Germany’s likely next government is ready to give global banks what they want: less job protection for highly paid executives.
In an open attempt to increase Frankfurt’s allure for international banks, the coalition treaty agreed by Angela Merkel’s conservatives and the Social Democrats contains an outline for the first loosening of employment protection laws in the country in 15 years.
The plan, which would make it easier for banks to fire highly paid staff in a manner more familiar in the “Anglo-Saxon” financial centres of London or New York, is a bold signal of Germany’s intention to lure post-Brexit business from the UK.
But the proposal has raised the hackles of Verdi, Germany’s largest banking trade union, making it an unlikely champion of some of Europe’s best-paid employees. It has also given members of the pro-union SPD, which are already lukewarm about going back into government with Ms Merkel, further reason to be unhappy as they consider whether to back the coalition deal in a party-wide vote next month.
“We are critical of any watering down of employment laws,” Jan Duscheck, a senior official at service sector union Verdi, which represents 2m workers, told the Financial Times. “It won’t take long for employers to call for further changes, which can trigger a wider weakening of employment protection laws for other workers.”
Frankfurt has already made a good start in attracting bank business after Brexit: four of the five largest US investment banks have decided to relocate some operations from London to Frankfurt. But the number of jobs to be moved is up in the air, with the German city competing with Paris, Dublin, Amsterdam and Madrid.
While global banks see advantages in Frankfurt, Germany’s tight labour laws remain a problem. Firing unwanted staff is lengthy and costly: according to a ranking by the Organisation for Economic Co-operation and Development, only Venezuela and China have tighter employment-protection laws than Germany. An employer who loses a court case is legally obliged to re-hire the dismissed worker. Employees who successfully challenge their dismissal can often expect compensation of up to two months’ salary per year of employment.
“Germany’s rigorous employment protection is a key issue that is making global banks hesitant about transferring any more staff than necessary into the country,” says Matthew Devey, a Frankfurt-based employment lawyer at Linklaters.
Hesse, the state including Frankfurt, lobbied the national government for more than a year to add an exemption clause for bankers to Germany’s employment code. As a result the coalition treaty between Ms Merkel’s CDU/CSU bloc and the Social Democrats agreed to implement the first relaxation of employment protection since the Hartz reform in 2003, when it was made easier for small companies to sack workers.
“In light of the UK’s imminent exit from the EU, we want to make Germany more attractive for financial service providers,” the coalition document said.
The changes will be limited to bankers in senior positions and above a specific pay level. It will only apply to so-called risk-takers — staff with significant sway over the exposure borne by the entire bank, either because of their seniority or their responsibility for a large amount of business. Only those earning at least €234,000 a year will be affected.
Hubertus Väth, chief executive of marketing group Frankfurt Main Finance, stresses that coalition treaties in Germany are highly binding and that therefore the commitment by the parties “creates a major precondition to promote Frankfurt as a financial centre”. The Association of German Banks has also welcomed the commitment, calling it “reasonable and a good signal”.
Employment lawyers say the reforms will in practice probably have limited impact. “The legal definition of a risk-taker is a rather narrow one and hence does not affect that many employees,” said Nicole Engesser Means, partner with Frankfurt-based law firm Schweibert Leßmann, who advises global investment banks on German labour law.
Linklater’s Mr Devey said the reform did not pave the way for upfront agreements about the level of severance payments. “The proposed changes still would not provide for a clear statutory severance calculation,” he said. “The drop in the number of cases going to court would be minimal.”
Verdi questions whether even limited reform is necessary. “Banks that want to part ways with an employee already have adequate resolution mechanisms, especially when it comes to these salary levels,” says Mr Duscheck, the head of Verdi’s banking group. “There is just no acute reason to act.”
He argues that job security is an important argument even for highly skilled and well-paid employees, adding that global competition for these skills is high and German banks struggle to retain staff with the necessary qualifications. Mr Duscheck adds: “It would be negligent to do away with such a competitive advantage.”
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