Basics and definitions: What is an action for unfair dismissal?
An action for unfair dismissal is a declaratory action which allows employees who have received notice of termination to bring an action before the labour court for a declaration that their employment relationship has not been terminated by the notice of termination. This allows the employee to take action against all types of dismissal by the employer (ordinary and extraordinary dismissals, termination notices and notices of change, dismissals during the probationary period, etc.).
Review of an action for unfair dismissal under Section 4 of the German Unfair Dismissal Protection Act (KSchG)
- Admissibility
- Jurisdiction of the labour courts, Section 2(1)(3b) of the Employer Act (ArbG)
- Local jurisdiction, Section 46(2) ArbG in conjunction with Sections 12 et seq. of the Code of Civil Procedure (ZPO) (usually Section 29(1) ZPO)
- Subject-matter jurisdiction, Section 8(1) ArbG
- Type of action
- Special action for a declaratory judgment, Section 4(1) of the Employment Protection Act (KSchG)
- General declaratory action, Section 256 l ZPO
- Interest in a declaration
- Proper filing of an action
- Merits
- Effective notice of termination
- Written form, Section 623 BGB
- Declaration by the correct employer
- Effective date of the declaration (receipt), Section 130 BGB
- Notice periods, Section 622 BGB
- Compliance with the deadline for filing an action, Section 13 l 2, Section 4 (1) KSchG
- General grounds for invalidity and special prohibitions on termination
- Works council consultation
- Existence of good cause
- Compliance with the limitation period, Section 626 ll BGB
- Good cause, Section 626 l BGB
- Suitable grounds for termination
- Negative prognosis
- Ultima ratio principle: termination really necessary
- Balancing of interests
Social selection, Section 1 III-IV KSchG in the case of redundancies for operational reasons
- In the absence of good cause: possible reinterpretation as ordinary termination, Section 140 BGB
- Possible necessity of compliance with a social grace period
- Effective notice of termination
Procedure and deadlines: How does an action for unfair dismissal work?
In an action for unfair dismissal, the deadline for filing a lawsuit is the key factor. Once this deadline has passed, a lawsuit can only be filed in rare exceptional cases.
Procedure and calculation of the deadline for filing a lawsuit
The general provisions that apply to ordinary civil proceedings also apply to the calculation of the deadline for filing a lawsuit. The period begins when the employee receives written notice of termination, Section 4 (1) KSchG, and applies regardless of the reason for termination.
The decisive factor here is the receipt of the letter of termination by the employee concerned, which must be proven by the employer. A distinction must be made between whether the letter is delivered to a person who is present or absent.
For those present, receipt is deemed to have taken place at the time the letter is handed over to the employee; the date of this day serves as the start of the notice period.
If the letter is delivered to someone who is absent, it depends on the possibility of them taking note of it, i.e., the letter of termination must reach the “sphere of influence of the recipient.” This is the case, for example, with the employee’s mailbox; as a rule, the deadline begins on the next working day. It is important to note that this also applies even if the employee is away on vacation and the employer was aware of this.
The deadline for filing a lawsuit is met if the unfair dismissal lawsuit is received by the labor court before the end of the last day of the deadline (midnight). If the end of the deadline falls on a Saturday, Sunday, or public holiday, it ends at midnight on the following working day.
A calculation can be made using the following link: https://rechner.app/fristenrechner/fristenrechner-kuendigungsschutzklage/
- No written notice of termination (e.g., verbal, by email, or WhatsApp)
If there is no written notice of termination, this constitutes a violation of the statutory written form requirement of Section 623 of the German Civil Code (BGB), which means that the termination is obviously invalid. This means that legal action can still be taken even after the three-week period has expired. However, you should not wait too long to avoid risking forfeiture of your rights. To be on the safe side, you should still file a lawsuit with the labor court within three weeks. - Termination only possible with the consent of an authority
In this scenario, the period for bringing legal action does not begin upon receipt of the notice of termination, but only upon notification of the authority’s decision to the employee, Section 4 (4) KSchG. This is the case, for example, with severely disabled persons.
Nevertheless, it is also advisable to observe the three-week period in this case. - Termination by an unauthorized person or without power of attorney
If the employee’s termination is declared by an unauthorized person or without power of attorney, it is not considered a termination by the employer. Only with subsequent approval is it attributable to the employer, which means that the three-week period only begins then.
If the termination is carried out by an authorized person without presenting an original power of attorney, the employee can immediately reject the termination, rendering it invalid. However, the deadline for filing a lawsuit must still be observed in this case.
Expert tip: After receiving a termination notice, it is advisable to seek legal advice as soon as possible, and in any case before the three-week period expires, so as not to make any mistakes!
Missed deadlines and subsequent admission
If the employee misses the deadline for filing a lawsuit, this can be very annoying, because according to §7 KSchG, the termination is then considered effective from the outset, even if it is objectively invalid. Only in exceptional cases can an action still be brought after the three-week period has expired. If the employee receives the notice of termination during their vacation, this does not generally suspend the three-week period. However, if the employee’s return is delayed for unforeseeable and uncontrollable reasons, an application for subsequent admission of the lawsuit may be filed under certain circumstances. This requires a detailed justification of the application and must be done within two weeks after the obstacle has been removed, cf. § 5 KSchG.
“Withdrawal” of the termination by the employer
If the termination is withdrawn by the employer, the employee is initially left in limbo as to how to proceed. In this case, it is particularly important to note whether the withdrawal took place before or after the lawsuit was filed. If the employer withdraws the termination before legal action is taken, this can only be done before the employee receives notice of termination in accordance with Section 130 of the German Civil Code (BGB), because a termination that has already been received cannot be unilaterally withdrawn by the employer. If the employee relies on this and allows the three-week period to expire, they expose themselves to considerable risk. At the same time, a binding continuation agreement can be established between the employee and the employer as an alternative to an action for unfair dismissal.
The withdrawal must be assessed differently if it only takes place after the action has been filed. Although it is not possible to withdraw the dismissal without the employee’s consent, if the employee does not agree to this, they lose their right to legal protection in the legal proceedings and will lose the case. In this respect, the employee is forced to agree to the withdrawal and continue to perform their work. If they do not do so, they expose themselves to consequences under labor law.
Expert tip: Even if the employer “withdraws” the termination, an amicable agreement can still be negotiated.
Receipt of multiple notices of termination
If the employer is unsure whether the first notice of termination was effective, they often issue another notice of termination as a precautionary measure. However, the unfair dismissal claim that has already been filed does not apply to these so-called subsequent notices of termination. This means that the employee would have to file a claim against each notice of termination served within the specified period. This can be avoided by adding a so-called “dragnet application” to the action for protection against dismissal. This means that all further dismissals are included in the action. If this application is made, it should be noted that if no further dismissals have been issued, the application should be withdrawn at the last oral hearing so that it is not dismissed.
Costs and amounts in dispute: What does an action for unfair dismissal cost?
Amount in dispute and value of the matter in actions for unfair dismissal
The costs of an action for unfair dismissal consist of court costs and attorney’s fees. These are based on the amount in dispute in the action. In the case of an action for unfair dismissal, this amounts to three gross monthly salaries.
Court costs and cost allocation
Court costs in labor law are lower than at district or regional courts. In labor law, each party must bear its own out-of-court costs (i.e., attorney’s fees). Only the court costs are borne by the losing party. However, court costs are waived if a settlement is reached.
Costs for employees and possible deductions
If legal expenses insurance is available, it usually covers the lawyer’s fees and court costs; otherwise, the employee must bear the costs of their lawyer themselves, even if the lawsuit is successful. As a union member, it is possible to be represented free of charge by a union legal secretary. If you are on a low income, it is possible to apply for legal aid.
The success of the lawsuit is measured not only by whether the verdict is favorable, but also by whether the lawsuit was economically advantageous. In order to determine this, it is worth making a flat-rate (“worst-case scenario”) calculation of the costs in comparison to the amount of the severance payment or salary payments.
Employees also have the option of representing themselves, as there is no obligation to have legal representation before the labor court. Nevertheless, it is strongly recommended to seek legal assistance in the event of an unfair dismissal claim. Since the employment relationship and the amount of severance pay depend on the possible outcome of the lawsuit and the negotiation techniques used, legally qualified arguments lead to better results.
Special types of dismissal: What are they?
Lawsuits in the case of summary dismissal
Termination without notice (extraordinary termination): there is good cause that makes it unreasonable for the employer to wait until the end of the notice period (e.g., assault, theft, fraud). If the employer cannot prove that the employee has committed such an act, they can also base their decision to terminate the employment relationship on serious suspicion that the employee has committed a criminal offense or other serious misconduct. In this case, it is referred to as dismissal on suspicion. This requires a hearing with the employee.
Termination for change and unfair dismissal claims
With a termination for change, the employer wants to achieve a change in the working conditions. The employer terminates the employment relationship and at the same time makes a concrete offer to continue the employment relationship under the changed conditions.
An employee can respond to a change notice issued by their employer in three different ways. Firstly, they can accept the change offer and the employment relationship continues under the changed conditions (e.g., with a reduced scope of employment or a different place of work). However, they can also reject the offer, which terminates the employment relationship and allows them to take legal action against unfair dismissal. The third option is to accept the offer of change subject to the proviso that it is legally justified. The employment relationship then continues and, in the context of a so-called change protection lawsuit, the court reviews whether the change in working conditions is socially justified.
Redundancies for operational reasons, e.g. in connection with plant closures
If there is no longer a need for the employee, the employer can terminate the employment contract for operational reasons. In this case, however, it must always be checked whether the employee can be continued in another position and whether a social selection process has been carried out. The social selection criteria are age, length of service, maintenance obligations, and, if applicable, severe disability. If only some of several comparable employees are dismissed, the employer must make the selection according to the above criteria and dismiss those who are less deserving of protection first—according to the KSchG, these are the younger employees who have been employed for a shorter period of time and have no maintenance obligations.
If the entire company or an entire department is closed, social selection criteria do not usually apply. However, it is still worth taking a closer look at the company – under certain circumstances, there may still be opportunities for continued employment at other locations, for example.
Termination agreements
The dismissal protection process can create considerable uncertainty for employers regarding the continuation of the employment relationship. To avoid this, employers often offer a termination agreement. If the employee signs this agreement, they can no longer take legal action against the dismissal. Whether a termination agreement is advantageous depends on the terms offered. It is advisable to seek legal advice before concluding a termination agreement.
Consequences if the lawsuit is won: continued employment or unreasonable work
Statistically speaking, most unfair dismissal lawsuits end in a settlement in which the parties agree on a specific termination date and, if applicable, the payment of severance pay.
However, if a judgment is handed down, a positive outcome means that the court determines that the termination was invalid and that the employment relationship continues under unchanged conditions. This gives rise to the following claims:
- Continued employment: Entitlement to continued employment under unchanged working conditions
- Payment of remuneration: The employee is entitled to their previous remuneration and must also be paid this retroactively for the duration of the proceedings. If, for example, the employment relationship was terminated on March 31 of a given year and the court does not reach a decision until June, the employer must pay the salaries from April to June if the employee wins the case. This applies in any case if the employee does not maliciously refrain from looking for new employment in the meantime.
Please note: If the lawsuit is successful, i.e., if the employment relationship is continued, but one party still does not wish to continue working together, the employment relationship can also be terminated by the court upon request in accordance with Section 9 of the German Employment Protection Act (KSchG) if the continuation of the employment relationship is unreasonable for one party, and the payment of severance pay can be determined. Even if the situation is not unreasonable, the employee can approach the employer and propose a severance settlement on their own initiative. However, except in the cases specified in Section 9 of the German Employment Protection Act (KSchG), the court does not rule on severance payments.
New jobs during ongoing legal proceedings
If the employee receives a new job offer during the proceedings and wishes to accept it, they are free to do so. If the former employer becomes aware of this, it may weaken their negotiating position with regard to a possible severance payment.
If the employee wins the unfair dismissal lawsuit and the court decision leads to a continuation of the original employment relationship, the employee has a right of choice pursuant to Section 12 KSchG. If they decide in favor of the new employment relationship, they can notify the employer of this within one week of the decision becoming final.
Requirements and admissibility of an action for unfair dismissal
Protection against dismissal under the Unfair Dismissal Protection Act
The Unfair Dismissal Protection Act makes it more difficult for employers to dismiss their employees arbitrarily. It protects against socially unjustified dismissals. As a rule, it applies to companies that regularly employ more than 10 employees who have been working there for more than 6 months. The KSchG also only applies after six months of employment.
If the Unfair Dismissal Protection Act applies, ordinary dismissal must be socially justified and can only take place for certain reasons. These must be related to the employee’s person, behavior, or the company and must prevent continued employment at the workplace, §1 ll 1 KSchG. In addition, other social aspects must be taken into account, including length of service, age, maintenance obligations, and severe disability. As a general rule, there must be no evidence of discrimination.
In detail:
- Operational reasons
If the job or the need for employment ceases to exist, the employer can terminate the employment for operational reasons. However, they must always check whether continued employment in another position is possible and carry out a social selection based on the criteria of length of service, age, maintenance obligations, and severe disability. - Personal reasons
Another reason for termination may be that circumstances relating to the employee—which they cannot change—mean that they are no longer able to perform the duties specified in their contract. These are usually health-related restrictions.
- Behavioral reasons
This refers to cases in which the employee behaves in a manner that is contrary to their contract and does not cease this behavior despite receiving a warning.
Protection against dismissal in small businesses and for employees with short periods of service
The Protection Against Dismissal Act does not apply to small businesses with fewer than 10 employees. This means that employees can be dismissed even without operational, behavioral, or personal reasons and without conducting a social selection process. It also does not apply before the expiry of a waiting period of 6 months.
Nevertheless, there are exceptions in which employees in small businesses can also successfully file a lawsuit for protection against dismissal. These can include, for example, violations of the prohibition of discrimination under the General Equal Treatment Act (AGG). It prohibits discrimination on the basis of characteristics such as gender, age, origin, or religion. If an employee suspects that the dismissal was based on discriminatory grounds, they can file an action for unfair dismissal and have the matter clarified before the labor court.
A dismissal outside the scope of the Unfair Dismissal Protection Act is also legally invalid if formal requirements (written form, correct issuer, receipt, compliance with the notice period) have been disregarded.
Even if there is suspicion of unlawful dismissal, an action for unfair dismissal may be advisable. Unlawful dismissal occurs when the employer only terminates the employment relationship in order to get rid of an unpopular employee, for example, or to hurt the employee’s personality.
Expert tip: Whether a lawsuit outside the scope of the Unfair Dismissal Protection Act makes sense should be carefully considered, weighing up the costs and benefits.
Special protection against dismissal
A dismissal is also invalid if there is special protection against dismissal, e.g., due to the employee’s severe disability, equal treatment with severely disabled people, pregnancy, maternity leave, and parental leave. In these cases, dismissal is only possible with official approval. If this is not granted, the dismissal is invalid. Members of a works council or staff council, candidates for such an office, and, for a certain period of time, former members of the works council or staff council also enjoy special protection against dismissal.
Labor law aspects and implications
Continued payment of wages, salary, and vacation entitlements during the lawsuit
Despite the legal action, the termination initially ends the employment relationship at the end of the stated notice period. This means that the mutual contractual obligations (performance of work on the one hand and payment of remuneration on the other) continue to exist until then. Up to this point, vacation entitlements also accrue, which must either be taken in kind or compensated for upon termination of the employment relationship.
After that, the mutual contractual obligations initially end. If the employee wins their lawsuit, they are entitled to back pay for the salaries they have lost in the meantime, whereby any unemployment benefits or other earnings must be taken into account. However, the employee must offer their labor beyond the notice period with the unfair dismissal lawsuit in order to put the employer in default.
Unemployment benefits and the effects of an unfair dismissal lawsuit
If an employee loses their job due to dismissal by their employer, they are generally entitled to unemployment benefits. This applies regardless of whether an unfair dismissal lawsuit is filed. However, the employment agency will impose a waiting period in cases where it assumes that the employee is responsible for their own unemployment. This is usually the case with dismissals for behavioral reasons. If the proceedings reveal that the allegations were unjustified, the employment agency’s decision can be corrected.
Legal and practical implementation
Filing an unfair dismissal claim: Where and how?
The unfair dismissal claim must be filed with the competent labor court. This is usually the labor court in whose jurisdiction the employer’s registered office or the employee’s place of work is located. If the employee is represented by a lawyer, this is taken care of for them. If the employee decides to represent themselves, the statement of claim must be submitted to the legal application office or placed in the mailbox of the competent labor court within the specified time limit.
The proceedings before the labor court
The proceedings before the labor court are divided into the following steps:
- Filing of the claim and service on the employer by the court
- Conciliation hearing: here, the matter is discussed solely before the presiding judge of the chamber. According to § 61 a II Employer Act, this should take place within two weeks of the lawsuit being filed. In many courts, however, it takes significantly longer for the conciliation hearing to take place. The conciliation hearing serves as an initial discussion of the case and a search for an amicable solution. In dismissal disputes, this almost always means termination by settlement in exchange for payment of severance pay. It is important to note that although the judge can help find a solution and make suggestions regarding the amount of severance pay, the parties are not bound by these suggestions.
- If no agreement is reached (e.g., because the employer does not want to pay severance pay or the proposed severance pay seems too low to the employee), a chamber hearing is scheduled (usually approx. 3-5 months after the conciliation hearing). By then, both parties must submit their statements in writing, present evidence, and name witnesses.
- Chamber hearing: In the so-called chamber hearing, the facts of the case are dealt with in detail. Witnesses may also be heard here. The court—composed of the presiding judge and two honorary judges—decides on the matter if no agreement can be reached here either.
- Court decision: If the termination is invalid, the claim is upheld. The employment relationship continues and must be continued.
- Appeal: The losing party may appeal to the regional labor court within one month of receiving the grounds for the judgment.
Options for withdrawing an unfair dismissal claim
An unfair dismissal claim can be withdrawn at any time. If the claim is withdrawn before the application is filed in the chamber hearing, the court costs are also waived.
Settlement and severance pay in unfair dismissal lawsuits
Severance settlement: Amount and regulations in the event of a successful lawsuit
During the unfair dismissal proceedings, an amicable solution, a settlement, may be reached. This settles the legal dispute without a judgment and allows it to be concluded more quickly. The parties often agree to terminate the employment relationship in return for a severance payment. Such a settlement negotiated between the parties can be confirmed as a decision by the court and then constitutes an enforcement order, which can be used to initiate immediate enforcement measures if the severance payment is not made.
The amount of the severance payment is based on the so-called rule of thumb (0.5 of the last gross monthly salary * number of years of employment). However, this is only a guideline and can vary greatly depending on the circumstances (in particular the prospects of success in court). The settlement should also cover all other outstanding issues, such as other disputed payment claims, vacation pay, references, etc. Paid leave until the end of the notice period can also be agreed. The settlement gives both parties legal certainty.
Special cases and exceptions
Action for protection against dismissal in the case of insolvent employers
If the employer is insolvent and therefore has to give notice of termination to employees, the general protection against dismissal continues to apply. According to §113 InsO (Insolvency Act), a special notice period applies from the date of the opening of insolvency proceedings. The opening of insolvency proceedings alone does not justify termination for operational reasons; only the insolvency-specific decision of the insolvency administrator in the form of partial closures of operations, etc., can justify this. An action for protection against dismissal can also be brought against dismissal due to the employer’s insolvency. In case of doubt, this is directed against the insolvency administrator.
