Termination of Executives in Germany

Many employees assume that executives (leitende Angestellte) in Germany have no protection against dismissal. That is incorrect. Executives are also protected under German employment law, although some special rules apply to their termination and severance. At the same time, only very few employees legally qualify as executives. This article explains who is considered an executive under German law and what this means in practice when employment ends.

Who Counts as an Executive Employee?

Generally, Executive Employees (Leitende Angestellte) are considered regular employees under labor law. They are subject to social security and can bring claims in the labor court. However, their protection against termination is somewhat weaker than that of other employees. They have more responsibility and, in some cases, are also held accountable for their behavior outside of work because of their trust-based role in the company.

But not every employee with a managerial role is automatically an “executive,” even though many employers might claim otherwise. For example, department heads or team leaders are often not classified as Executive Employees (leitende Angestellte), even if they are paid above union scale.

Defining “Executive Employee” under different German Frameworks 

The classification of an executive varies under the Works Constitution Act (BetrVG) and the Employment Protection Act (KSchG). Both laws have slightly different criteria for determining who qualifies as an executive:

• Under the Works Constitution Act (BetrVG), an executive is someone who can hire and fire employees independently, holds significant representation rights (e.g., power of attorney), or regularly handles important business matters.
• Under the Employment Protection Act (KSchG), the definition is stricter. Only individuals who act similarly to CEOs or plant managers, and can hire and fire employees independently, are considered executives under this law. The job title in your contract is irrelevant—what matters is your actual decision-making power.

The German Federal Labor Court (Bundesarbeitsgericht – BAG) recently reaffirmed that executive status requires genuine and independent authority over hiring and firing decisions of substantial importance for the business.¹

Decision-Making Power Under the Employment Protection Act

When it comes to termination, the Employment Protection Act (KSchG) is key. Courts closely examine whether the employee truly has the decision-making authority required to be classified as an executive. This authority must cover a significant number of employees and form a major part of the job. It also must not be too restricted by frequent consultation with other decision-makers.

For employees who don’t meet these high standards of decision-making, the full protection of the Employment Protection Act applies.

Practice Tip: In termination disputes, employers often classify employees as executives in order to weaken dismissal protection and increase pressure during severance negotiations. In practice, however, labor courts carefully examine whether the employee actually exercised independent hiring and firing authority.

For those few who are genuine executives under the KSchG, the following rules apply.

Special Rules for Executive Employees’ Protection Against Dismissal

Even “genuine” executives enjoy basic protection under the Employment Protection Act (KSchG). However, employers can more easily terminate them for personal or behavioral reasons. Because of their special role in the company, the threshold for what counts as grounds for dismissal is lower. For example, off-duty behavior may have more significant consequences. It is much easier to justify dismissing an executive for conduct in their personal life than it is for a regular employee.

• Breaches of trust carry more weight: Executives have heightened duties of care and confidentiality.
• No protection under the Works Constitution Act: Executives are not covered by the Works Constitution Act, meaning that the employer does not need to consult the works council before dismissing them. Instead, if there is one, the “speakers’ committee” must be involved. Failing to consult this committee can invalidate the dismissal.

Employer’s Request to Dissolve the Employment Relationship

In a legal dispute over wrongful dismissal, the employer can request that the employment relationship be dissolved. Normally, if the court finds the dismissal was unjustified, the employment relationship continues. However, for executives, the employer can request the dissolution of the employment relationship without needing to justify it. There is no need to prove that continuing the employment would be unreasonable.

Termination of Executives: Right to Severance Pay

If the employer requests the dissolution of the employment relationship, the executive is entitled to severance pay. The amount is set by the labor court and usually amounts to half a month’s gross salary for each year of employment. Depending on the case, this amount can vary and is capped at 12 or 18 months’ salary for older employees with long tenures.

If an employee is not classified as an executive, the employer must justify any dissolution request. In such cases, severance pay can be significantly higher if the parties settle. Therefore, it is advisable for employees to have their executive status reviewed by a labor law expert.

No Risk of Unemployment Benefits Suspension

Executive employees generally do not risk a suspension of unemployment benefits if they accept a severance package in a termination agreement. Otherwise, the employer could terminate their employment and request a dissolution, increasing the risk for the employee.

Summary

While executive employees do have protection against dismissal, their unique role and responsibility in the company place them in a special position. 

• The requirements for dismissing them are lower.
• In a legal dispute over wrongful dismissal, it is easier for the employer to remove them from the company.

Severance payments and other rules vary significantly from those for regular employees. In borderline cases, executives should consult a labor law expert to clarify the extent of their dismissal protection and status.

1. Federal Labour Court, decision of 4 May 2022 – 7 ABR 14/21 ↩︎