Termination of Employees in Germany: What International Companies Need to Consider

You are a Swiss, French, Italian, English, Polish, Danish or other European or non-European company and employ a worker in Germany whom you wish to terminate or are required to terminate for operational reasons? If so, you should be fully aware of the specifics of German employment law.

Many international companies significantly underestimate the legal requirements for terminations in Germany.

Unlike in many other countries, termination is often not merely a business decision but is subject to strict statutory requirements and intensive judicial review.

International companies in particular often assume that termination is as flexible as in their home jurisdiction. This is precisely where significant risks arise.

German employment law provides comparatively strong protection for employees.

Mistakes in terminations therefore often lead to:

• unfair dismissal claims,
• reinstatement claims,
• high severance payments,
• lengthy court proceedings,
• delays in replacing employees.

If the employee can afford it financially, or has insurance covering legal costs, they will in most cases consult a lawyer who will challenge the dismissal. The goal is not always reinstatement, but often a severance payment.

1. Termination in Germany: No “at-will employment”

Many international companies are familiar with flexible termination models in their home countries. In Germany, however, there is no “at-will employment”.

Once the German Protection Against Dismissal Act (Kündigungsschutzgesetz) applies—typically in companies with more than ten employees—the employer requires a legally recognised reason for termination.

German law distinguishes in particular between:

• operational dismissals,
• conduct-related dismissals,
• personal dismissals.

International companies often underestimate how closely German courts examine these requirements.

Another important aspect frequently underestimated is the litigation reality in Germany.

Even if a termination is legally well-founded from the employer’s perspective, it very often still results in an unfair dismissal claim.

This is because, in first-instance labour court proceedings, each party bears its own legal fees regardless of the outcome. This creates a relatively low financial risk for employees to challenge a dismissal. The employee knows their own cost exposure and does not risk having to pay the employer’s legal fees.

Example from practice

A Dutch company issues a redundancy dismissal after deciding to no longer employ staff in Germany. From the company’s perspective, all requirements are met: business decision, elimination of the position, and proper social selection.

Nevertheless, the employee files an unfair dismissal claim.

In practice, a significant number of such cases do not end with a clear “win” or “loss”, but rather with a settlement including severance payment. Even legally sound dismissals often result in an economic settlement to avoid litigation risk, time expenditure, and uncertainty.

For international companies, this means: the question is not only whether a dismissal is legally possible, but also whether it is economically and strategically advisable to pursue or defend it.

This is precisely why the question often arises in practice:

Should a termination be issued, or is a termination agreement the better solution?

 

2. Operational Dismissals: High Requirements

International companies frequently carry out restructuring, site closures, or sales adjustments.

However, an operational dismissal requires:

• a business decision,
• actual elimination of the position,
• no possibility of continued employment,
• proper social selection.

 

 

Example from practice

A French technology company decides to manage German sales centrally from Paris. The position of German country manager is to be eliminated.

The company assumes that the business decision alone is sufficient.

Under German law, however, it must additionally be examined:

• Are there comparable vacant positions?
• Can the employee be reassigned elsewhere?
• Have social criteria been properly considered?

Errors in social selection frequently render the dismissal invalid.

It is also crucial that the business decision is taken before the termination is issued. The employer bears the burden of proof in this regard.

3. Social Selection: Often Unexpected for International Companies

In operational dismissals, social criteria must be considered:

• age,
• length of service,
• maintenance obligations,
• disability status.

This means: the most expensive or least performing employee cannot automatically be dismissed.

Example from practice

An English trading company intends to dismiss a younger sales employee as part of a restructuring, even though a comparable older employee with shorter service exists.

The dismissal may therefore be socially unjustified and invalid.

4. Conduct-Related Dismissals: Warning Often Required

International employers often react too quickly to misconduct with dismissal.

In Germany, however, a prior warning (Abmahnung) is often required.

Example from practice

An Italian software company dismisses an employee for repeated lateness.

The dismissal may be invalid if no prior valid warning was issued.

A warning must:

• describe the misconduct,
• include a reprimand,
• clearly state that repetition may lead to dismissal.

Even a warning alone is not always sufficient to justify dismissal.

Warning or Extraordinary Dismissal: Choosing the Correct Response Level

Another common mistake concerns how employers react to employee misconduct. German law is based on the principle of proportionality. Not every breach of duty justifies immediate dismissal.

A distinction must be made between ordinary conduct-related dismissal and extraordinary (summary) dismissal. The applicable measure depends primarily on the severity of the breach.

1. Warning as the general rule for controllable behaviour

For less severe or controllable breaches of duty, a warning is generally required. It serves three functions:

• notice function (description of misconduct),
• reprimand function,
• warning function (threat of consequences in case of repetition).

Without a prior warning, a subsequent dismissal is often invalid.

Example from practice

A Spanish company employs an employee in Germany who repeatedly arrives late to meetings. The company dismisses the employee immediately without prior warning.

Such a dismissal is generally considered disproportionate under German law.

 

2. Extraordinary dismissal only in serious cases

An extraordinary dismissal is only permissible where continued employment is unreasonable even until the end of the notice period.

Typical cases include:

• theft or embezzlement,
• serious breaches of trust,
• criminal offences in the employment context,
• persistent refusal to work.

Even then, an individual balancing of interests is required.

Example from practice

An Italian company discovers that an employee has unlawfully forwarded internal customer data to third parties. An extraordinary dismissal may be justified.

However, German courts will carefully examine:

• whether a prior warning was unnecessary,
• whether the incident was properly documented,
• whether the two-week deadline was met.

3. Typical mistake by domestic and foreign companies

Both domestic and international companies often either dismiss too quickly or wait too long. Both can create legal risks.

• Too early dismissal without warning often leads to invalidity.
• Delayed reaction may exclude extraordinary dismissal due to missed deadlines.

A common practical error is issuing a warning for a specific breach and then—out of frustration—also issuing a dismissal based on the same incident. Such a dismissal is usually legally vulnerable if based solely on the already sanctioned conduct.

5. Formal Errors Render Dismissals Invalid

German law imposes strict formal requirements.

A dismissal must:

• be in writing,
• be personally signed,
• be demonstrably delivered to the employee.

Email, scan, or DocuSign dismissals are invalid.

Example from practice

A US company sends a termination via email with PDF attachment.

The dismissal is legally void; the employment relationship continues.

In addition, statutory notice periods must be observed. The statutory minimum applies. Contractual provisions shortening statutory periods are invalid. Longer contractual notice periods, however, remain valid.

What payment obligations does the employer have upon termination?

The employee is entitled to remuneration until the end of the employment relationship, including variable compensation components such as bonuses, depending on contractual arrangements.

The entitlement to benefits in kind, in particular the private use of a company car, generally continues until the end of the employment relationship, as it constitutes a remuneration-like benefit. Early return during garden leave is only permissible if contractually agreed or if justified by overriding employer interests, provided appropriate compensation (e.g. for loss of use) is paid.

Is there an entitlement to severance pay upon termination?

No. In Germany, there is generally no statutory entitlement to severance pay upon dismissal.

This is a common misconception among both domestic and international employers.

Principle under German law

A severance payment is not automatically owed upon termination. The employment relationship ends without any statutory obligation to pay severance.

The employee is generally only entitled to:

• continued employment until expiry of the notice period,
• remuneration until then,
• any contractual bonuses or benefits.

When severance payments still occur

In practice, severance payments are nevertheless very common for three main reasons:

1. Settlement in unfair dismissal proceedings (most common case)
2. Termination agreements
3. Section 1a German Protection Against Dismissal Act (rare in practice)

Example from practice

An Italian company dismisses a German employee for redundancy.

The employee files an unfair dismissal claim.

Although the dismissal is well-founded, the parties agree during the court hearing on a severance payment of 0.5 monthly salaries per year of service.

6. Works Council: Frequently Underestimated Risk

If a works council exists, it must be properly consulted before any dismissal.

Failure to do so renders the dismissal invalid.

7. Termination Agreement or Dismissal?

In many cases, the strategic question arises whether a termination agreement is preferable to dismissal.

Advantages of termination agreements

• greater certainty,
• faster separation,
• lower litigation risk,
• flexible exit arrangements,
• confidentiality clauses,
• settlement of bonus, company car or stock options,
• waiver of unfair dismissal claims.

 

Example from practice

A Swiss medical technology company seeks to terminate a senior sales employee. The chances of a successful operational dismissal are uncertain.

A termination agreement is concluded instead, including:

• severance payment,
• garden leave,
• reference letter,
• return of company property,
• confidentiality clause.

8. Caution: Termination agreements also involve risks

Common issues include:

• pressure situations,
• surprise discussions,
• language barriers,
• risks of contestation.

Employees must be given time to consider the agreement and consult a lawyer.

Please note that termination agreements may result in a suspension period for unemployment benefits under certain conditions.

9. Severance Payments: No entitlement but common practice

Although there is no statutory entitlement, severance payments are frequently agreed in practice, particularly:

• to avoid litigation,
• in termination agreements,
• in restructuring contexts.

10. Bonuses, stock options and non-compete clauses

Additional issues often arise regarding:

• variable remuneration,
• target agreements,
• stock option plans,
• post-contractual non-compete obligations.

Cut-off date clauses are often invalid. Compensation obligations may arise even after unilateral waiver of non-compete agreements under Section 75a German Commercial Code.

11. Early strategy is key

In Germany, success depends not only on legal justification but also on strategy:

• timing,
• communication,
• documentation,
• negotiation approach,
• works council involvement,
• structuring of termination agreements.

Conclusion

Termination of employees in Germany is significantly more complex than in many other countries. International companies often underestimate:

• strong dismissal protection,
• formal requirements,
• litigation risks,
• strategic importance of termination agreements.

Early legal advice helps avoid disputes and reduce costs.

Please do not lose sight of your own working time. “Time is money” applies here as well. The faster a viable solution is reached, the more cost-efficient the entire separation process becomes. I also focus on efficiency and support you in achieving pragmatic and legally secure solutions in employee terminations quickly.

29.05.2026
Anne Claire Schroeder-Rose – Attorney-at-law and Specialist Lawyer for Employment Law