German Court Rulings Tighten Dismissal Rules Even as Berlin Plans Easier Firing for Top Earners
Published on 07/23/2026 at 10:22 | Redaktion boerse-global.de
A series of recent German labor court decisions has reinforced strict procedural requirements for employers, creating tension with a government reform package that aims to loosen termination rules for high-income workers starting in 2027.
The Federal Labor Court ruled on April 1, 2026, that dismissals during mass layoffs are invalid if the employer fails to notify the Federal Employment Agency — even in cases of insolvency or a complete business shutdown. The decision underscores that formal notification remains a non-negotiable step, regardless of the company's financial distress.
Just months earlier, on January 29, 2026, the same court clarified that severely disabled employees cannot be dismissed during their probationary period without first consulting the representative body for disabled workers. That consultation obligation begins on the very first day of employment, the court said.
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The Hamm Regional Labor Court added another layer of caution on July 21, 2026, when it ruled that circumstantial evidence alone does not justify an immediate dismissal. The case involved an employer who fired a worker without notice over an alleged attempt to commit insurance fraud. Because the employer could not prove the accusation beyond doubt, the dismissal was voided. The court also noted that when an employee uses work time for personal matters, a prior written warning is the appropriate first step — not termination.
New Rules on the Horizon
Despite these judicial warnings, the federal government is pressing ahead with its "Program for Recovery and Employment," a 34-measure package designed to cut red tape and give businesses more flexibility. The most contentious element targets high earners.
Starting January 1, 2027, employees earning more than €177,450 annually would face a new "enhanced dissolution claim." Under this rule, employers could end the employment relationship by paying severance — without needing to provide a social justification as required under the general Protection Against Unfair Dismissal Act.
The reform also expands fixed-term contracts without a specific reason. Until the end of 2030, companies could offer such contracts for up to 48 months, with as many as six renewals. The ban on rehiring former employees under fixed-term contracts would also be relaxed. And from January 2027, the written-form requirement for fixed-term agreements would be dropped, moving personnel administration further into the digital age.
High Stakes for Formal Mistakes
For now, the written form mandated by Section 623 of the German Civil Code remains mandatory for any legally valid dismissal. In companies with more than ten employees, where the Protection Against Unfair Dismissal Act applies, workers who have been employed for more than six months can only be dismissed for social reasons — meaning the termination must be justified by the employee's conduct, personal capacity, or urgent operational needs.
Statutory notice periods under Section 622 of the Civil Code are four weeks to the 15th or the end of a calendar month. For employers, these periods lengthen with the employee's tenure: one month after two years, two months after five, four months after ten, and seven months after 20 years of service.
Small businesses with ten or fewer employees are exempt from the social justification requirement. However, arbitrary or discriminatory dismissals remain illegal. Special protection for pregnant women and severely disabled workers applies across all company sizes.
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Severance Agreements Gain Favor
Faced with these legal minefields, many companies are turning to mutual termination agreements. During ongoing workforce reductions at Zalando in Berlin and Erfurt, for example, the principle of "double voluntariness" is being applied — both employer and employee must freely consent.
Legal experts warn that such agreements can trigger a waiting period for unemployment benefits. Standard severance packages range from 0.25 to 1.0 times a gross monthly salary per year of service.
Economists are debating further liberalization, including state subsidies for transition costs or shorter notice periods modeled on international practices. Currently, the average cost of a dismissal in Germany amounts to 2.5 times an employee's annual salary.
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