Reasons for termination in Germany: What is a fair dismissal – and what is not?

In Germany, there must be reasons for termination for a dismissal to be considered “fair” and valid. For the majority of employees, who are protected by the German Dismissal Protection Act (KSchG), there are high levels of protection against dismissal. It is therefore quite common for employment to be ended by a separation agreement – either in court or by mutual agreement outside the labour court. That is also why in Germany, severance payments are paid most of the time, even if the employee’s legal claims and the “fairness” of a dismissal are less than clear.
Even when the KSchG does not apply, there is basic protection for the employee. However, without the strict requirements of the KSchG, the employer can more easily terminate the employment. Comprehensive protection mechanisms, such as prior warnings or the implementation of a social selection, do not apply in this case. There are further cases of special protection against unfair dismissal that we discuss at the end of this blog article.

What type of protection applies?

The key question is if the protection of the German Dismissal Protection Act (KSchG) is applicable. In order to enjoy full protection against dismissal under the KSchG, employees must fulfil certain criteria:

• A length of service of at least six months.
• An employer that has more than 10 full-time employees in the local branch/office – whereby a factor is used for part-time employees to calculate their employment relationships on a pro rata basis.

If an employment relationship fulfils these conditions, the protective provisions of the KSchG apply in full, providing employees with a much stronger bulwark against unjustified dismissal. To receive professional support on the subject of “reasons for dismissal”, it is advisable to seek specialised legal advice.

What reasons for termination are usually applied?

The law distinguishes between different types of dismissal, including three categories of ordinary termination:

• Dismissal for personal reasons: Personal reasons for dismissal relate to the employee’s personal characteristics, e.g. long-term illness, lack of qualifications or loss of a required driving licence.
• Behavioural dismissal: This concerns misconduct on the part of the employee. Examples include: repeated refusal to work, theft, bullying or unexcused absence from work.
• Dismissal for operational reasons: Reasons for dismissal for operational reasons arise due to economic or organisational changes in the company. Examples of this would be insolvencies, transfers of undertakings or rationalisation measures.

“Operational reasons” are the main reason for a dismissal by the employer.

There is also the distinction of a termination with and without notice: Dismissal without notice is the employer’s ultimate measure in the event of serious offences and depends largely on the reason for dismissal. The bar for justification is significantly higher than for regular termination, for example during an employee’s probationary period. Only serious reasons that make immediate termination of the employment relationship unavoidable justify termination without notice. These serious reasons may apply, for example, in the case of criminal offences, serious breaches of duty or unacceptable working conditions.

Personal reasons for termination: Skills of the employer are decisive

In the case of dismissal for personal reasons, which is based on the employee’s abilities, a distinction is made between subjective and objective performance deficits. Subjective deficits refer to the fact that the employee lacks certain qualifications or skills specified in the employment contract. Objective performance deficits, on the other hand, are given if external conditions – outside of the employee’s personality traits – hinder the performance of work or if there are legal or factual obstacles to the performance of work. Such circumstances can be the basis for dismissal for personal reasons.

• Dismissal due to illness is legitimate in the event of a negative health prognosis, significant impairment of operational interests (particularly in the case of long-term illnesses or frequent short-term illnesses), alcohol and drug addiction.
• Lack of work permit as a reason for dismissal if this cannot be obtained in the foreseeable future
• Lack of professional, physical or personal aptitude, e.g. insurmountable conflict of faith or conscience, significant wage garnishment for employees with a duty to look after assets
• Imprisonment of the employee as a reason for dismissal
• Security concerns: Particularly relevant for employees in military or police areas

Behavioural reasons for termination: Typical cases of misconduct in the workplace

In a dismissal for misconduct, the employee has risked dismissal due to their misconduct. Typical cases are

1. Unexcused absences: If an employee is repeatedly absent without a valid reason and without consultation with the employer, this can lead to dismissal.
2. Refusal to work: The deliberate and unjustified refusal to fulfil the contractually agreed tasks can be grounds for dismissal.
3. Poor work performance: Consistently poor work performance that does not improve despite repeated discussions and warnings can lead to dismissal.
4. Alcohol or drug consumption in the workplace: The consumption of such substances during working hours can be grounds for dismissal for misconduct.
5. Bullying and discrimination: Employees who systematically harass colleagues or superiors can be dismissed.
6. Theft or fraud: Criminal offences such as theft or fraud in the workplace entitle the employer to dismiss the employee.
7. Breaches of data protection and trade secrets: Employees who disclose or misuse confidential information risk dismissal.

Dismissal for operational reasons: What grounds justify a dismissal?

If the Dismissal Protection Act (KSchG) applies, there are three narrowly defined areas of reasons for a dismissal to be lawful. “Operational reasons” are the main reason for a dismissal by the employer. They are also the only category in which the reasons for the dismissal are explicitly only the employer’s responsibility. The “free entrepreneurial decision” is central to an effective termination for operational reasons. We differentiate between reasons that arise “internally” within the company and “external” circumstances. From the employer’s point of view, it is preferable to refer to internal reasons, as these are easier to prove.

“Internal” reasons for redundancy include:

• Simplification of operational processes (rationalisation)
• Changes in production orientation or relocation of production abroad
• Closure of the entire company or parts of it
• Consolidation of work steps or departments
• Long-term reduction of the workforce

“External” reasons for redundancy include:

• Declining order numbers, loss of orders or general marketing challenges
• Declining sales
• Loss of external financing
• Reduction or cancellation of budget funds

Dismissal due to illness: Legal?

Dismissal due to illness is possible, but the legal requirements are strict. To assess the legality of dismissal due to illness, cases fall into different groups: Long-term illnesses, recurring and frequent short-term illnesses or reduced performance due to illness.

Certain requirements must be met for the social justification of the dismissal:

1. The “negative prognosis” must be that the employee will not be able to fulfil their contractual obligations in the future due to their illness.
2. The impairments caused by the employee’s state of health must lead to significant operational disruptions or economic burdens.
3. The employee’s interest in keeping his job must be weighed against the operational or economic burdens on the employer.

These requirements are demanding for a reason, as protecting employees at vulnerable times is essential. Dismissals must not be made lightly – they are only justified if the disadvantages for the employer are unreasonable.

Providing evidence poses an additional challenge for the employer. It must present and substantiate the negative prognosis. While the employee does not have to provide any information about their state of health or chances of recovery.

The special protective regulations for (severely) disabled employees or persons with equivalent status have to be observed. They are subject to increased protection against dismissal.

FAQ on reasons for termination

• Does an employer have to state the reasons in the letter of termination? As a rule, it is not necessary to state the reasons for termination in the letter of termination unless a contractual agreement, a works agreement or statutory provisions explicitly require this. This may be the case for special groups of employees, such as women on maternity leave or trainees. For this reason, employers often do not state the reasons for termination in the notice of termination.
• How can I find the reasons for my dismissal? If the employer did not give any reasons for termination, the employee can request disclosure. The employer must disclose the reasons, especially in the case of termination without notice. In the case of dismissals for operational reasons, however, the reasons for the social selection are sufficient; additional information may result from the employment relationship. However, failure to provide this information does not invalidate the dismissal and may at most result in claims for damages. Actual discussion of the grounds for dismissal usually only takes place during an action for protection against dismissal, where the employer has to provide detailed arguments. If there is uncertainty, it is therefore advisable to file a lawsuit. If the works council has objected to the dismissal, the employer must include this in the letter of dismissal.
• What relevance does the reason for termination have on the effectiveness of my termination? The validity of a termination depends crucially on whether there is a valid reason for termination. Without this or if the reason is unlawful, the termination is null and void.

FAQ on types of terminations

• What types of grounds for termination are there? There are three main types of grounds for dismissal. Dismissal for personal reasons, behavioural reasons and operational reasons.
• What is dismissal for personal reasons? Dismissal for personal reasons occurs when an employee is no longer able to perform their work for personal reasons. Examples include illness or lack of qualifications.
• What is a behavioural dismissal? Dismissal for behavioral reasons occurs when an employer terminates due to misconduct. Such as repeated violations of work instructions.
• What is dismissal for operational reasons? A dismissal “for operational reasons” requires that the employee’s job position is eliminated for business reasons, such as reorganisation or insolvency.
• How can you defend yourself against a dismissal? You can take legal action against a dismissal at the labour court within three weeks. It is advisable to seek legal assistance.