Employment legal expenses insurance – what to look out for

A dispute with your employer – over termination, severance offers, or warning letters – can get expensive real fast. Especially in labor courts, where each party bears their own attorney costs in the first instance, regardless of who wins. Employment legal expenses insurance helps by cushioning much of this cost risk and covering attorney and court fees. However, insurance protection will cost you and does not cover all cases and costs. What matters is the type of coverage, whether the waiting period has expired, and the nature of the insured dispute. In our article, you’ll learn how employment legal expenses insurance works, which benefits matter, where common pitfalls lie, and when taking out such a policy is actually worthwhile.

Key takeaways:

• Cost risk in employment law: Employees bear their own attorney costs in labor court’s first instance. Legal expense insurance reduces this financial risk.
• Waiting periods matter: Standard 3-6 month waiting periods mean coverage only applies if disputes arise after this period expires.
• Coverage limitations: Most policies cover termination, salary, and reference disputes in court. Out-of-court severance negotiations are often excluded or only partially covered – read the fineprint! 
• Alternatives exist: Unions, legal aid, and free consultations can supplement or replace insurance, but come with membership, income limits, or other requirements.
• Best timing: Insurance is worthwhile when expecting termination – but not within 3 months. Check existing coverage (e.g. through spouse) first, to avoid duplicate policies.

Why employment legal expenses insurance makes sense

Legal expenses insurance ranks among Germany’s most frequently purchased insurance types – roughly every second household has a policy. These policies cushion the financial consequences of legal disputes by covering court and attorney costs, and sometimes out-of-court attorney fees. However, coverage doesn’t apply to every legal matter or without limits. In employment law, out-of-court attorney activities are often only insured up to a certain amount – or not included at all. Which benefits apply always depends on the provider and plan.

What does employment legal expenses insurance cover?

Employment legal protection covers costs for legal disputes – typically attorney and court fees. Coverage applies when you need to enforce legal claims or defend yourself.

This protection is particularly worthwhile in employment law because employees bear their own attorney costs in the first instance – even when they win.¹ Court costs often don’t apply if you reach a court settlement – which is usually the case.² Thus, employment legal expenses insurance can completely cushion the cost risk in the first instance before labor courts. However, coverage doesn’t change general risks and deadlines. For example, even with legal expenses insurance, you must file a lawsuit against termination within three weeks, or you lose your rights.³

Types of legal expenses insurance

Legal expenses insurance typically follows a modular structure. Important modules include:

• Private legal protection – for private disputes
• Occupational legal protection – for employment law conflicts
• Rental legal protection – for disputes in rental relationships
• Traffic legal protection – for traffic-related disputes

Many insurers only offer occupational protection in combination with private or traffic legal protection. Therefore, consider carefully which areas of life need coverage.

Sample insurance packages (as of June 2025)

We’ve compared four plans as examples (examples only, as of June 2025, not a comprehensive market overview, prices subject to change; editorial content, we receive no commissions):

• Roland Rechtsschutz – Private, Occupational & Traffic: from €19/month (€150–300 deductible)
• ADAC – Private, Occupational & Traffic: from €21/month (€150–300 deductible)
• ARAG – Private, Occupational & Traffic: from €27/month (€150–300 deductible)
• DEVK – Private, Occupational: from €36/month (€150–300 deductible)

Please note that you should always check current terms and compare offers before purchasing.

Typical covered disputes

For policies that include employment law coverage, the following topics are typically covered:

• Terminations and warning letters
• Disputes over salary, bonuses, or vacation entitlement
• Conflicts about employment references
• Questions about overtime compensation
• Maternity protection or special termination protection cases

Free choice of attorney

In Germany, free choice of attorney applies under Section 127 VVG (German Insurance Contract Act).⁴ Even with employment legal protection, you may choose your own attorney. Many insurers additionally offer free initial consultation through partner attorneys – this is voluntary.

What to watch for when purchasing

If you want to purchase employment legal expenses insurance, check the following points carefully:

Employment law coverage

Legal expenses insurance is offered for different legal areas. Usually, a policy includes a “package” with multiple areas. Employment legal protection is often included in private or occupational legal protection packages. Additional modules include traffic legal protection or residential and property legal protection. Read the insurance terms carefully to ensure employment law is included. If so, the insurance typically pays for these topics:

• Wrongful dismissal lawsuits
• Warning letters
• Contract disputes
• Salary disputes
• Questions about pensions or overtime compensation
• Conflicts about employment references

May also be included:

• Telephone legal advice
• Coverage for spouses
• Claims-free bonus
• Cancellation rights and coverage amount

Cost coverage

Depending on the plan, the following costs are typically covered:

• Attorney costs according to statutory fee schedules: Fee agreements with higher costs are typically not covered. Additionally, there are significant limitations on out-of-court enforcement of your rights (see below).
• Court costs: These typically don’t apply anyway with court settlements (the standard case).
• Expert and witness costs
• Arbitration and mediation proceedings

Exclusions and pitfalls

Often not covered:

• General legal advice without a specific dispute subject
• Out-of-court costs for severance agreements without court documentation (except when termination is threatened)
• Other exclusions such as disputes in collective labor law or intentional misconduct (such as theft)

Additionally, coverage won’t apply if the waiting period hasn’t expired yet (see below), if a fee agreement exceeds statutory rates (rather uncommon), and when there are insufficient success prospects. Pay special attention to waiting periods and whether out-of-court costs are covered:

Deductible

Plans with deductibles (usually €150–300) are cheaper. Many insurers waive the deductible if the dispute is resolved after initial consultation.

Costs of employment legal expenses insurance

Since employment legal protection is usually offered in packages, costs start at about €20–40 monthly. Exact prices depend on the provider, deductible, and scope of benefits.

• Roland Rechtsschutz – Private, Occupational & Traffic: from €19/month (€150-300 deductible)
• ADAC – Private, Occupational & Traffic: from €21/month (€150-300 deductible)
• ARAG – Private, Occupational & Traffic: from €27/month (€150-300 deductible); possibly without waiting period for selected employment law cases
• DEVK – Private, Occupational & Residential: from €36/month (€150-300 deductible)

Waiting periods: Why timing is crucial

Employment legal expenses insurance practically always has waiting periods. Coverage won’t help if termination has already been issued. Insurers use these waiting periods as protection against so-called “purpose contracts” – situations where an employee purchases insurance shortly before imminent termination to shift legal dispute costs onto the insurer. The standard waiting period is 3 to 6 months.

Example: An employment legal expenses policy begins on January 1st, with a contractual waiting period running until April 1st. The employer issues termination on April 25th – yet the insurance denies coverage. Reason: Already in December, before insurance began, the employee was notified in writing of inadequate work performance and a Performance Improvement Plan (PIP) was agreed upon. From the insurer’s perspective, the insured event thus already existed before or within the waiting period because the conflict originated in these earlier measures. The later termination is considered merely a consequence of this already-existing dispute – and therefore remains excluded from coverage.

Therefore, it makes sense for your attorney to file a coverage inquiry with the legal expenses insurance early. This clarifies in advance whether and to what extent the insurer will actually cover your attorney and court costs.

Is there employment legal expenses insurance without waiting periods?

According to our information, comprehensive employment legal protection without waiting periods doesn’t currently exist in employment law (as of June 2025). Genuine, comprehensive legal protection without waiting periods only exists in other legal areas, such as traffic legal protection or criminal law. Exceptions in employment law – and thus genuine employment legal protection without waiting periods – only exist with insurance switches or special plans, usually at higher premiums and with severely restricted benefits.

When coverage is worthwhile

If you don’t yet have legal expenses insurance, the question arises whether and when you should purchase coverage. This depends on your individual situation. Employment legal protection is particularly sensible:

• For employees expecting termination
• Provided termination isn’t immediately imminent (meaning not within the next 3 months – see above regarding waiting periods)

In such cases, it’s important to consider early whether you need coverage, since costs for employment law disputes can exceed thousands of euros – and before labor courts, each party bears their costs regardless of who wins. Before purchasing, verify whether you’re already covered through a spouse or other persons to avoid duplicate insurance.

Alternatives to employment legal expenses insurance

• Unions: Often offer free legal advice and court representation
• Legal aid: State support for persons with low income and good success prospects
• Free initial consultation: Many attorneys offer this option
• No-win-no-fee agreements: Cost coverage by third parties, for example through AbfindungsHero

Finally, note that employees can file wrongful dismissal lawsuits in the first instance even without employment legal protection and without an attorney, thereby saving attorney costs. We advise against this. Unless you have some legal education, the chances of making costly mistakes are far too high.

Unions, free initial consultations, and legal aid can supplement employment legal protection or replace it in individual cases. However, they come with requirements like membership, income, or success prospects and often don’t cover all steps of lengthy proceedings. Depending on income, you can also apply for legal aid (Prozesskostenhilfe). This covers most costs but – depending on your financial situation – must later be repaid.

As another option, there’s a no-win-no-fee agreement, for example through AbfindungsHero. In individual cases – and for a fee – AbfindungsHero can cover your attorney and court costs in the first instance. Only if you win – meaning if severance or an economically comparable result is achieved – do you pay a percentage of your gross severance. If you lose, you incur no costs and no risk.

In many cases, however, it makes sense to simply accept a low litigation risk and have a lawsuit filed by an attorney at your own expense, because the success prospects are so good and you can easily pay the costs from the expected and probable severance. Discuss your success prospects with your attorney or during a free initial consultation.

Frequently asked questions

1. Section 12a German Labor Court Act (ArbGG) ↩︎
2. Section 98 German Labor Court Act (ArbGG) ↩︎
3. Section 4 German Protection Against Dismissal Act (KSchG) ↩︎
4. Section 127 VVG ↩︎