Dismissal of Executives in Germany – Only with (High) Severance Pay!

“No protection against dismissal for executive in Germany –  they are not covered by the Employment Protection Act (Kündigungsschutzgesetz).” You often hear statements like this about the dismissal of executives (leitende Angestellte), especially from employers. The only problem with these statements is that they are just not true. Although certain special rules apply to some executives (similar to board members and managing directors) regarding protection from unfair dismissal (as well as co-determination), most executives in Germany are covered by general regulations, such as the Employment Protection Act (Kündigungsschutzgesetz/KSchG), just like other employees. The main difference between executives and other employees is in the amount of severance pay (Abfindung), despite what employers may try to suggest. In borderline cases, it’s worth it for executives to discuss their own termination protection with an employment law expert.

• Senior executives (leitende Angestellte) are in a closer relationship with their employer than other employees. They enjoy protection from unfair dismissal – however, the bar is lower than for others, making it easier for employers to remove them from the company.
• The biggest difference between executives and other employees might be the amount of severance pay (Abfindung). Executives typically earn more, have longer tenure, and often stronger arguments against the validity of the employer’s termination. All of this can lead to significantly higher severance pay.

Who is considered an executive?

The first question is: Who is considered an executive (Führungskraft) in the first place? In some companies, it seems like more than half of the staff, at least based on modern “job titles.” Many high achievers with titles like “Senior Manager,” “Directors,” “Vice Presidents,” “Chief X Officers,” and other “Senior Executives” certainly feel like executives. However, for the Works Constitution Act (Betriebsverfassungsgesetz/BetrVG) and the Employment Protection Act (Kündigungsschutzgesetz/KSchG), the law sees it differently. Both laws have different definitions. While the BetrVG includes many executives, only the so-called “senior executives” (leitende Angestellte) are covered by the KSchG. When it comes to termination and protection against dismissal, the key question is whether the person being terminated is truly a “senior executive” (leitender Angestellter) under the law. For the Employment Protection Act, job titles do not matter. What matters are the actual tasks the person performs.

Leadership tasks as a senior executive

True senior executives have “leadership tasks” (Führungsaufgaben) with significant authority, such as hiring and firing staff independently. Some examples of personal responsibility and qualification as a “true senior executive” (echter Leitender) include:

• Plant Manager: If they can independently manage staff and make high-level business decisions, they are considered a senior executive.
• Supermarket Branch Manager: If they are only allowed to hire and fire assistants, they are not considered senior executives.
• Chief Physician: They are only considered a senior executive if managing personnel is a substantial part of their job. If they mostly work as a treating physician, they are not considered a senior executive.
• Managing Director: Managing directors are not senior executives either, but the Employment Protection Act does not apply to them anyway.

Special Aspects of Terminating Executives

Executives, especially senior executives (leitende Angestellte), generally have protection under the Employment Protection Act (Kündigungsschutzgesetz/KSchG). However, the employer can more easily justify termination based on personal or behavioral reasons due to their special position in the company. The requirements for termination grounds are lower for senior executives. Even behavior outside of work can quickly lead to consequences. For senior executives, a behavioral termination for private matters is easier than for other employees.

1. Unfair Dismissal of executives in labor court

In an unfair dismissal court case, the labor court examines whether the dismissal was socially justified (in other words, “fair”). If the dismissal is deemed invalid, the employment relationship of “normal” employees usually continues. However, that’s different for senior executives: For them, the employer can request to dissolve the employment relationship without providing a reason. In this case:

• The usual case review is omitted.
• Howeever, if the employer requests to dissolve the contract, the employee is legally entitled to severance pay. This does not only increase the chances a severance package – it will increase its size!

2. Higher Severance Pay for Executives

The court determines the amount of severance. Normally, it is half a month’s gross salary for each year of service. However, the severance can be much higher depending on the situation. For older employees with long service, it is capped at 12 or 18 months’ salary.

If the employee is not classified as a senior executive, the employer must justify the request to dissolve the contract. In these cases, the parties may negotiate a much higher severance. It’s advisable for executives to have their senior executive status reviewed by an employment law expert.

3. Senior Executives not protected by Works Constitution Act

Senior executives (leitende Angestellte) are not protected by the Works Constitution Act (Betriebsverfassungsgesetz/BetrVG). This means the employer does not need to consult the works council before the dismissal of executives. Instead, an executive committee (Sprecherausschuss) must be involved (if one exists). This can affect the validity of the termination, as failing to consult the correct body may result in the termination being invalid, or it could lead to a higher severance payment in a settlement. Can be an important argument when negotiating a settlement!

4. No Waiting Period for Unemployment Benefits for Executives

Senior executives do not usually face a waiting period (Sperrzeit) for unemployment benefits when they agree to a termination settlement with severance pay.