Mass Redundancy Procedure in Germany

What is a mass redundancy?

A mass redundancy occurs when an employer dismisses many employees of the establishment within a certain period. Mass redundancies are often a reaction to economic challenges, restructuring or business closures. If the threshold is exceeded (see below), employers must comply with a specific mass redundancy notification procedure. If this procedure contains any errors, it may have far-reaching consequences for the validity of the dismissals and, thus, potentially lead to huge financial losses.

What are the specific requirements for a mass redundancy notification?

Employers are required to notify the employment agency when dismissals, or other terminations of employment relationships initiated by the employer, exceed specific thresholds in companies of a certain size. The dismissals in question must take place within 30 calendar days. It is permissible for the employer to postpone dismissals and thus avoid the notification obligation. This does not constitute an inadmissible circumvention of the requirements. If a works council exists, it must be involved before the mass dismissal notification (see under 3.).

What thresholds need to be observed?

The threshold for the application of mass redundancy notification is determined based on the ratio between the number of employees regularly employed and the number of employees to be made redundant. A minimum company size of regularly 20 employees is required. The decisive factor is the number of employees that characterizes the company in the regular course of business (not only on the date of dismissal. Specifically, mass redundancy protection applies if the following thresholds are reached:

What is meant by an “establishment”? 

To identify the competent employment agency and the number of employees that must be considered regarding the threshold it is important to identify the “establishments” in the company. An establishment in the sense of European law is a “distinguishable unit of a certain permanence and stability, which is intended for the fulfilment of specific tasks”. The establishment has a group of employees, technical means and an organizational structure to perform these tasks. All employees must be assigned to the unit in such a way that the employees work in or from this unit and the unit can dispose of them. It is not necessary for the establishment to have an independent management that decides independently on mass redundancies. The establishment defined in this way also does not need to have any legal, financial, administrative, or technological autonomy. 

Compared to the German mass redundancy definition of an establishment, the establishment under European law places fewer organizational requirements on the existing management structure. Therefore, even a retail store with its own store manager and its own cost centre may fulfil the definition of an establishment under European law.

Who is considered an employee?

An employee is someone who performs services for another person over a certain period by following their instructions and receiving remuneration for this. This definition includes regular employees, but also external managing directors of a GmbH, managing directors without a blocking minority, senior executives as well as trainees and apprentices who perform practical work in the establishment to acquire or deepen knowledge and are bound by instructions. In contrast, managing directors who, as majority shareholders, exercise a decisive influence on the shareholders' meeting do not qualify as employees, nor do temporary workers who are considered employees of the hirer company.

What is considered a termination of the employment relationship, and which dates are decisive?

All terminations initiated by the employer are relevant. In addition to regular dismissals, this also includes termination with notice of change and cancellation agreements. Extraordinary dismissals, on the other hand, are not included. 

The mass redundancy notification must be filed before the notice of termination is given. Specifically, the notification must be received by the employment agency before the employees are given their dismissal letters. This receipt can occur either through personal delivery or via postal service. In cases where a mutual termination agreement is used instead of a unilateral dismissal, the notification must be filed before the employee signs this agreement.

How is the works council to be involved?

In companies with a works council, the works council must be provided with relevant information in good time and informed in writing about the planned mass redundancy at least two weeks before filing the official notification. The information must generally be provided as soon as a strategic decision on the mass redundancy becomes more concrete and the number of terminations and selection criteria can be identified. The content of the notification is defined by law and includes especially the reasons for the dismissal, the number and occupational groups of the employees affected and usually employed, the dismissal period, selection criteria and, calculation criteria for any severance payments. The employer and works council must discuss the possibilities of avoiding or limiting terminations and minimizing the consequences.

What formal and factual requirements apply to the notification to the employment agency?

The notification must be made in writing and must include the statement of the works council (if a works council does exist). Further, the law differentiates between

• "mandatory information", which is compulsory (e.g. name of the employer, registered office and type of business, reasons for the planned dismissal) and 
• "should information", which should be provided in principle (e.g. information on the gender, age, occupation and nationality of the employees to be made redundant).

What are the legal consequences of a missing or inaccurate mass redundancy notification? 

In practice, mass redundancy procedures are often prone to errors. The consequences of such violations are neither regulated by German or European law. Hence, the German Federal Labor Court has developed its own system of legal consequences and sanctions. 

• If no mass dismissal notification is submitted at all, this will always result in the dismissal being null and void.
• Errors in the mandatory information described above also lead to the termination being null and void.
• On the other hand, errors in the so-called "should" information generally do not lead to the termination being null and void. This applies whether the information is completely missing, or the content is incorrect or insufficient.
• If the employer makes mistakes in connection with the written involvement of the works council in the notification procedure, the dismissal is also null and void.
• If the employer does not provide the works council with a copy of the notification submitted to the employment agency, this generally does not affect the validity of the dismissal.

What changes in case law are in store for us? 

The German Federal Labor Court is considering a significant change to its previous case law regarding the system of legal consequences and sanctions for mass redundancies. The background to this is that the European Court of Justice (ECJ) recently ruled that errors made by the employer in the notification process do not necessarily have to lead to the invalidity of a dismissal. The question was referred back to the ECJ and a decision is still pending.