When Operating a German Entity, Dismissal Procedures Must Be Reviewed from the Outset
When dismissing an employee in Germany, employers must review not only the grounds for termination, but also the form of notice, notice period, consultation with the Betriebsrat (works council), and whether the employee falls within a specially protected category.
Germany’s dismissal framework is based on a combination of the German Civil Code (BGB), the Protection Against Dismissal Act (KSchG), and the Works Constitution Act (BetrVG).
Accordingly, even where a valid reason for dismissal exists, failure to follow the required procedure may render the dismissal invalid.
This is particularly important for Korean companies operating German subsidiaries. Applying Korean HR practices directly to German employment relationships can create problems with the form of dismissal notices and employee representative procedures.
Key Takeaways
The Protection Against Dismissal Act generally applies where an employee has worked for more than six months and the establishment regularly employs more than 10 employees.
Where the Act applies, a dismissal generally requires a socially justified reason, which may fall into one of three categories:
- personal reasons;
- conduct-related reasons; or
- operational reasons.
German statutory notice periods vary depending on length of service and may extend up to seven months for employers.
A dismissal notice must generally be provided in writing, and dismissal by email or messenger is not sufficient.
Where a Betriebsrat has been established, the employer must consult it before dismissal. Failure to complete the consultation procedure may render the dismissal invalid.
1. First Check Whether the Protection Against Dismissal Act Applies
Not every dismissal in Germany is reviewed under exactly the same standard.
The Protection Against Dismissal Act (KSchG) generally applies where both of the following conditions are met:
- the employee has been continuously employed at the same establishment or company for more than six months; and
- the establishment regularly employs more than 10 employees.
Where these conditions are satisfied, an employer may not dismiss an employee without a socially justified reason.
The grounds for dismissal generally fall into three categories:
- personal reasons;
- conduct-related reasons; and
- operational reasons.
However, the fact that the KSchG does not apply to a small business does not mean that the employer is completely free to dismiss employees.
Other rules may still apply, including:
- statutory notice periods under the BGB;
- written-form requirements;
- anti-discrimination rules; and
- special protections for certain employees, including pregnant employees and employees with severe disabilities.
2. Requirements Differ Depending on the Type of Dismissal
German dismissals can broadly be divided into:
- ordinary dismissal;
- extraordinary dismissal; and
- termination by mutual agreement.
Ordinary Dismissal
An ordinary dismissal terminates the employment relationship after the applicable statutory or contractual notice period.
Where the KSchG applies, the employer generally needs a valid personal, conduct-related, or operational reason.
Extraordinary Dismissal
An extraordinary dismissal allows the employment relationship to be terminated without observing the ordinary notice period where there is a serious cause.
Examples may include:
- embezzlement;
- violence; or
- serious disclosure of confidential business information.
The employer must generally give notice within two weeks after becoming aware of the facts constituting the serious cause.
Termination by Mutual Agreement
The employer and employee may also terminate the employment relationship by mutual agreement.
In practice, a termination agreement (Aufhebungsvertrag) is often structured together with a severance payment to reduce the risk of later dismissal litigation.
However, if an employee is pressured into signing without a genuine opportunity to review the agreement, questions regarding validity may arise.
3. Grounds for Dismissal Are Generally Reviewed in Three Categories
Where the KSchG applies, the employer must be able to explain the reason for dismissal specifically.
Personal Reasons
A personal dismissal may arise where the employee is unable to perform their duties because of circumstances relating to their personal capacity or qualifications.
Examples may include:
- long-term illness;
- repeated short-term illness; or
- loss of a qualification legally required for the position.
Even in these cases, an employer may need to consider whether reassignment or alternative employment was reasonably available before proceeding with dismissal.
Conduct-Related Reasons
A conduct-related dismissal may arise where the employee breaches contractual duties.
Examples include:
- unauthorized absence;
- repeated refusal to follow instructions;
- workplace harassment; or
- other serious breaches of employment obligations.
For conduct-related dismissal, a prior warning (Abmahnung) is generally important.
The warning should clearly identify:
- the problematic conduct;
- the contractual obligation breached; and
- the possibility of dismissal if the conduct is repeated.
Operational Reasons
An operational dismissal may arise from legitimate business needs, such as:
- restructuring;
- closure of a business division; or
- reduction in staffing requirements.
A general statement that the company needs to reduce costs is usually insufficient.
The employer should be able to demonstrate:
- that the position is genuinely no longer required; and
- that the criteria used to select the employee for dismissal were reasonable.
4. Notice Periods and Written-Form Requirements Must Be Observed
The statutory notice period under German civil law varies according to length of service.
The basic notice period is generally four weeks, but the employer’s notice period increases as the employee’s length of service increases.
As a general reference:
- 2 years or more: 1 month
- 5 years or more: 2 months
- 8 years or more: 3 months
- 10 years or more: 4 months
- 12 years or more: 5 months
- 15 years or more: 6 months
- 20 years or more: 7 months
Different rules may apply during an agreed probationary period, under an employment agreement, collective bargaining agreement, or depending on the size and structure of the establishment.
A dismissal notice must generally be issued in written form.
Email, messenger messages, or verbal notice generally do not satisfy the statutory written-form requirement for termination.
Where the employer is a corporation, the dismissal notice should also be signed by a person with proper authority and should clearly state the effective termination date.
5. If a Betriebsrat Exists, Consultation Is Required Before Dismissal
Where a German establishment has a Betriebsrat (works council), the employer must inform and consult the works council before dismissing an employee.
A dismissal issued without completing this procedure may be invalid.
For an ordinary dismissal, the Betriebsrat may generally submit its views within one week.
For an extraordinary dismissal, the period is generally shorter and may be limited to three days.
An objection from the Betriebsrat does not automatically prevent the dismissal in every case, but it may increase the employer’s burden in subsequent dismissal litigation.
Korean companies whose German operations are expanding should therefore consider in advance the possibility that employees may establish a Betriebsrat.
Once established, works council rights may affect not only dismissals, but also areas such as:
- working hours;
- personnel measures;
- workplace rules; and
- other consultation or co-determination matters.
6. Specially Protected Employees May Require Separate Approval
Certain employees receive stronger dismissal protection under German labor law.
Pregnant Employees and Employees After Childbirth
Dismissal of pregnant employees and employees during certain protected periods after childbirth is generally prohibited.
Employees on parental leave also receive special protection.
In exceptional cases, prior approval from the competent authority may be required before dismissal.
Employees with Severe Disabilities
Dismissal of an employee with severe disabilities generally requires prior approval from the competent Integration Office (Integrationsamt).
A dismissal carried out without the required approval may be invalid.
Works Council Members
Members of the Betriebsrat also enjoy enhanced dismissal protection.
Ordinary dismissal is heavily restricted during their term of office and for certain periods thereafter.
Additional approval or consultation procedures may also be required for extraordinary dismissal.
Employers should therefore first determine whether the employee belongs to a specially protected category before deciding on dismissal.
7. Germany Does Not Have a General Statutory Severance Pay System
Unlike Korea, Germany does not have a general statutory severance pay system that automatically applies to every dismissal.
Severance commonly becomes relevant in situations such as:
- negotiated termination agreements;
- settlements in dismissal protection proceedings; or
- certain operational dismissals where statutory conditions are met.
In some operational dismissal situations, the employer may offer severance on the condition that the employee does not bring a dismissal protection action within three weeks.
A commonly referenced formula is approximately 0.5 months’ salary for each year of service, although the actual amount may vary depending on the circumstances.
In practice, the amount of severance is often negotiated based on factors such as:
- litigation risk;
- length of service;
- position and salary;
- the employer’s business needs; and
- the strength of the grounds for dismissal.
Accordingly, severance in Germany is better understood as a negotiation tool for resolving dismissal-related disputes, rather than an automatic statutory cost in every case.
8. The Three-Week Period After Notice Is Critical
An employee may generally file a dismissal protection action (Kündigungsschutzklage) with the labor court within three weeks after receiving written notice of dismissal.
If proceedings are commenced during this period, the court may review issues including:
- grounds for dismissal;
- compliance with the notice period;
- works council consultation;
- special protection status; and
- procedural validity.
From the employer’s perspective, the three-week period after notice is therefore an important benchmark for assessing litigation risk.
During this period, the parties often negotiate:
- a termination agreement;
- settlement of litigation;
- severance; or
- other exit terms.
If the dismissal is ultimately held invalid, the employment relationship may be treated as having continued, which can create a risk of back-pay liability for the dispute period.
For this reason, it is generally more important to organize the procedure and supporting evidence before dismissal than to attempt to correct defects afterwards.
Frequently Asked Questions
Q. Does the Protection Against Dismissal Act not apply if the German entity is small?
The social justification requirements under the KSchG may not apply to an establishment that regularly employs 10 or fewer employees.
However, rules concerning notice periods, written dismissal notices, anti-discrimination, and specially protected employees may still apply.
Q. Is works council consultation unnecessary if there is no Betriebsrat?
Yes. The consultation obligation applies where a Betriebsrat has actually been established.
However, if the workforce grows to a level at which a Betriebsrat may be elected, companies should consider in advance how this may affect future HR measures.
Q. When is immediate dismissal possible?
Immediate dismissal is generally possible only in exceptional circumstances involving a serious cause that makes continuation of the employment relationship unreasonable even until the end of the notice period.
The employer must generally act within two weeks after becoming aware of the relevant facts.
Q. Can the Korean headquarters directly dismiss an employee of the German entity?
As a general rule, the dismissal notice should be issued in the name of the German employing entity and signed by a person who has authority to terminate the employment relationship.
A notice issued solely in the name of the Korean parent company, or by a person without proper authority, may create questions regarding validity.
DECENT Insight
The most important principle in German dismissal procedures is that the substantive reason and the required procedure must be reviewed together.
Even where the employer has sufficient grounds for dismissal, the dismissal may still be invalid if the employer fails to comply with:
- written-form requirements;
- applicable notice periods;
- Betriebsrat consultation; or
- special protection rules.
Korean companies operating German subsidiaries should therefore avoid simply applying Korean HR standards to German employees.
It is advisable to prepare in advance:
- employment agreement templates;
- internal employment rules;
- warning letters;
- dismissal notices; and
- termination agreement templates
in accordance with German employment law.
DECENT Law Firm’s Global Business Practice Team supports Korean companies with legal review relating to:
- German employment and HR risks;
- dismissal procedures;
- termination agreement structures; and
- HR policies for headquarters and German subsidiaries.
If your German entity is considering workforce restructuring or employee dismissals, the grounds for dismissal and procedural requirements should be reviewed before the termination notice is issued.