Mass layoff in Germany: Your rights and severance options

A “mass layoff” (Massenentlassung) occurs when an employer of a certain size terminates a specific number of employees. The thresholds are defined in the Dismissal Protection Act. “Layoffs” include all employer-initiated employment terminations – regular dismissals, employee resignations, and termination agreements. Our article explains when a layoff  is legally considered a “mass layoff”, the employer’s special obligations, and your dismissal protection rights.

Key takeaways:

• Thresholds for “mass layoffs” depend on company size and the number of people fired, as defined in the Dismissal Protection Act 
• Dismissals in mass layoffs are regular terminations subject to general and special dismissal protection. 
• Employers must notify the employment agency and properly involve the works council before proceeding with layoffs.
• In many cases, employers have to negotiate a “social plan”, which typically provides severance payments.

Definition of mass layoff

The definition of mass layoff is based on the Dismissal Protection Act (KSchG), depending on company size:

• In companies with more than 20 but fewer than 60 employees, more than 5 employees are terminated.
• In companies with at least 60 but fewer than 500 employees, at least 10% of the workforce or more than 25 employees must be terminated.
• In companies with at least 500 employees, at least 30 employees are terminated.
• When counting, not only regular dismissals or modification dismissals by the employer are considered, but also termination agreements or employee resignations initiated by the employer.
• Not counted are extraordinary dismissals and employee resignations that were not initiated by the employer or have no connection to the mass layoff.

The terminations must occur within a 30 calendar day period.

Additional employer obligations in mass layoffs

A dismissal in connection with mass layoffs is a “regular” operational dismissal. The employer must therefore observe all requirements of general and special dismissal protection.

Additionally, employers must comply with the Dismissal Protection Act for mass layoffs:

• The employer must inform the works council in writing about planned measures. This includes: reasons for the planned action, the number and type of affected employees and all staff, the timeline for dismissals, selection criteria for employees to be terminated, and calculation methods for potential severance payments.
• The employer must consult with the works council with the goal of avoiding dismissals or reducing their number.
• The employer must notify the employment agency of planned mass layoffs. The notification must contain all details: number/occupational groups of employees to be terminated, regularly employed workers, the period in which dismissals will occur, planned criteria for selecting employees to be terminated, and information about gender, age, occupation, etc. of affected employees.
• The employer must forward to the employment agency the notification to the works council and the works council’s statement.

Legal consequences for employers after notification

Once the employer files notification with the employment agency, a one-month dismissal ban initially applies:

• After filing with the employment agency, the employer may only terminate within one month with the agency’s consent (Entlassungssperre or “dismissal ban”).¹
• After the one-month dismissal ban expires, the employer may terminate. They must execute announced dismissals within 90 days.
• If measures are not implemented after 90 days, the employer must go through this procedure again.

Courts have previously ruled that dismissal becomes invalid if the employer filed no notification or a defective notification with 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, courts maintain that failure to inform/consult the works council under Section 17 of the Dismissal Protection Act cannot be remedied retroactively. Dismissal is invalid in such cases.

Employer must negotiate social plan with works council

Mass layoffs are often part of operational restructuring, per Section 111 of the Works Constitution Act. In such cases, the employer has a duty to negotiate a reconciliation of interests (Interessenausgleich) with the works council (Section 112 of the Works Constitution Act). The reconciliation of interests includes how operational restructuring is implemented (timing, number of dismissals, etc.). However, there’s no obligation to conclude one. If negotiations fail, the employer can unilaterally implement measures.

Unlike the reconciliation of interests, the employer must negotiate and conclude a social plan with the works council when legal requirements are met. If negotiations fail here, an internal conciliation board must be convened to make a binding decision. The social plan is the essential core protection for employees. It aims to compensate or mitigate economic disadvantages. It primarily regulates better severance payments. It also aims to prevent or mitigate income reductions, loss of special benefits, and loss of company pension provisions. It also contains provisions for relocation costs or increased travel expenses.

Is severance paid after a mass layoff?

From an employee’s perspective, dismissal due to mass layoff is a “regular” dismissal subject to general and special dismissal protection. Mass layoffs merely create additional and higher hurdles for employers.

Severance claims in mass layoffs therefore follow general considerations:

• Under Section 1a of the Dismissal Protection Act, employees have a statutory claim to severance of 0.5 gross monthly salaries per year of employment for operational dismissal if they don’t file a dismissal protection lawsuit and the employer indicated this option in the dismissal letter.
• Severance claims can result from voluntary negotiations with the employer. The result is then agreed in either a termination agreement or court settlement.

However, in mass layoffs, severance claims from a social plan are far more significant. When certain requirements are met, law mandates that employers conclude a social plan (contract) with the works council to mitigate the social and economic impacts of dismissals for affected employees. Because the works council has a stronger negotiating position compared to individual employees, this typically results in better severance payments.

Frequently asked questions

1. Section 18 of the Dismissal Protection Act ↩︎