Termination for operational reasons.
Under German law, employers with more than 10 employees (in any given business unit) may not dismiss staff at will. A layoff is legitimate if it is based on operational reasons. Admissible operational reasons are any objective circumstances resulting in one or more positions becoming redundant, e.g.: • closing down of a business unit or business line • consistent and permanent reduction of business volume (less clients) • restructuring of business operations • introduction of new production processes Note: financial difficulties (no matter how severe and/or definitive) are generally no valid reasons for termination! If a valid operational reason exists, the following conditions must be met in order to validly lay off the affected employee: • due to the operational reason, the affected employee is redundant • the employer cannot offer any alternative employment • among all employees that are redundant and cannot be offered an alternative employment, the one laid off is the “socially weakest”, i.e. least in need of legal protection
Applicable notice period: minimum 1 month, increasing over time as of § 622 BGB.
For numerous reasons, it is highly likely that employees will challenge the termination judicially. Experience shows that operational reasons are hard to prove. Note, that employees can in principle only achieve reinstatement through a court decision. Monetary indemnifications (severance payments) are extremely common as agreement between the parties in lieu of reinstatement.
Extremely serious and urgent operational reasons may in principle also justify an extraordinary termination (termination for cause) with immediate effect, but it’s absolutely exceptional.
Example:
A European online store wants to withdraw from the German market, while maintaining its presence in Austria. To serve the (much smaller) Austrian market it only needs a small part of the German-speaking customer care team. It therefore has to terminate 4 out of 6 employees. None of them can be offered an alternative employment. One of them has children, one is above 50, all others are younger and childless. Based on the criteria of social selection (“Sozialauswahl”), older employees and employees with children (or other dependent family members) deserve broader protection: these will likely be the 2 employees that will keep their job.
The operational requirements that lead to a dismissal can result from internal or external circumstances.
Internal reasons:
- Closure of a business, closure of a part of the business or of a department
- Conversion, restriction, or discontinuation of production
- Restriction in the size of the company
- More efficient production methods, for example through new machinery
- Organizational changes.
External reasons:
- Decrease in orders
- Decrease in sales
- Decrease in third-party funding
- Marketing difficulties
The labour court examines the existence of an operational reason and the implementation of the business decision leading to the dismissal for operational reasons.