out that the delayed knowledge of an authorized person may not be the result of improper company organization. This would for example be the case if the employer was preventing the flow of information to the authorized persons intentionally or through unnecessary organization risks. However, conducting internal investigations through a compliance department led by a person without authorization to give notice does not meet this threshold. The two-week period may only be deemed to start sooner if the informed unauthorized person had an outstanding position within the company that allows comprehensive clarification of the situation and enables the termination decision without further investigation. As this was not the case in the company at hand, only the knowledge of the managing director was decisive for kicking off the two-week period.

Key Action Points for Human Resources and In-house Counsel

• This decision strengthens the legitimacy of compliance investigations, even when they are time-consuming. Such investigations generally do not forfeit the employer’s right to terminate without notice.
• Employers have some leeway when conducting investigations, however, influencing them by e.g. delaying flow of information in bad faith won’t stop the beginning of the two-week period stipulated in Section 626 para. 2 BGB.