Germany — Termination & Severance

Germany's Kündigungsschutzgesetz (Dismissal Protection Act, KSchG) establishes a demanding social-justification standard for ordinary (ordentliche) dismissals. A cross-border employer hiring its first employee in Germany must understand two threshold tests: the KSchG imposes substantive protection only in establishments that regularly employ more than ten employees (excluding trainees), and only for employees whose continuous employment has lasted more than six months in the same establishment or undertaking.

The ten-employee threshold (§ 23 KSchG)

Section 23(1) KSchG excludes small establishments from most substantive protections. The statute applies in full only when the establishment regularly employs more than ten Arbeitnehmer, exclusive of apprentices and those employed for vocational training. Part-time employees count fractionally: an employee working no more than 20 hours per week counts as 0.5; no more than 30 hours counts as 0.75; over 30 hours counts as 1.0. A business with eight full-time employees and four employees each working 20 hours per week therefore employs 8 + (4 × 0.5) = 10.0 employees and remains below the threshold; one additional full-time hire brings protection into force.

The 2004 reform raised the threshold from five to ten employees. A transitional rule protects "legacy" employees hired on or before 31 December 2003: these employees retain KSchG protection under the old five-employee threshold as long as five or more legacy employees remain employed; employees hired after that date are not counted toward the legacy headcount until the total workforce exceeds ten. The effect is a bifurcated workforce in some establishments—full KSchG protection for legacy employees, no protection for newer hires until the ten-employee mark is crossed.

The six-month qualifying period (§ 1(1) KSchG)

Section 1(1) KSchG renders a dismissal legally ineffective (rechtsunwirksam) if it is "socially unjustified" (sozial ungerechtfertigt)—but only when "the employment relationship has existed in the same establishment or undertaking without interruption for more than six months." The six-month period is a strict qualifying threshold, not a probationary safe harbor: an employer may still dismiss during the first six months by observing notice requirements under the Bürgerliches Gesetzbuch (BGB), but special protection (Mutterschutz for pregnancy, Schwerbehindertenrecht for severely disabled employees, Betriebsverfassungsgesetz consultation duties when a works council exists) applies from day one.

Social-justification test (§ 1(2) KSchG)

Once both thresholds are met, § 1(2) KSchG requires that every ordinary dismissal be justified by one of three grounds:

1. Personal reasons (Gründe, die in der Person des Arbeitnehmers liegen)—incapacity arising from the employee's personal circumstances, most commonly long-term or recurrent illness with a negative prognosis.
2. Conduct-related reasons (Gründe, die in dem Verhalten des Arbeitnehmers liegen)—culpable breach of duty; typically requires a prior written warning (Abmahnung) except in cases of gross misconduct.
3. Urgent operational requirements (dringende betriebliche Erfordernisse)—business reorganisation, redundancy, or economic necessity that makes continued employment objectively impossible.

A dismissal not grounded in one of these three categories is socially unjustified and therefore void. Section 1(3) adds a further layer for operational dismissals: the employer must conduct a "social selection" (Sozialauswahl), balancing length of service, age, maintenance obligations, and severe disability status; a dismissal is socially unjustified if the selection gives insufficient weight to these criteria.

Procedural enforcement

An employee challenging a dismissal must file suit in the competent labour court (Arbeitsgericht) within three weeks of receipt (§ 4 KSchG). Failure to observe this deadline renders even an objectively unjustified dismissal effective. If the court finds the dismissal void, the employment relationship continues; if continuation is unreasonable for either party, the court may dissolve the relationship and award severance (Abfindung) under §§ 9–10 KSchG, though the statute does not mandate a severance formula.

Interplay with BGB notice periods

The KSchG tests whether a dismissal is substantively justified; it does not itself set notice periods. Statutory notice runs from § 622 BGB: a minimum of four weeks to the 15th or end of a calendar month, stepping up with tenure (two months' notice after two years' service, three months after five years, and so on, capping at seven months after twenty years). Collective agreements often prescribe longer periods. Even a socially justified dismissal under the KSchG is ineffective if the employer fails to observe the applicable BGB notice period or issues a defective dismissal instrument (KSchG § 13(1) preserves the separate regime for extraordinary, without-notice dismissals under BGB § 626).

Source: Kündigungsschutzgesetz (KSchG) § 1 Source: Kündigungsschutzgesetz (KSchG) § 23

Germany's statutory notice framework under § 622 of the Bürgerliches Gesetzbuch (BGB, Civil Code) sets mandatory minimum periods that a cross-border employer must observe when issuing an ordinary (ordentliche) dismissal. The notice regime is asymmetric: an employee may resign with four weeks' notice at any stage of the employment relationship, but the employer's minimum period increases step-by-step with the employee's tenure, reaching seven months after twenty years' continuous service.

Basic notice period (§ 622(1) BGB)

Section 622(1) BGB establishes a default notice period of four weeks to either the 15th or the end of a calendar month. This minimum applies to both employer and employee when no longer period is mandated by statute or agreed by contract. The four-week period is a true calendar measure—not 28 days—and the dismissal takes effect only on one of the two permitted dates each month. For example, a notice delivered on 3 May runs four weeks to 31 May (if the full period has elapsed by the 15th, termination may take effect on the 15th; otherwise, it takes effect on the last day of the month).

Graduated notice periods for employer dismissals (§ 622(2) BGB)

When an employer terminates an employee's contract, § 622(2) BGB extends the minimum notice period in proportion to the employee's continuous service with the undertaking:

• After two years of service: one month to the end of a calendar month
• After five years: two months to the end of a calendar month
• After eight years: three months to the end of a calendar month
• After ten years: four months to the end of a calendar month
• After twelve years: five months to the end of a calendar month
• After fifteen years: six months to the end of a calendar month
• After twenty years: seven months to the end of a calendar month (the statutory ceiling)

Each step specifies that the notice period expires "to the end of a calendar month" (zum Ende eines Kalendermonats). This means that once an employee reaches the two-year mark, the employer can no longer use the "15th of a month" option; termination must always take effect on the last day of a month.

Critically, these longer periods apply only to employer-initiated dismissals. An employee retains the right to resign with the basic four-week notice under § 622(1) at any point, regardless of tenure, unless the employment contract or a collective agreement (Tarifvertrag) stipulates a longer employee notice period that does not unfairly disadvantage the employee relative to the employer.

Probationary-period exception (§ 622(3) BGB)

Section 622(3) BGB permits a shortened notice period of two weeks to any calendar day during an agreed probationary period, provided that probationary period does not exceed six months. The two-week period runs from the day after receipt of the dismissal letter and is not tied to the 15th or end of the month. Both employer and employee may invoke this shorter notice during probation. Once the probationary period ends—or if no probationary period was agreed—the standard or graduated periods under §§ 622(1)–(2) apply immediately.

Counting service time

The graduated employer periods hinge on continuous service in the same undertaking (Beschäftigungsdauer im selben Betrieb oder Unternehmen). Section 622(2) sentence 2 BGB excludes from the calculation any periods of employment completed before the employee's 25th birthday; only service after age 25 counts toward the threshold years. This rule was introduced to prevent employers from facing long notice obligations for employees hired very young, but it remains controversial and has been the subject of age-discrimination challenges.

Contractual and collective-agreement modifications

An individual employment contract or a collective agreement may prescribe longer notice periods than the BGB minimums, and such longer periods are valid and enforceable. However, a contract may not shorten the statutory minimums to the employee's disadvantage except in the very limited circumstances permitted by § 622(4)–(6) BGB (for example, certain temporary employments of three months or less under § 622(5) sentence 1 No. 1, or when a collective agreement expressly overrides the statute). Any contractual clause that purports to give the employer a shorter notice period than § 622(2) requires—or that imposes on the employee a notice period materially longer than the employer's corresponding period without objective justification—will be void, and the statutory default will apply in its place.

Written-form requirement and calculation mechanics

Every dismissal, whether ordinary or extraordinary (außerordentliche Kündigung), must be in writing on paper with an original handwritten signature (§ 623 BGB). E-mail, fax, scanned signature, and DocuSign are not valid; failure to observe the written-form requirement renders the dismissal void ab initio. The notice period begins the day after the employee receives the written dismissal notice (§ 187(1) BGB), not the date on which the letter was signed or posted.

Interplay with the Kündigungsschutzgesetz

The BGB § 622 notice periods are procedural; they set the minimum time between notice and termination. They do not themselves test whether the dismissal is substantively justified. When the Kündigungsschutzgesetz (KSchG) applies—that is, when the establishment regularly employs more than ten employees and the individual employee has served more than six months—the employer must also satisfy the KSchG's social-justification standard (personal, conduct-related, or urgent operational grounds) and, for operational dismissals, conduct a compliant social selection. A dismissal that observes the § 622 notice period but fails the KSchG substantive test is void; conversely, a dismissal that meets the KSchG justification standard but is delivered with insufficient notice (or no written notice at all) is equally ineffective.

Cross-border employers hiring in Germany for the first time should budget for the graduated notice regime: an employee with six years' service is entitled to two months' notice; an employee with twelve years receives five months. During that notice period the employee typically remains on full pay (unless placed on garden leave or the contract permits payment in lieu, which is rare under German law), and statutory protections (sick pay, parental leave, protection against discrimination) continue in full force.

Source: Bürgerliches Gesetzbuch (BGB) § 622 Source: Bürgerliches Gesetzbuch (BGB) § 623

Germany does not impose a general statutory entitlement to severance pay (Abfindung) when an employment relationship ends. A cross-border employer hiring its first employee in Germany should understand that most severance payments result from negotiation, settlement agreements (Aufhebungsverträge), social plans (Sozialpläne) in collective redundancies, or court-ordered dissolution. The Kündigungsschutzgesetz (KSchG) creates only two narrow statutory pathways to severance: the § 1a offer-and-waiver mechanism for operational dismissals, and the court-ordered Abfindung when continuation of the relationship is found unreasonable.

Section 1a KSchG: severance in exchange for waiving a dismissal-protection lawsuit

Section 1a(1) KSchG establishes a conditional claim to severance when an employer dismisses an employee for urgent operational reasons (dringende betriebliche Erfordernisse, one of the three social-justification grounds under § 1(2) KSchG). The claim arises only if:

1. The employer states explicitly in the written dismissal notice that the termination is grounded in urgent operational requirements, and
2. The dismissal notice states that the employee may claim severance pay if the employee does not file a dismissal-protection lawsuit (Kündigungsschutzklage) within the three-week deadline under § 4 KSchG, and
3. The employee in fact does not file suit within that three-week period.

When all three conditions are met, the employee acquires a legally enforceable claim to severance upon expiry of the notice period, and the dismissal is treated as effective (the employee has waived the right to challenge it in court). Section 1a(2) KSchG sets the amount at 0.5 monthly salaries (Monatsverdienste) for each full year the employment relationship has existed. A period of employment longer than six months counts as a full year for this calculation (cross-reference to § 10(3) KSchG). "Monthly salary" means the gross remuneration the employee would have earned during the last month of the employment relationship, calculated according to the employee's regular working hours and including regular allowances and bonuses.

Example: An employer in Munich notifies an employee with seven years and eight months of continuous service that the position is being eliminated due to a business restructuring. The dismissal letter states "This dismissal is grounded in urgent operational requirements within the meaning of § 1(2) sentence 1 KSchG, and you may claim severance pay under § 1a KSchG in the amount of 0.5 monthly salaries per year of service (€4,000 gross monthly × 0.5 × 8 years = €16,000) if you do not file a dismissal-protection lawsuit within three weeks of receipt of this notice." If the employee does not file suit, the severance claim becomes enforceable and the dismissal is final.

The § 1a mechanism is optional for the employer; German law does not compel an employer to include the § 1a offer in an operational dismissal notice. Many employers do so to avoid the cost and uncertainty of labour-court litigation, but an employer may issue an operational dismissal without offering severance, in which case the employee must decide whether to file suit challenging the dismissal's validity.

Critically, the § 1a claim applies only to operational dismissals. It does not arise when the employer dismisses for personal reasons (Gründe, die in der Person des Arbeitnehmers liegen) or for conduct-related reasons (Gründe, die in dem Verhalten des Arbeitnehmers liegen), nor does it apply when the employer issues an extraordinary without-notice dismissal (außerordentliche Kündigung) under BGB § 626.

Court-ordered severance under §§ 9 and 10 KSchG

When an employee files a dismissal-protection lawsuit and the labour court (Arbeitsgericht) finds that the dismissal was socially unjustified and therefore void, the default remedy is reinstatement: the employment relationship continues. However, § 9(1) KSchG permits the court, on application by the employee, to dissolve the employment relationship and order the employer to pay "an appropriate severance" (eine angemessene Abfindung) if continuation of the employment relationship is unreasonable for the employee. The employer may likewise apply for dissolution under § 9(1) sentence 2 if continuation is objectively unreasonable due to a breakdown in the working relationship. Either party may file the dissolution application up to the close of oral argument in the appeal (Berufung) stage.

Section 10 KSchG sets ceilings for court-ordered severance:

• Standard ceiling (§ 10(1)): up to twelve months' salary
• Older / longer-service employees (§ 10(2)): up to fifteen months' salary if the employee has reached age 50 and served at least fifteen years; up to eighteen months' salary if the employee has reached age 55 and served at least twenty years.

These are ceilings, not entitlements. The court exercises discretion in setting the amount, taking into account the employee's length of service, age, prospects for finding alternative employment, and the degree to which the employer's conduct contributed to the breakdown. "Monthly salary" is defined by § 10(3) to mean the gross remuneration (including regular allowances and the proportional value of one-twelfth of any annual bonus or 13th-month payment) that the employee would have earned during the month in which the relationship ends, based on the employee's regular working hours.

A similar court-ordered severance mechanism exists under § 13(1) sentence 2 KSchG for extraordinary (without-notice) dismissals (außerordentliche Kündigungen under BGB § 626): if the court finds the extraordinary dismissal unjustified or immoral but continuation is unreasonable for the employee, the court may dissolve the relationship and order severance, applying the same § 10 ceilings.

No general severance obligation; negotiated settlements in practice

Outside the narrow § 1a and court-dissolution pathways, German law imposes no automatic severance obligation. When an employer and employee negotiate a mutual termination agreement (Aufhebungsvertrag) or settle a pending dismissal-protection lawsuit, the severance amount is a matter of contract. The 0.5-month-per-year formula in § 1a(2) is widely used as a negotiating benchmark, but it has no binding force in voluntary settlements. Factors that drive negotiated severance upward include the strength of the employee's legal position (for example, a dismissal with procedural defects or weak social-justification grounds), the employee's age and difficulty re-entering the labour market, the risk of adverse publicity, and—in larger restructurings—the provisions of a negotiated social plan (Sozialplan) between the employer and the works council (Betriebsrat) under §§ 111–113 of the Betriebsverfassungsgesetz (BetrVG, Works Constitution Act). In mass-redundancy situations, the social plan often prescribes a severance formula (commonly 0.5 to 1.5 months' salary per year of service) that applies across affected employees.

Tax and social-insurance treatment

Severance payments are exempt from social-insurance contributions (pension, health, unemployment, and long-term-care insurance) when paid as genuine compensation for the loss of the job, but they are fully subject to income tax. The German Income Tax Act (Einkommensteuergesetz, EStG) provides a "one-fifth rule" (Fünftelregelung, § 34 EStG) that spreads the tax burden over five notional years, reducing the effective marginal rate for lump-sum severance. An employee must apply for this relief in the annual tax return; payroll withholding typically treats severance as ordinary income unless the employer and employee structure the payment to qualify for the relief.

Interplay with unemployment benefits

An employee who accepts severance under a § 1a dismissal or a negotiated termination agreement and then registers for unemployment benefits (Arbeitslosengeld) may face a suspension period (Sperrzeit) if the Federal Employment Agency (Bundesagentur für Arbeit) determines that the employee voluntarily terminated the relationship or accepted a termination agreement without good cause. The standard Sperrzeit is twelve weeks, during which no unemployment benefit is payable. Additionally, if the employee accepted a shortened notice period (for example, immediate termination in exchange for severance rather than observing the statutory BGB § 622 notice period), the Agency may offset the value of the foregone notice period against the unemployment-benefit entitlement (a so-called Ruhezeit). Cross-border employers negotiating Aufhebungsverträge with employees who will claim unemployment benefits should structure the agreement to observe the statutory notice period and document a legitimate employer-side reason for the termination to minimise Sperrzeit risk.

Cross-border budgeting guidance

A cross-border employer budgeting a termination or redundancy in Germany should:

• Assume no automatic statutory severance for conduct-related or personal dismissals, but model at least 0.5 months' salary per year of service as a settlement baseline if the dismissal's validity is uncertain.
• For operational dismissals where KSchG protection applies (more than ten employees in the establishment; employee served more than six months), budget 0.5 to 1.0 months' salary per year if the employer wishes to invoke § 1a or negotiate an Aufhebungsvertrag to avoid litigation.
• For employees aged 50+ with fifteen or more years' service, model up to 1.0–1.5 months' salary per year, reflecting both the § 10(2) court ceilings and the practical reality that older employees with long tenure negotiate higher severance multiples.
• In collective redundancies triggering a social-plan negotiation (§ 112 BetrVG), budget the severance formula agreed in the plan; typical formulas range from 0.5 to 1.5 months per year, with age and service weighting.

The absence of a general statutory severance rule in Germany makes each termination negotiation fact-specific. Employers issuing a first dismissal in Germany should consult German labour counsel early to assess the strength of the justification grounds, the procedural requirements (works-council consultation under § 102 BetrVG if a Betriebsrat exists; written-form requirement under BGB § 623; adherence to the graduated BGB § 622 notice periods), and the likely settlement value if the employee challenges the dismissal.

Source: Kündigungsschutzgesetz (KSchG) § 1a Source: Kündigungsschutzgesetz (KSchG) § 9 Source: Kündigungsschutzgesetz (KSchG) § 10