Protection against unfair layoffs in Germany

German employment law offers strong protection against unfair dismissal. German employers can only lay off employees for specific operational reasons that meet strict legal requirements. Common grounds for layoffs include declining orders, company restructuring, business closure, and insolvency proceedings. However, not all business changes justify dismissals—for example, a change of ownership or business transfer does not permit layoffs. The German Protection Against Dismissal Act (Kündigungsschutzgesetz – KSchG) and other laws set clear rules for when an employer is allowed to terminate an employee and what happens if a dismissal is not legal. Understanding these operational dismissal reasons is crucial for employees facing termination, as employers must prove urgent operational requirements and demonstrate no alternative employment possibilities exist within the company. In our article, we explain how protection against unfair dismissal works under the KSchG and other laws.

Layoffs for operational reasons in Germany: your rights as an employee

German employment law offers strong protection against unfair dismissal. Employers may only lay off employees for clearly defined “operational reasons” and must meet strict legal requirements. Typical triggers are falling orders and revenues, large-scale restructuring, the closure of a site or business, or insolvency proceedings.

However, not every business decision justifies layoffs. A mere change of ownership or a transfer of business, for example, does not allow dismissals for that reason alone. The Protection Against Dismissal Act (Kündigungsschutzgesetz – KSchG) and other laws set out when terminations for operational reasons can be valid and what happens if a dismissal is unlawful.

If you are affected by layoffs, it is crucial to understand these rules. Your employer has to prove urgent operational requirements and must show that there was no reasonable possibility to continue employing you elsewhere in the company.

Reasons for layoffs for operational reasons

Declining orders and falling sales

In an economic downturn, companies may suffer from a lack of orders and declining sales. This can lead to redundancies for operational reasons.

But: your employer must be able to demonstrate that there is long-term less work to distribute and that your position is genuinely no longer needed. A short-term dip in sales is usually not enough.

Instead of immediate layoffs, the employer may also decide to reorganize the business in response to lower orders or turnover. If this reorganization permanently reduces the number of positions, jobs can be eliminated. Even then, the employer must apply proper social selection and check whether you could be moved to another suitable role.

Restructuring

Employers are generally free to decide how to organize and modernize their business – even outside an economic crisis. They may, for example, consolidate departments, introduce new processes, or move tasks to other locations.

If such restructuring is based on a well-founded, long-term business concept and leads to a real reduction of positions, layoffs for operational reasons are often legal under the German protection against unfair dismissal act. However, the employer must be able to explain the concept, show which positions disappear, and prove that there is no possibility to continue to employ you elsewhere under comparable conditions.

Closure of the business

If restructuring and other measures fail, an employer may decide to close the entire business or a separate site. In that case, the work for the employees concerned disappears completely.

Business closure usually justifies layoffs for operational reasons, because there is objectively no more work to be done there. Nevertheless, the employer must still respect notice periods, social selection, potential obligations from collective agreements, and co-determination rights of the works council.

Change of ownership or transfer of business

If the company is sold and there is a change of ownership or a transfer of business, special protection applies. As a rule, layoffs are not permitted simply because of the transfer itself.

In a transfer of business, your employment contract normally moves over to the new owner with all rights and obligations. Dismissals “because of” the transfer are generally invalid. Only if there are separate, genuine operational reasons – for example independent restructuring measures – can layoffs be considered.

Insolvency

If insolvency proceedings are opened over the assets of the employer, the future of the company is usually in the hands of the insolvency administrator (or, in self-administration, the management under court supervision).

The insolvency administrator decides whether the business, or parts of it, will be closed or whether restructuring and rationalization measures will be introduced. In that context, layoffs for operational reasons are common. Even then, the basic rules of dismissal protection continue to apply, although some deadlines and formalities are simplified in insolvency.

What is the notice period for layoffs for operational reasons?

A termination does not end your employment immediately. The employment relationship continues until the end of the applicable notice period. As a starting point, the statutory notice periods apply – unless your employment contract or a collective agreement provides otherwise. That is very often the case. The statutory notice period becomes longer the longer you have been employed by the company.

During the probationary period, a shortened notice period of two weeks applies (§ 622(3) BGB). In addition, special protection rules (for example, for severely disabled employees, pregnant employees, or works council members) may lead to different requirements and additional approvals before notice can be given.

Always check your contract, any collective agreement, and whether special protection against dismissal applies in your case.

Is there a right to severance pay in the event of layoffs?

There is no automatic, general right to severance pay in Germany if you are laid off for operational reasons. In principle, it is up to the employer whether severance is paid. In practice, however, employees often have good chances of receiving severance pay in the following constellations:

• Social plan/redundancy scheme: When a company is restructured or closed, the employer and works council often negotiate a reconciliation of interests and a social plan. Social plans frequently provide for severance payments based on age, tenure, and salary.
• Court settlement after an unfair dismissal claim: If you file an unfair dismissal claim with the labor court, the parties often settle the case. A typical settlement: you accept the termination, and in return, the employer pays severance.
• Severance offer in the termination letter: Employers sometimes offer severance already in the notice letter if you agree not to bring an unfair dismissal claim. Under the German protection against unfair dismissal act, this entitles you to a severance payment. Whether you should accept such an offer depends mostly on your chances to successfully challenge the termination in court.

Frequently asked questions