Mass dismissal: On severance pay, social compensation plans and the role of the works council

Mass dismissal refers to the phenomenon where an employer terminates a large number of employees at the same time. In this context, “dismissal” refers to almost any type of termination of an employment relationship initiated by the employer. This includes

• Regular (timely) dismissals by the employer
• Cancellation agreements or employee terminations initiated by the employer
• Change notices

On the other hand, extraordinary dismissals for good cause or the expiry of fixed-term contracts are not considered dismissals. The same applies to dismissals or cancellation agreements initiated by the employee.

Definition

The definition of a collective redundancy is based on Section 17 (1) KSchG and is defined as follows:

• In companies with more than 20 but less than 60 employees, at least 5 employees must be dismissed.
• In companies with at least 60 but fewer than 500 employees, at least 10% of the workforce or more than 25 employees must be made redundant.
• In companies with at least 500 employees, at least 30 employees must be made redundant.

These types of redundancies must take place within a period of 30 calendar days.

Is severance pay paid after a mass dismissal?

Although there is no direct entitlement to severance pay in the event of mass dismissals, it is common practice that in many cases severance pay is nevertheless paid out, often based on a social plan agreement.

There are various scenarios in which an employee could receive further compensation in addition to the possible severance payment from the redundancy scheme:

• In the event of dismissal for operational reasons, which often occurs in the case of mass redundancies, the employer may be prepared to pay a severance payment in order to avoid legal action against the dismissal (in accordance with Section 1a KSchG).
• It is possible for the employee to negotiate a severance payment directly with the employer. This could be done in the context of a court settlement.
• Another option could be a cancellation agreement concluded jointly by the employer and employee that includes a severance pay clause.

Does a lawsuit against a mass dismissal make sense?

As already emphasised, the legal conditions for a mass dismissal are very demanding:

• The notification of mass dismissal must be submitted correctly and in accordance with the legal requirements.
• The protection period stipulated by the employment agency must be observed.
• As an employer, you are obliged to involve and inform the works council at an early stage.
• Discussions with the works council are also necessary, including negotiations on a reconciliation of interests and a social plan.

In addition to these specific requirements, employers must not forget that the basic protection against dismissal for employees still applies. This means that an individual assessment of the grounds for dismissal is required for each employee and consideration must be given to whether special protection against dismissal exists (such as for pregnant employees or employees with disabilities).

Therefore, there are numerous potential sources of error in a collective redundancy and if you want to enforce a legally valid dismissal, this can be difficult. It should also be borne in mind that courts scrutinise collective redundancies strictly due to their consequences.

What role does the works council play in mass redundancies?

The works council acts as the voice of the employees and protects their interests from the employer. The employer therefore has a duty to inform the works council in writing and in good time in the event of a planned mass dismissal. This information must at least include aspects such as the reasons for the planned action, the number and type of employees affected and all employees, the timetable for the redundancy, the selection criteria for the employees to be made redundant and the method of calculating any severance pay.

The employer should announce the forthcoming redundancy as early as possible. The correct timing may vary depending on the specific circumstances, but generally the works council should be involved at least two weeks prior to the announcement of the mass dismissal.

However, it is not enough just to inform the works council. A joint consultation between the employer and the works council to discuss ways of avoiding redundancies or mitigating their consequences is mandatory. Whilst the law does not require a specific duration for these consultations or a final agreement, the employer may not take irrevocable action such as pronouncing early dismissals.

The question of whether it is possible to make up for such discussions has not yet been clearly regulated by law. However, there are indications that such a rectification could be rather difficult.

Irrespective of this particular case, the works council retains its regular rights in the context of a mass dismissal. Therefore, the employer must consult the works council on each individual dismissal (pursuant to Section 102 BetrVG). In the event of non-compliance, the dismissal is not legally binding. The employer should therefore ensure that the various aspects, including consultation, compensation negotiations and hearings, are clearly separated.

Mass dismissal: Works council can negotiate reconciliation of interests and social plan

In counselling sessions, the works council has the opportunity to develop strategies to mitigate the financial consequences of redundancies. It has various options at its disposal.

Mass dismissals are often part of company reorganisations. In such cases, it is the employer’s duty to reach an agreement with the works council to coordinate interests (in accordance with Section 111 BetrVG). This agreement should include details on the type, scope and timing of the reorganisation.

It is quite common for negotiations on such agreements to lead to conflicts due to opposing interests. If no agreement can be reached, the employer and works council can ask the internal arbitration body for support. This body is headed by a neutral person and serves as a platform for further consultation and final decision-making.

In contrast to the reconciliation of interests, the social plan aims to minimise the financial disadvantages for employees as a result of the restructuring. Among other things, severance payments can be agreed for this purpose.

Mass redundancies and subsequent negotiations represent an extraordinary challenge for the works council. The employer will usually stick to its redundancy plans and try to assert its interests. The employees, on the other hand, are usually dependent on a well-negotiated social plan in order to cope with the financial impact of the redundancies.

For companies with more than 300 employees, this is regulated by law in § 111 BetrVG, while smaller companies fall under § 80 para. 3 BetrVG. The costs incurred are usually borne by the employer.

Summary

• Mass dismissal refers to the process by which a significant number of employees lose their jobs.
• The definition of “redundancy” also includes cases where employers encourage employees to leave their jobs themselves or where contracts are terminated.
• Employers are obliged to inform the employment agency of an impending collective redundancy and must also involve and consult the works council in detail.
• As part of these technical discussions, the works council can initiate negotiations on a reconciliation of interests and a social plan.
• As a rule, employees are not definitively entitled to a severance payment, but it is possible to negotiate one individually.
• In practice, collective redundancies are complicated and can often lead to errors, particularly as both special regulations and general protection against dismissal have to be taken into account. This often makes dismissals susceptible to challenges.