Dismissal for operational reasons: Requirements and severance

Dismissal for operational reasons is the most common type of termination under German labor law. It occurs when “business needs,” such as restructuring or downsizing, permanently eliminate a position. Courts closely scrutinize these dismissals to ensure fairness, including whether the employee could be reassigned within the company and whether a proper social selection was conducted. Employees are often offered severance payments in such cases. This article explains all legal requirements, practical examples of valid and invalid dismissals, and guidance on handling such situations.

Key takeaways

• A dismissal for operational reasons (“betriebsbedingte Kündigung”) is legally permissible only if urgent business needs exist, no alternative employment is available, and social selection is properly conducted. Courts check all three conditions strictly.
• Employees have a right to challenge a dismissal with a termination protection lawsuit within three weeks. Acting promptly preserves legal options.
• Severance is commonly offered to avoid lengthy court disputes, though no statutory entitlement exists in most cases. The amount usually depends on tenure and salary.
• Procedural requirements, including proper form and consultation with works councils, must be met for the dismissal to be valid. Violations can render a termination ineffective.

Relevance of dismissal for operational reasons

Dismissal for operational reasons is one of three legal types of terminations under the German Protection Against Dismissal Act (“Kündigungsschutzgesetz”), alongside behavioral and personal dismissals. It accounts for roughly 75% of all terminations. Recent economic challenges have increased its frequency. Companies must justify that no viable position exists within the organization and follow strict legal requirements to avoid invalidity. Keep documentation of your job performance and communications ready. Courts often examine employee records in disputes over operational dismissals.

Reasons for dismissal for operational reasons

To be lawful, dismissal for operational reasons must meet three criteria: urgent business need, proper social selection, and no alternative employment.

Urgent business need

There must be circumstances that lead to the permanent elimination of the employee’s position. The employer bears the burden of proof that the position is permanently redundant.

• External reasons occur outside the company but have the effect of permanently eliminating positions. Examples include the cancellation of a contract or project the employee was assigned to. If the employer adjusts staffing to match reduced orders or workload, this can constitute an urgent business need. Broader market declines, loss of subsidies, removal of funding, or new tariffs and sanctions affecting company products can also justify external operational dismissals.
• Internal reasons arise when the employer implements organizational measures that eliminate a role. Examples include department mergers, rationalization or efficiency projects (such as AI or automation), outsourcing to external providers, branch closures (e.g., supermarkets or department stores), or reduction of hierarchy levels (for instance, elimination of team leader positions).

Courts apply a limited review standard: they do not assess whether the employer’s decision is optimal, only whether it is manifestly unreasonable or arbitrary. However, the decision must be genuinely implemented. Courts check if the organizational change truly removed the need for the employee’s position.

Social selection

A valid operational dismissal also requires a proper social selection. This involves evaluating which employees are most deserving of protection, and mistakes can invalidate the dismissal. Errors often occur in collecting data, forming comparison groups, and weighing criteria such as age or length of service.

The main criteria are:

• Length of service
• Maintenance obligations
• Age
• Recognized disability

Points are assigned to each factor. The higher the total, the more protected the employee. For example:

• Length of service: 1 point per year for the first ten years, 2 points per year thereafter. Only service up to age 55 typically counts, allowing a maximum of 70 points.
• Maintenance obligations: 4 points for each dependent child.
• Age: 1 point per year up to 55, maximum 55 points.
• Disability: 5 points for recognized disability up to 50%, plus 1 additional point per 10% over 50%, with a maximum of 10 points.

No alternative employment

There must be no other suitable positions in the company. Employers may need to consider less attractive roles or check company-wide availability. Positions with lower pay must also be considered. Only in exceptional cases can an offer be ignored, for example, if it is unreasonable for the employee to accept, such as if the offer is insulting or degrading.

General invalidity of redundancies

An operational dismissal is a “normal” termination, for which, of course, in addition to the specific substantive reasons described above, the general requirements regarding procedure, form, and deadlines also apply. These requirements exist alongside the specific conditions of the Protection Against Dismissal Act. For example, if the written form is not observed (e.g., because the dismissal notice was signed only via Docusign), it is invalid, regardless of whether the social selection was correctly applied.

There are also procedural rules that must be followed: if a works council exists, it must always be consulted before an operational dismissal. The consultation must already contain all relevant information so that the works council can fully assess the dismissal. For employees with severe disabilities, prior approval from the Integration Office (Integrationsamt) must also be obtained. These procedural requirements are mandatory; otherwise, the dismissal is invalid. Additional procedural requirements apply in the case of mass layoffs. An operational dismissal is invalid if the required mass layoff notification is missing.

Enhanced dismissal protection applies to certain employee groups, such as works council members, pregnant employees, employees on parental leave, and employees with severe disabilities. For these groups, additional substantive requirements for a valid dismissal and special procedural rules apply (see above). If these are not observed, the dismissal is invalid.

Dismissal without notice for operational reasons

A dismissal for operational reasons “without notice” (fristlose Kündigung) is rare and allowed only when continuing employment until the regular notice period is unreasonable. Courts generally reject such terminations unless no ordinary dismissal is possible.

Unemployment benefits

Employees dismissed for operational reasons are generally entitled to unemployment benefits. The employment agency verifies that the termination was indeed operational. Severance may affect benefits if it exceeds statutory thresholds.

Severance entitlement

Employees may receive severance even without a statutory claim to avoid litigation. The amount depends on factors such as duration of employment, salary, and potential legal challenges.

What to do

• Review the dismissal letter for proper signatures and written form.
• Do not sign any settlement or termination agreement without legal advice.
• Note the three-week deadline for a termination protection claim and act quickly. Filing a claim may preserve rights while negotiating a settlement.
• Consider consulting a labor law specialist for initial advice on options, rights, and potential severance.

Frequently asked questions (FAQs)