Employment protection proceedings from the employer’s perspective

How does a dismissal protection case begin?

If an employee wishes to challenge the validity of a dismissal, they must, in principle, bring an action within three weeks of receiving the written notice of dismissal, in accordance with Section 4 of the German Employment Protection Act (KSchG). If this time limit expires and the claim is not, in exceptional circumstances, subsequently admitted, the dismissal is deemed to have been legally valid from the outset under Section 7 of the German Unfair Dismissal Protection Act (KSchG). The three-week time limit and the presumption of validity must therefore be the first points checked by the employer upon receipt of the claim.

Upon receipt of the claim, the labour court first sets a date for a conciliation hearing. Under Section 61a of the Labour Court Act (ArbGG), dismissal proceedings are to be given priority, and the conciliation hearing should take place within two weeks of the claim being filed. In practice, the date depends on the court’s workload. The conciliation hearing is conducted solely by the presiding judge and, under Section 54 of the Labour Court Act (ArbGG), serves primarily to reach an amicable settlement.

If the conciliation hearing fails, the presiding judge will instruct the employer to respond to the claim in writing, providing evidence to support their case. This marks the start of an exchange of written submissions, which may be extensive depending on the subject matter of the dispute. The subsequent hearing before the chamber is conducted in the presence of the presiding judge and two lay judges. If the written submissions are insufficient to clarify the facts of the case, a hearing of evidence follows, for example through the examination of witnesses or the obtaining of an expert opinion.

What should the employer check immediately upon receiving the claim?

Firstly, it must be clarified which dismissal is being challenged and what other claims have been made. In addition to the claim for protection against unfair dismissal, claims for continued employment, remuneration, bonuses, holiday pay, a reference or the return of company property may also be considered. Where there are multiple dismissals, each requires a separate procedural assessment.

At the same time, the relevant documents relating to the dismissal must be compiled in full: the employment contract and any addenda, formal warnings, records of performance or absences, the letter of consultation sent to the works council and its response, internal decision notes, and proof of receipt of the notice of dismissal. In the case of redundancies, organisational decisions, the staffing plan, vacant posts and the selection criteria must also be taken into account.

This review must be carried out at an early stage. Justifications drawn up retrospectively cannot compensate for a lack of preparation and regularly give rise to contradictions as soon as internal communication and the arguments presented in court do not correspond.

Who bears the burden of presentation and proof in proceedings concerning protection against unfair dismissal, and what grounds for dismissal exist?

Within the scope of general protection against unfair dismissal, the employer must set out and prove the facts justifying the dismissal. Section 1(2), first sentence, of the German Unfair Dismissal Protection Act (KSchG) distinguishes between grounds relating to the employee’s person, conduct or urgent operational requirements. The requirements vary depending on the type of dismissal. 

In the case of dismissal on grounds of conduct, the employer must demonstrate a specific, verifiable breach of duty. General assessments such as ‘loss of trust’ or ‘lack of willingness to perform’ are not sufficient. Furthermore, a relevant formal warning is usually a prerequisite for the dismissal to be valid, unless the breach of duty is so serious that tolerance of it is out of the question even without prior warning, or a change in behaviour cannot be expected from the outset (for example, in the case of persistent refusal to work or serious criminal offences to the detriment of the employer). If the employee has not challenged a formal warning in court, this does not prevent them from contesting the facts cited in the warning during proceedings for protection against unfair dismissal. The burden of proof regarding the validity of the formal warning remains with the employer.

In the case of dismissal on personal grounds, particularly due to illness, the assessment follows a three-stage process: Firstly, a negative prognosis for the future must be set out, demonstrating that, for example, significant absences due to illness are also to be expected in the future. The specific starting point is the periods of absence in recent years, ideally documented in detail by time period. This is followed by a demonstration of significant operational disruptions, such as repeated disruptions to business operations, the need to reorganise work, substantial costs associated with continued payment of wages, or the ongoing need to fill the post with another employee. At the third stage, a balancing of interests must be carried out, taking into account length of service, age, social circumstances and the employee’s prospects on the general labour market. Although workplace integration management (BEM) under Section 167(2) of SGB IX is not a formal prerequisite for validity, However, its absence does have an impact in terms of the burden of proof. If the employer has not carried out a BEM, they face an increased burden of proof to demonstrate that continued employment was impossible even under changed conditions or in a different post; a blanket denial is then insufficient.

In the case of redundancy for operational reasons, the employer must explain the business measure, the permanent loss of the need for employment, the lack of opportunities for continued employment and the social selection process. The court does not replace the employer’s decision with its own assessment of appropriateness, but does verify whether the decision was actually implemented and resulted in the job being made redundant.

What is the significance of the works council consultation?

If a works council exists, it must be consulted prior to any dismissal in accordance with Section 102 of the Works Constitution Act (BetrVG). A dismissal issued without such a consultation is invalid. The employer must inform the works council of the grounds for dismissal which they consider to be decisive in such a way that the works council can assess the measure without having to carry out its own investigations.

The consultation must relate to the specific dismissal. Errors arise if the type of dismissal, the date, personal details or the facts of the case are stated incorrectly. A subsequent change in the employer’s strategy may also be problematic if the employer now wishes to base the dismissal on facts that were not communicated to the works council.

The documentation should provide evidence of the consultation letter, its receipt, the expiry of the response period and the works council’s response. In the case of extraordinary dismissals, shorter response periods apply than for ordinary dismissals. Signing or serving the notice prematurely can invalidate the entire procedure.

How do settlement negotiations work?

At the conciliation hearing, no evidence is yet taken. The court assesses the facts of the case as they stand and attempts to translate the financial risks into a settlement. It makes sense for employers to establish a robust framework for negotiations, with clear upper and lower limits, before discussions begin. Typically, the following matters need to be settled: the date and reason for termination, any potential severance pay, a period of leave of absence against outstanding holiday entitlement and overtime, the treatment of variable remuneration, the reference, the return of work equipment, and a final settlement and release clause. It is also advisable to factor the tax and social security implications into the negotiating position from the outset.

There is no general statutory entitlement to severance pay. Only specific exceptional circumstances may apply, such as Section 1a of the German Employment Protection Act (KSchG), a social plan, provisions under a collective agreement, or the judicial termination of the employment relationship pursuant to Sections 9 and 10 of the KSchG. In practice, however, severance payments are predominantly based on an agreement between the parties.

The commonly used formula of half a month’s gross salary per year of service is not a binding standard. The appropriate amount depends on litigation risk, default of acceptance, length of service, prospects of finding alternative employment, special protection against dismissal and the employer’s interest in a swift termination.

Why is remuneration for default of acceptance a key risk?

The risk of default in acceptance arises from Section 615 of the German Civil Code (BGB). If the employer defaults on accepting the services, the employee may claim the agreed remuneration for the services not rendered without being obliged to perform them retrospectively. If a notice of termination is found to be invalid, the employer is therefore liable to pay remuneration retrospectively for the period following the expiry of the notice period. Pursuant to Section 615, second sentence, of the German Civil Code (BGB), savings, any interim earnings actually received and earnings maliciously foregone must be set off; where the employment relationship continues, Section 11 of the German Employment Protection Act (KSchG) also applies, which includes social security benefits.

The financial risk increases with the duration of the proceedings. In addition to basic remuneration, variable remuneration components, allowances, non-cash benefits and occupational pension schemes may be affected, depending on the terms of the contract. 

Employers should therefore assess at an early stage whether it makes sense to continue employing the employee during the proceedings, to retain them in their current role or to make a specific offer of employment. It is also advisable to provide the employee with specific job offers promptly during the period of default, each including details of the nature and content of the work, the place of work and the remuneration, and to document this. The defence of maliciously forfeited interim earnings is not a blanket means of reducing compensation. Merely referring to a strong labour market is not sufficient; it is necessary to provide evidence of specific, reasonable job opportunities.

What are the costs involved in labour court proceedings?

Under Section 12a of the Labour Court Act (ArbGG), in first-instance labour court proceedings, each party generally bears its own legal costs, regardless of the outcome of the proceedings. Court fees are waived in the event of a settlement. In appeal and cassation proceedings, however, the allocation of costs is governed by the Code of Civil Procedure (ZPO).

The direct costs of litigation are often lower than the resulting financial consequences. Key factors include delay in acceptance, internal working hours, disruption within the team, potential follow-up proceedings and the costs associated with witnesses. An analysis focused solely on the severance payment therefore fails to take the full picture into account.

Before reaching a settlement, the potential total financial burden and the litigation risk should be assessed. A higher, but final, sum may be more cost-effective than protracted proceedings with an uncertain risk regarding compensation. Conversely, payment should not be made hastily if the grounds for dismissal and the evidence are sound.

What typical procedural errors should employers avoid?

One of the most common errors is the lack of proof of receipt. The full burden of proof lies with the employer, and mere proof of dispatch does not fulfil this requirement. Following the latest ruling by the Federal Labour Court (BAG) on 30 January 2025, it is now inadvisable to use registered post with proof of posting. According to this ruling, the posting receipt and dispatch status currently provided by the postal service do not constitute prima facie evidence of receipt. Furthermore, it remains unclear which letter was inside the envelope. It is therefore advisable to arrange for delivery by a courier who is aware of the letter’s contents, observes the letter being placed in the envelope, records the date and time of delivery into the letterbox, and is available as a witness. This delivery should also be documented.

Further weaknesses include an incomplete works council consultation, contradictory grounds for dismissal and an unclear selection of employees for redundancy. In the case of dismissals on grounds of conduct, the formal warning and the subsequent allegation often do not correspond; in the case of redundancies, a suitable alternative position is overlooked or the organisational decision has not yet been sufficiently specified.

Risks also arise during the proceedings themselves. Court deadlines, requirements to substantiate claims and offers of evidence must be taken seriously. Witnesses must not be ‘briefed’, but should be identified at an early stage and questioned about the actual sequence of events on the basis of available documents. A file compiled only shortly before the court hearing can rarely be organised in a way that is free of contradictions.

How can the process be managed strategically?

A sound strategy aligns the legal position with the business objective and with internal and external communication. The first step is therefore a fundamental decision: is the employer seriously considering continuing the employment relationship, or is it seeking a legally sound termination? This decision determines the framework for a settlement, the question of whether to offer continued employment or employment pending litigation, and how the employee is dealt with internally. 

The arguments presented in court should remain precise, verifiable and credible. Exaggerated or unsubstantiated allegations have a doubly detrimental effect: they narrow the scope for settlement and may work against the employer when the evidence is assessed.

Finally, plans must be made for the period following the proceedings. A settlement requires clear provisions regarding the grounds and date of termination, remuneration and leave of absence (including the crediting of holiday entitlement), final pay settlement, reference, confidentiality, the return of documents and work equipment, non-competition clauses, and the settlement of mutual claims. If the employment relationship is to continue, the return to work must also be practically feasible. The scope of duties, managerial responsibilities and collaboration must be clarified in advance to ensure that the concluded proceedings do not give rise to the next conflict.