Dismissal law in Germany: this is how it works

If you want to dismiss an employee in Germany, it is important to first check which law applies. The employment contract usually contains a so-called ‘choice of law clause’. This states which law applies to the employment contract.
Has no choice of law been agreed? Then the labor law of the country where the work is usually performed applies. Is this country Germany? Then German law applies.

Please note: has a choice been made for Dutch law in the choice of law clause? Then some mandatory provisions under German law may still apply to the dismissal. So always seek advice in such a case.

If German law applies, it is important to know that dismissal law in Germany distinguishes between companies with 1 to 10 employees and companies with more than 10 employees.

Please note: does your company have branches in the Netherlands and Germany? Then workers who fall under Dutch law will in principle not be included in the count.

Do you have no more than 10 employees in Germany? Then in many cases you can terminate the employment contract quite easily. You do not need permission from an authority and therefore only have to observe the contractual or statutory notice period. You are also not obliged to pay a transition fee.

Please note: the dismissal cannot of course be arbitrary. Failure to take certain basic principles into account (such as the covenant against discrimination) may result in the dismissal not being legal.

Do you employ more than 10 employees? And was the employee employed for more than 6 months? Then the ‘Kündigungsschutzgesetz’ (KSchG) applies to the dismissal.
The KSchG is a law that sets additional requirements for dismissal. Dismissal is then only possible if you have no other, less drastic measures available. This could include a warning, transfer or further training.

You must also state the reason for dismissal in the resignation letter. This may be a reason related to the person (dysfunction or – unlike in the Netherlands – frequent or long-term absenteeism) or the behavior of the employee, but a business economic reason is also possible. You must also indicate (and therefore demonstrate) why this reason applies.

Please note: the KSchG does not apply to directors.

Does an employee fall under the protection of the KSchG? Then you must take into account that this employee will contact a lawyer after dismissal and start proceedings.
This procedure allows the employee to defend against dismissal. The statement of defense (in German: Kündigungsschutzklage) must be submitted to the competent German labor court within 3 weeks of receipt of the dismissal letter.

Although this procedure is intended to allow the court to rule on the legality of the dismissal, in practice it is mainly used to reach a settlement with the employer. And with success, because 95% of these procedures are actually settled before a court decision is reached. The settlement will then record various matters, such as the amount of the severance payment, the date of termination, exemption from work and the payment of unused vacation days.

Please note: the KSchG gives you the option to offer the employee severance pay in the dismissal letter if the employee therefore decides not to proceed with the procedure. In that case, the amount of the compensation is half a month’s salary for each year that the employment relationship has existed.