Reconciliation of interests: Employee rights during company restructuring

When companies merge, close departments, or relocate jobs, entire teams face uncertainty. To ensure such restructuring processes remain fair, German law provides for a “reconciliation of interests” (Interessenausgleich) – an agreement between the employer and the works council. It aims to make decisions transparent and protect employees from unfair disadvantages. This guide explains how the reconciliation of interests works, when it applies, and what rights employees have in this process.

Key takeaways:

• A reconciliation of interests (Interessenausgleich) is an agreement between the employer and the works council in case of major operational changes. It aims to ensure that restructuring measures are carried out fairly.
• Typical contents include timing, scope, and procedure of changes, as well as the selection of affected employees.
• The agreement is voluntary but can have financial consequences if the employer refuses to negotiate.
• A reconciliation of interests with a “name list” makes redundancies easier for employers to justify in court.
• If employers breach or skip negotiations, employees may claim compensation or severance pay under Section 113 BetrVG (German Works Constitution Act).

Agreement between employer and works council

A reconciliation of interests (Interessenausgleich) is a formal agreement between an employer and the works council that defines how planned operational changes—such as closures, relocations, or mergers—will be implemented. The goal is to balance the employer’s business interests with employees’ social and economic concerns. It defines whether, when, and to what extent changes will take place.

The legal basis is the Works Constitution Act (Betriebsverfassungsgesetz, BetrVG). Such an agreement only applies if a works council exists and the company employs more than 20 employees.

Main elements of a reconciliation of interests

A reconciliation of interests typically includes:

• Date of closure or restructuring
• Number of employees to be dismissed
• Timeline for notice periods and earliest termination dates
• Criteria for selecting affected employees
• Possible short-time work arrangements

These provisions provide structure and transparency during uncertain times and help employees anticipate what lies ahead.

The three phases of negotiation

A reconciliation of interests usually follows three phases:

1. Information phase

The employer must inform the works council early and comprehensively about planned operational changes. Although the employer is not legally obliged to reach an agreement, refusing or prematurely ending negotiations can have financial consequences. Under¹ , employees dismissed as a result of such changes may claim compensation or severance pay (Nachteilsausgleich).

2. Mediation phase

If the parties cannot agree, they can seek mediation through the Federal Employment Agency or a conciliation committee. This is optional but can help avoid future legal disputes.

3. Outcome

Two scenarios are possible:

• No agreement: If no deal is reached, the employer may still proceed with the restructuring, but employees cannot claim damages unless negotiation duties were clearly violated.
• Agreement reached: If both sides agree, the reconciliation of interests must be documented in writing and signed by both parties on the same document.

Benefits for both sides

A reconciliation of interests benefits both employees and employers:

For employees:

• Participation: Employees, through the works council, can actively shape major company decisions.
• Early information: They are informed in advance, reducing anxiety and uncertainty.
• Protection: The process prevents arbitrary or sudden decisions that could threaten livelihoods.

For employers:

• Legal and planning certainty: Clear agreements reduce the risk of lawsuits and delays.
• Better working climate: Transparency builds trust and supports morale.
• Conflict prevention: Early dialogue helps identify and solve potential issues.
• Reputation: Fair treatment of staff enhances public image and helps retain talent.

In short, reconciliation of interests ensures socially responsible restructuring that respects the rights and dignity of employees.

Reconciliation of interests vs. social plan

The reconciliation of interests defines how the restructuring takes place. The social plan (Sozialplan), on the other hand, defines how employees are financially protected — for example, through severance payments, retraining, or early retirement.

While both are often negotiated together, there is a crucial difference: the social plan can be legally enforced, but the reconciliation of interests cannot.

Easier redundancies with a “name list”

If a reconciliation of interests includes a name list – specifying who will be laid off – courts presume that there are urgent operational reasons justifying the dismissals. This makes it much easier for employers to defend redundancy-based dismissals (betriebsbedingte Kündigungen) in court.

Normally, employers must prove both an operational necessity and a correct social selection. With a name list, the courts review this selection only for gross errors. Therefore, employers face fewer successful dismissal protection claims.

Employees whose names appear on a reconciliation of interests with a name list should act quickly. They must file a claim against dismissal within three weeks to preserve their rights.

Compensation for employees

If an employer violates the reconciliation of interests, for example by dismissing more employees than agreed, affected workers can claim financial compensation under Section 113 BetrVG. This can reach up to twelve months’ salary depending on the damage suffered.

If you suspect your employer skipped or broke off negotiations with the works council too early, consult a labor lawyer immediately. You may be entitled to a statutory compensation payment.

Practical tips for employees

• Stay informed: Ask your works council about upcoming restructuring plans as early as possible.
• Join forces: Coordinate with affected colleagues to strengthen your position.
• Get legal advice: Labor lawyers can assess your options and protect your rights.
• Use retraining options: Take advantage of training or qualification programs to prepare for new opportunities.

Frequently asked questions (FAQs)

1. § 113 BetrVG = Section 113 German Works Constitution Act ↩︎