Why dismissals are more expensive and take longer for foreign employers

Protection against dismissal, grounds, notice periods and form

General protection against dismissal under Section 1 of the German Employment Protection Act (KSchG) applies if the employment relationship has lasted for more than six months and the business regularly employs more than ten staff members. Part-time staff are taken into account on a pro rata basis when calculating the threshold. Transitional rules may apply to existing employment relationships that began before 2004. Where the KSchG applies, ordinary dismissal must be socially justified on grounds relating to the employee’s character or conduct, or due to urgent operational requirements.

In the case of dismissal on grounds of conduct, it must generally be assessed whether a relevant formal warning was required beforehand. Dismissal on operational grounds requires a business decision as well as the cessation of the need for the employee’s services. In addition, the employer must consider options for continued employment and apply the principle of social selection amongst comparable employees. Dismissals on personal grounds require a negative prognosis and a proportionality test. Special protection against dismissal, for example in the case of pregnancy, parental leave, severe disability or membership of a works council, may require additional approvals or stricter conditions.

The statutory notice periods are set out in Section 622 of the German Civil Code (BGB). For employers, these periods generally increase with length of service. Collective agreements and employment contracts may affect these periods. Irrespective of this, Section 623 of the German Civil Code (BGB) requires a written notice of termination signed in the employer’s own hand. Electronic form is not permitted. If the notice of termination is signed by an authorised representative, Section 174 of the German Civil Code (BGB) may also be relevant. Receipt of the original should be organised in a manner that provides reliable proof.

Under Section 4 of the German Employment Protection Act (KSchG), employees must, as a general rule, bring an unfair dismissal claim within three weeks of receipt of the notice. If this time limit is missed, the notice of termination is generally deemed to have been effective from the outset in accordance with Section 7 KSchG. However, employers should not regard the expiry of this time limit as definitive confirmation until any possible subsequent admissions or other claims have been examined.

Severance pay is the result of negotiations, not a standard entitlement

In the event of dismissal by the employer, there is no general statutory entitlement to severance pay. However, entitlements may arise from a social plan, a collective agreement, a contract, a court-ordered termination or the special provision in Section 1a of the German Employment Protection Act (KSchG). In many cases, however, a severance payment is agreed upon in order to eliminate risks relating to protection of existing employment and default on acceptance. The frequently cited guideline of half a month’s gross salary per year of service is derived, amongst other things, from Section 1a of the German Employment Protection Act (KSchG), but does not constitute a general standard. However, the prospects of litigation, remuneration, length of service, prospects of finding alternative employment, bonus and share schemes, as well as the desired termination date, can significantly alter the value of a severance payment.

A termination agreement can make the separation more predictable, but it must also be in writing. It should cover the termination date, leave of absence, remaining holiday entitlement, bonuses, variable remuneration, long-term incentives (LTI), the reference, the return of work equipment, non-competition clauses and compensation provisions. For the employee, a waiting period for unemployment benefit and a suspension of entitlement in the event of a reduction in the standard notice period may be relevant. Employers should not offer a blanket guarantee under social security law in this regard, but should explain the structure transparently and give the employee the opportunity to seek advice.

Communication is also important for international groups. An immediate system shutdown or a public announcement of the separation before the notice of termination has been received can place an unnecessary strain on the process. Conversely, data protection, information security and access rights must be safeguarded. HR, local management, IT and, where applicable, group headquarters should therefore prepare a coordinated procedure with a clear timeframe, original signature and method of delivery.

Works Councils and Collective Redundancies under the Federal Labour Court’s 2026 case law

Where a works council exists, it must be consulted prior to any dismissal in accordance with Section 102 of the Works Constitution Act (BetrVG). The employer must inform the works council of the grounds for dismissal which it considers to be substantial, as well as the necessary personnel data. A dismissal issued without consultation is invalid. Incorrect or incomplete information may also be detrimental if it prevents the works council from giving its opinion in the proper manner. The consultation is not a formal procedure that can be rectified retrospectively and must be completed before the notice of dismissal is signed or issued.

In the event of staff reductions within 30 calendar days, the thresholds set out in Section 17 of the Employment Protection Act (KSchG) may also be met. In such cases, the consultation procedure with the works council and the notification to the Employment Agency must be carefully planned. On 1 April 2026, the Sixth Senate of the Federal Labour Court ruled that dismissals are invalid if the required notification is either entirely omitted or is submitted before the consultation procedure has been completed.

However, not every error in the notification automatically renders it invalid. In its ruling of 25 June 2026, the Federal Labour Court clarified that inaccurate information may be harmless, depending on its significance and the circumstances, provided that the Employment Agency is still able to fulfil its duties. In practice, this means that a more detailed analysis of the errors is required. Omissions and premature notifications are particularly serious. In the case of inaccuracies in content, the nature, extent and consequences are decisive.

How international employers make redundancies manageable

Preparation begins with a local assessment. The following points must be clarified: the employer company, place of work, applicable law, length of service, company size, status as a director or employee, special protection against dismissal, works council jurisdiction and any thresholds for collective redundancies. In the case of group-wide roles, it must also be assessed whether continued employment with the German contracting employer or within a joint venture is relevant. Global redundancy lists are not sufficient for this assessment.

Subsequently, the grounds for dismissal must be documented in a robust file. In doing so, poor performance, breaches of duty, formal warnings, organisational decisions, job redundancies, selection criteria and alternative employment opportunities must be consistent in terms of both timing and content. The decision must not be retrospectively substantiated with documents that do not reflect the actual sequence of events.

Finally, involvement, signatures and receipt must be organised in the correct order. For larger projects, this includes a centralised timetable for consultation, notification, works council hearings and individual letters, as well as ongoing monitoring of the 30-day periods. A realistic budget must take into account not only any potential severance pay but also continued salary payments, bonuses and benefits during the notice period, legal costs and internal administrative expenses. Whilst this does not make a redundancy risk-free, it does make it significantly easier to manage in terms of both time and finances.