Costs and legal expenses insurance

The total costs of a legal dispute are made up of legal fees and court costs.

The fees for legal and court services are set by law in the German Lawyers' Fees Act (RVG) and the German Court Costs Act (GKG). The fees are based on the amount in dispute. The amount in dispute is not the amount that has to be paid. The lawyer's fees are calculated on the basis of the amount in dispute, depending on the activities for which the lawyer is instructed. The amount in dispute is based on the value of the dispute. If a payment of 5,000 euros is claimed, the amount in dispute is 5,000 euros. For an action for unfair dismissal, case law has set the amount in dispute at three gross monthly salaries. So if an employee who earns 2,500 euros gross per month wants to take legal action against a dismissal, the amount in dispute is 7,500 euros. With a value in dispute of EUR 7,500, the fee is EUR 456 in accordance with Annex 2 of the German Lawyers' Fees Act.

The lawyer receives 1.3 times the procedural fee for bringing an action. Furthermore, there is a 1.2-fold appointment fee for attending court appointments. If the process is ended by a settlement, an additional 1.0-fold settlement fee is incurred, whereby the court costs are waived if a settlement is reached. The lawyer's costs therefore amount to 3.5 times the fee plus expenses of approx. 20 euros, plus VAT of 19%. The lawyer's fees in this example therefore amount to a total of 1,923.04 euros.

In addition to billing the fees on the basis of the statutory fee table, it is also possible to conclude a remuneration agreement. In this agreement, an hourly fee is agreed between the client and the lawyer. In such a case, the lawyer invoices the actual hours spent. However, if the fees according to the statutory table are higher than the fees based on the actual hours spent, the lawyer is obliged to charge the statutory fees incurred for court fees; out-of-court fees may be charged less than the statutory amount.

Each party bears its own legal fees in the first instance, irrespective of whether it wins or loses the legal dispute. The idea behind this labor law regulation is to protect the employee. The employee should not be prevented from taking legal action against his employer because of the fear that he will have to pay his employer's legal fees if he loses. The downside, however, is that the employee has to bear his own legal costs even if he wins.

It therefore makes sense to take out legal expenses insurance. This intervenes in the event of a legal protection case and covers the costs of the lawyer, the court fees if these are incurred and, if necessary, the costs of experts. A legal protection case exists if, and only if, the policyholder claims that his own rights have been infringed by a breach of duty by the opponent. This is the case, for example, if the employee claims to have been wrongfully dismissed, but not if the employer and employee conclude a termination agreement. Pure consultancy services that do not relate to a legal infringement committed are also not covered by insurance.

It should also be noted that most insurance companies have a waiting period of 3 months from taking out the insurance. If a similar previous insurance policy exists and is seamlessly transferred to the new one, the waiting period may be waived.

More information? Email us: arbeitsrecht@voelker-gruppe.com