Dismissal for operational reasons in Germany – what you need to know

A dismissal for operational reasons (betriebsbedingte Kündigung) is one of the three types of dismissal enshrined in the German Unfair Dismissals Protection Act. It can be pronounced when jobs are lost due to operational requirements. However, the effectiveness of such a dismissal depends on various factors, such as whether the employer can continue to employ the employee in another job. In addition, the employer must regularly determine which of several employees to dismiss based on social criteria.

Significance of operational termination

Operational termination is only one of three types of termination under the Protection against Dismissal Act, along with personal and behavioural termination. However, operational termination is the most important: in Germany, around 70% of all terminations are ‘operational’. Although the significance of operational terminations has decreased somewhat in recent years, The good economic situation and general shortage of skilled workers had led to companies issuing fewer redundancies for operational reasons.

This will change significantly from the second half of 2024. We are increasingly observing redundancies for operational reasons. In addition to well-known companies such as Volkswagen, ZF and Conti, smaller companies are also increasingly realising that they need to reduce their workforce. They often react with redundancies for operational reasons, which can be seen, among other things, from the increasing number of actions against unfair dismissal.

The most important reasons for a redundancy for operational reasons

Dismissals for operational reasons are based on internal or external grounds for dismissal that lead to job losses. External reasons include a decline in orders, falling sales or the loss of third-party funding. Internal reasons arise from restructuring, modernisation or the insolvency of the company. Both have one thing in common: the employer must clearly explain the operational reasons and the loss of jobs.

Legal requirements

A dismissal for operational reasons is only lawful if all four central requirements are met:

• Urgent operational requirement: First of all, there must be an urgent operational requirement that results in the loss of jobs. The employer must be able to prove that there is a permanent reduction in staffing requirements.
• Proportionality: The principle of proportionality requires that termination must be the last resort (ultima ratio). The employer is obliged to consider all reasonable milder measures before giving notice of termination. These include the possibility of transferring the employee to another vacant position, even after reasonable retraining or further training, as well as offering continued employment under different working conditions.
• Social selection: The employer must make a social selection – that is, decide which employees will be dismissed based on social criteria if there are several comparable jobs. The selection criteria are defined in the German Unfair Dismissals Protection Act: length of service, age, maintenance obligations and severe disability. These criteria must be weighed fairly against each other. An incorrect social selection makes the dismissal ineffective.
• No alternative employment: Finally, there must be no other employment opportunities in the business or company. If necessary, the employer must also consider less attractive positions and check throughout the group to see if further employment is possible.

Formal requirements and special protection rights

In the case of a redundancy, the general formalities and statutory notice periods must, of course, be observed.

It is also important to note that certain employee groups enjoy special protection against dismissal. Dismissing works council members, pregnant women, employees on parental leave and severely disabled people is subject to more stringent conditions. Additional procedural requirements apply to these groups.

If there is a works council, it must be heard before any dismissal. The hearing must contain all the relevant information so that the works council can properly assess the dismissal. In the case of severely disabled employees, the prior consent of the integration office is also required. These procedural requirements must be adhered to, otherwise the dismissal is invalid. In the case of mass redundancies, further requirements apply.

Entitlement to severance pay in the event of redundancy?

There is no legal entitlement to severance pay in the event of a dismissal for operational reasons. Nevertheless, there are several ways in which employees can receive severance pay. If a social plan exists, it often regulates severance payments. For example, the employer can offer a severance payment of 0.5 months‘ salary per year of employment when giving notice if the employee lets the notice period pass. Settlements with severance payments are also often reached as part of unfair dismissal proceedings. These can also be significantly higher than 0.5 months’ salary per year of employment.

Employees have a period of three weeks from the date of receipt of the notice of termination to file a dismissal protection suit. This deadline should be strictly adhered to, even if negotiations for an amicable solution are being conducted in parallel. After the deadline has expired, the termination is deemed to be effective. Legal advice is therefore highly recommended in order to assess the chances of success of a lawsuit and to avoid missing any deadlines.

Frequently asked questions (FAQ)

When can an employer issue a dismissal for operational reasons?

A dismissal for operational reasons is permissible if there are urgent operational requirements that result in job losses. The employer must prove that there is no possibility of further employment and that a correct social selection has been made.

What does social selection mean in the case of a dismissal for operational reasons?

When making the social selection, the employer must take four criteria into account: length of service, age, maintenance obligations and severe disability. Employees with a greater need for social protection must be given preferential treatment for continued employment in comparable jobs.

Am I entitled to a severance payment in the event of a redundancy?

There is no legal entitlement to a severance payment. However, severance packages can be agreed as part of a social compensation plan, an offer or as part of legal proceedings against unfair dismissal.

How long do I have to take action against the dismissal for operational reasons?

The action against unfair dismissal must be filed with the labour court within three weeks of receiving notice of termination. After this period has expired, the termination is considered effective.

Does the works council have to agree to the dismissal?

The works council must be heard before any dismissal, but it does not have to agree to it. However, if the works council is not heard, the dismissal is invalid.

What is a dismissal with the option of altered conditions of employment?

In the case of a dismissal with the option of altered conditions of employment, the existing employment relationship is terminated and at the same time the continuation of the employment relationship is offered under altered conditions. The employee can accept the offer conditionally and have the changes reviewed by a court.

How long is the notice period for a dismissal for operational reasons?

The statutory notice periods apply, or longer notice periods arising from collective agreements or employment contracts. The basic notice period is four weeks to the 15th or the end of a calendar month.

Can I be dismissed for operational reasons during my illness?

A dismissal for operational reasons is also possible during an illness. Protection against dismissal in the event of incapacity to work applies under further conditions for dismissals due to illness.

What happens to my holiday entitlement?

The employer must provide financial compensation for any holiday not taken. The holiday entitlement is calculated pro rata up to the end of the employment relationship.

Can you ask for time off if you are dismissed?

The employer can, but is not obliged to, grant paid leave of absence. During the leave of absence, you are still entitled to remuneration.

What does ‘urgent operational requirement’ mean?

An urgent operational requirement exists when jobs are permanently lost due to business decisions. This may be due to restructuring, rationalisation or economic difficulties.

What can I do in the event of unfair dismissal?

You can challenge the social selection as part of the unfair dismissal claim. The employer must then prove that it has correctly taken the social criteria into account.