Staff Cuts in Germany – How to Avoid Legal Blunders

Dismissal of Employees in Germany: A Guide for Employers

Business downsizing forces companies to take painful measures. To ensure that redundancies on operational grounds (betriebsbedingte Kündigung) survive the strict scrutiny by the German employment tribunal (Arbeitsgericht), employers in Germany must strictly adhere to a long list of formal and legal requirements. Even minor errors in the process can render redundancies invalid and will lead to costly severance payments or unfair dismissal proceedings.

This guide takes you step by step through the legally compliant procedure und German employment protection law.

The 5 Pillars of a Legally Compliant Business Downsizing

If the Protection Against Unfair Dismissal Act (Kündigungsschutzgesetz) applies to your business (i.e. if your business site has more than 10 employees; the specific calculation is tricky), then the “social selection process” (Sozialauswahl) determines the order in which redundancies are made.

The entrepreneur (i.e. the shareholders or the top management, depending on the company form) must document in a crystal-clear and convincing manner why jobs are being permanently cut. A mere decline in turnover is not sufficient to justify staff cuts under German employment law. Such a reasoning would not hold up in German labour tribunal. You must be able to prove that less drastic measures (such as short-time working or reducing the use of agency workers) are not sufficient to ensure the company’s economic survival.

#2) The Social Selection Process (the ‘who is being let go’)

  • First, you form comparison groups (Vergleichsgruppen), i.e. groups of employees with similar roles and qualifications.
  • Within these groups, you use a clearly defined and fair points system to identify the individuals who are least in need of social protection. The main criteria for this are: age (the older the employee, the more difficult for him or her to find a new job), length of service, maintenance obligations (i.e. duty to pay child support) and severe disability.
  • Exceptions: So-called key performers (employees with indispensable skills) may be excluded from the social selection process under strict conditions.

#3) Observe Special Protection Against Dismissal

Check meticulously in advance whether the individuals concerned are subject to special statutory protection under German law. Extremely high thresholds apply to pregnant women, parents on parental leave, works council members (Betriebsratsmitgliedschaft; something that does not really exist under UK law where the closest concept is “union busting” or “blacklisting”) and people with severe disabilities. In the case of people with severe disabilities, for example, prior approval from the Integration Office is required.

#4) Involve the Works Council (Betriebsrat)

If a works council (Betriebsrat) exists at the business site, its involvement is mandatory. You must not only consult the council before each individual dismissal but also negotiate a reconciliation of interests and a social plan (e.g. severance pay arrangements) in the event of a downsizing. Without consultation with said works council, any dismissal is automatically invalid due to not adhering to the statutory procedure.

#5) Notification of mass redundancies

#1) The Business Decision (the ‘why’)

If, depending on the size of the business, certain thresholds for the total number of redundancies within a 30 calendar day period are exceeded, you must in advance notify the Employment Agency of this (Section 17 of the German Employment Protection Act (Kündigungsschutzgesetz)). Redundancies announced prior to this notification are legally void.

Checklist: How to Prepare for a Workforce Reduction (Mass Redundancy) in Germany

It should be clear by now that employers in Germany can make dozens of mistakes when restructuring their business if they do not plan the process of reducing their staff months in advance.

Use this checklist to avoid procedural errors:

Phase 1: Concept & documentation

  • Set out the business decision in writing: Draw up a detailed plan explaining exactly why specific departments or jobs are to be permanently eliminated.
  • Establish economic justification: Have figures, data and facts to hand that substantiate the permanent loss of employment opportunities.
  • Examine less drastic measures: Document why redeployment, retraining or short-time working are not viable options.

Phase 2: Staff analysis & social selection

  • Form comparison groups: Group together employees with the same or interchangeable roles.
  • Create a scoring matrix: Accurately evaluate social data (age, length of service, dependants, disability).
  • Define key performers: Check whether key staff members essential to the business must be legitimately excluded from the social selection process.Check special protection against dismissal: Clarify the status of pregnant employees, employees on parental or carer’s leave, and those with severe disabilities.

Phase 3: Authorities & Committees

  • Check thresholds for collective redundancies: Determine whether the planned redundancies trigger the obligation to notify the Employment Agency.
  • Inform and consult the works council: Initiate negotiations on the reconciliation of interests and the social plan in good time.
  • Obtain official approvals: Submit applications to the Integration Office (for severely disabled employees) or the occupational health and safety authorities.
  • Submit the mass redundancy notification: Send the fully completed form to the Job Centre (and await confirmation of receipt).

Phase 4: Implementation & Notice

  • Calculate notice periods: Determine individual notice periods (as stipulated by law, collective agreement or employment contract) precisely.
  • Draft termination letters: Ensure compliance with the written form requirement of German law. Original (“wet ink”) signature of the authorised person (managing director). No faxes and definitely no emails or WhatsApp messages!
  • Prepare an alternative option: Have termination-by-mutual-consent agreements ready, including fair severance pay offers (rule of thumb in Germany is to offer 0.5 gross monthly salaries per year of employment at the business) as an amicable solution.
  • Service of termination letter: Ensure delivery by courier or in person against a receipt.

More on German Employment Law and Cross-Border Mobility here:

For further information on German labour law and employment agreements see here or feel free to contact us at +49 941 785 3053

Bernhard Schmeilzl, Rechtsanwalt (Germany) & Master of Laws (UK)