Under German labor law, an employment relationship is one founded on an agreement between an employee and an employer under which the employee personally performs a work function for pay, submits to the employer's internal work regulations, and is in turn provided with working conditions as prescribed by law, any collective agreement, other agreements, and the individual employment contract. Disputes arising from employment relationships are heard before the labor court (German: Arbeitsgericht).
Sergei (name changed) came to our firm — a devoted family man and the owner of several companies, two of them based in Germany. One of his German companies was a real estate agency, which we'll call "Immobilien," and the other, "Motors," provided auto repair services. Sergei's business was, and still is, doing reasonably well. Still, something had come up that pushed him to seek our help: one of his former employees, Vyacheslav (name changed), had sued him as the owner of the company and his employer. In his claim, Vyacheslav alleged that for several years, Sergei had failed to pay him his monthly salary for work at "Immobilien," and asked the court to order our client to pay the resulting wage arrears along with monetary compensation. The total amount claimed came to around 180,000 euros.
Good to Know
Disputes arising from an employment relationship are heard before the specialized labor court (Arbeitsgericht), not an ordinary civil court.
Sergei explained the situation to the lawyer. Vyacheslav, he said, had indeed previously worked as managing director at "Immobilien." Over time, however, the agency had stopped generating any profit and existed, in practice, only as the owner of a piece of real estate, which Sergei's other company, "Motors," rented from it and paid rent for. Besides Vyacheslav, the agency had two other managing directors: our client, and another of Sergei's business partners. Since the agency no longer carried out any real operational activity, a decision was made at some point that all of its assets and staff would move over to "Motors" as a matter of organization. "Immobilien" itself continued to exist, but only as a property-holding entity that needed no staff at all. By agreement, all of the agency's managing directors likewise wound down their involvement with "Immobilien" and were to work exclusively for "Motors" going forward. Exactly when, and how, that transition and the winding-down of their roles had actually taken place, though, was less than clear — and that was what the lawyer needed to establish.
As the lawyer began digging into the case, one fact immediately stood out: the company's records held no confirmation whatsoever that the employment contract between Sergei, as the employer and owner of "Immobilien," and Vyacheslav, as the employee, had ever been terminated. There were no notes on file, and no letter of resignation or dismissal. Our client then explained that, at the time the staff and managing directors moved over to the other company, he had revoked the Management Agreement (Geschäftsführervertrag) previously concluded between him and Vyacheslav, which had authorized Vyacheslav to conduct the agency's affairs. That revocation was indeed properly recorded in the commercial register, and everything about it had been done correctly. Sergei had assumed at the time that revoking the Management Agreement would automatically terminate the employment contract as well. Under German law, however, employment law has a particular quirk here: a Management Agreement and an employment contract are two legally distinct instruments, and one has no bearing on the other.
That was exactly the gap the other side tried to exploit: they argued that while the Management Agreement had indeed been revoked, the employment contract had never been terminated and remained in force. This left us with a genuine problem — how to prove the employment contract had been terminated when nothing in writing had actually survived. In principle, ending an employment relationship requires a notice of termination or resignation from one side or the other. No such document existed here. To make matters worse, so much time had passed that Sergei could no longer even recall exactly how the transition had taken place, or whether such a document had ever existed at all.
In drafting the letter setting out our client's legal position, however, the lawyer pointed out to the court that, given the circumstances described above — namely, the purely formal move of all managing directors and staff to the other company — the absence of a written record of termination was simply because the contract had been terminated through conclusive conduct (konkludente Handlung). Both sides had expressed their intent to that effect, and the contract was accordingly to be treated as terminated by implication. What's more, even if one were to hypothetically assume the employment contract was still legally in force, an employee's entitlement to pay is matched by an obligation to actually provide services and carry out the duties under that contract. In this case, the other side had provided no evidence whatsoever that the claimant had, in fact, worked at "Immobilien" during all those years, or carried out any tasks in that capacity. The claimant therefore had no basis to demand payment of wages, since he had not, in fact, been working.
In response to our letter, the other side submitted to the court some kind of memo, allegedly written and signed by our client several years earlier. In it, Sergei supposedly demanded that Vyacheslav conscientiously fulfill his duties under the contract. Looking at the memo, our client immediately said he had written nothing of the sort, let alone signed it — and that the writing style wasn't even his. What's more, this wasn't even an original, but a copy, meaning the signature could easily have been not just forged, but simply transplanted onto the document. On our side, we told the court the memo was plainly fabricated and insisted on a handwriting analysis. We also asked the other side to produce the original. The lawyer further pointed out that our client never used letterhead of this kind for any correspondence or memos in the first place — his companies used exclusively branded letterhead with a distinctive header, which in this case looked markedly different from the one on the memo. But the single decisive detail for the lawyer — one that hadn't even caught our own client's eye at first — was the address. "Immobilien" had previously registered at a different business address, while the memo the claimant had submitted listed the agency's new, current address. Which, naturally, meant it could not possibly have been written when it was claimed to have been.
Exposing the claimant this way turned out to be the turning point of the whole proceeding, and it made the judge start to doubt Vyacheslav's version of events. As things stood, apart from this forged memo, no other evidence had been presented that Vyacheslav had actually performed any duties under the contract. In every one of his written submissions to the court, moreover, he spoke only vaguely and superficially about carrying out his duties, without ever citing a single concrete example of what he had actually done during all that time.
By that point, the lawyer had also managed to track down substantial evidence confirming just how absurd Vyacheslav's claims were. A document surfaced — written by the claimant himself — in which he stated, in his own hand and in several places, that during that very period he had been unemployed. It even specified the exact dates: the months and years during which he claimed to have worked at "Immobilien." And those dates matched what we had been arguing in court all along. This document came to light by pure chance: Vyacheslav happened to be married to our client's niece, and the two were in the middle of divorcing at the time. Under German law, any divorce triggers a standardized procedure for equalizing pension entitlements (Versorgungsausgleich), under which each spouse must file a declaration with their pension insurance provider that states, as a mandatory item, their periods and places of employment. On top of that, his ex-wife was seeking child or spousal support from him, which meant he also had to report his income. We naturally submitted this evidence to the court at the first opportunity. The other side tried to argue that the claimant had done this deliberately, on his own lawyer's advice, purely to dodge support payments — but the court was no longer willing to be persuaded. Weighing all the circumstances of the case, and now armed with clear, direct evidence, the court left no room for doubt. Every argument our firm's lawyer had built up fell into place like pieces of a puzzle, forming exactly the picture we had wanted to present to the court: that during the period in question, the claimant genuinely had not been working at "Immobilien" — and knew it perfectly well, since the employment relationship had already come to an end.
In the end, the lawyer was able to expose the claimant's story for what it was and help our client successfully defend his position in court. The claim was dismissed in its entirety. Sergei says he'll now be far more careful and diligent about every formality going forward, making sure the start and end of every employment relationship at his companies is properly documented. It proved a valuable lesson for him — and for us, another interesting story we can now share with you, dear readers.
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