Mass layoff & employee rights: What constitutes a mass layoff in Germany?

A mass layoff occurs when an employer wishes to dismiss a certain number of employees. The relevant numbers are specified in the Protection Against Unfair Dismissals Act. ‘Dismissals’ include any type of termination of an employment relationship by the employer, such as ordinary dismissals, resignations, and termination by mutual agreement. This article will provide more information on what constitutes a mass layoff, the special obligations of the employer, and the protection available to employees.

The most important points at a glance:

• A mass layoff depends on the size of the company and the number of redundancies. This is precisely defined in the Protection Against Unfair Dismissal Act. It includes all ordinary dismissals by the employer, dismissals for change, as well as termination by mutual agreement initiated by the employer and voluntary resignations.
• A dismissal in connection with a mass layoff is a ‘normal’ ordinary dismissal, which is subject to general and special protection against dismissal. An action for protection against dismissal must be filed with the court within three weeks.
• In addition, the employer must report the mass layoff to the Employment Agency. The works council must be duly involved.
• If further legal requirements are met, the employer is obliged to conclude a social plan. The social plan usually results in claims for better severance payments.

Definition of mass layoff

The definition of a ‘mass layoff’ is based on Section 17(1) of the German Employment Protection Act (KSchG), and is defined as follows:

• In companies with between 20 and 60 employees, more than five employees are made redundant.
• In companies with between 60 and 500 employees, at least 10% of the workforce — or at least 25 employees — must be dismissed.
• A minimum of 30 employees are dismissed from companies with a minimum of 500 employees.
• A period of 30 calendar days is allocated for the dismissals to take place.

The count includes all ordinary dismissals, dismissals involving altered conditions at the employer’s discretion, termination by mutual agreement initiated by the employer, and resignations.

Extraordinary dismissals and dismissals initiated by employees that are not related to the mass layoff are not included.

Additional obligations for employers in the event of mass layoffs

A dismissal in connection with a mass layoff is an ordinary dismissal for operational reasons. The employer must therefore comply with all the general and special requirements for protection against dismissal.

In addition, in the event of a mass layoff, the employer must comply with the requirements set out in Section 17 of the KSchG.

• The employer must inform the works council in writing of its planned measures in good time. This must include the reasons for the action, the number and type of employees affected, the timetable for redundancies, the selection criteria for redundant employees and the method of calculating severance payments.
• The employer must consult with the works council to try to avoid or reduce redundancies.
• The employer must notify the Employment Agency of any planned mass layoffs. This notification must contain all the relevant details:
  • The number and occupational groups of employees to be made redundant.
  • Employees normally employed
  • The period during which the layoffs are to be made
  • The criteria for selecting employees for redundancy
  • Information on the gender, age, occupation, etc. of the affected employees.
• The employer must forward the notification to the works council. The works council’s statement must be sent to the Employment Agency.

Legal consequences for the employer after the statement

A one-month dismissal ban will initially apply if the employer submits the notification to the Employment Agency.

• Once the notification has been submitted to the Employment Agency, the employer may only terminate employment within one month with the consent of the Employment Agency (dismissal ban, Section 18 of the German Employment Protection Act (KSchG)).
• After expiry of the one-month dismissal ban, the employer may terminate employment. The employer must carry out the notified dismissals within 90 days.
• If the measures have not been implemented after the 90 days have expired, the employer must go through this procedure again.

To date, the courts have ruled that dismissal is invalid if the employer has submitted no notification, or incorrect notification, to the Employment Agency. This case law is currently under review by the European Court of Justice. The same applies to errors in the consultation procedure with the works council.

However, the courts remain of the opinion that a failure to inform or consult the works council in accordance with Section 17 of the German Employment Protection Act (KSchG) cannot be remedied. In this case, the dismissal is invalid.

The employer must negotiate a social plan with the works council

Mass layoffs are often part of operational restructuring under Section 111 of the German Trade Union Act (Betriebsverfassungsgesetz, BetrVG). In such cases, the employer is obliged to negotiate a reconciliation of interests with the works council (Section 112 BetrVG). This includes how the operational restructuring is carried out, such as the timing and number of redundancies. However, there is no obligation to reach an agreement. If negotiations fail, the employer can implement their measures unilaterally.

Unlike the reconciliation of interests, the employer must negotiate and conclude a social plan with the works council if the legal requirements are met. If negotiations fail, a company conciliation committee must be convened to make a binding decision. The social plan is the core element that protects employees. It is intended to compensate for or mitigate economic disadvantages. It essentially regulates enhanced severance payments. Furthermore, it aims to prevent or mitigate reductions in income and the loss of special benefits and company pension schemes. It also contains provisions relating to relocation or increased travel costs.

Is severance pay paid after a mass layoff?

From an employee’s perspective, being dismissed due to a mass layoff is a ‘normal’ ordinary dismissal and is subject to general and special protection against dismissal. Mass layoffs merely create additional hurdles for the employer.

According to general considerations, a claim for severance pay therefore also arises in the case of mass layoffs.

• According to § 1a KSchG, in the event of redundancy for operational reasons, the employee has a legal claim to severance pay of 0.5 gross monthly salaries/year of employment if he does not file a claim for protection against dismissal and the employer has informed him of this possibility in the letter of dismissal.
• A claim to severance pay may arise from voluntary negotiations with the employer. The result is then agreed either in a termination by mutual agreement or a court settlement.

However, in the case of mass layoffs, a claim for a severance payment under a social plan is much more significant. The law requires the employer to conclude a social plan (agreement) with the works council under certain conditions. This is intended to mitigate the social and economic effects of redundancies on affected employees. As the works council is in a stronger negotiating position than individual employees, this typically leads to more favourable severance payments.

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