Layoffs and Severance Pay in Germany: What You Need to Know

Companies occasionally have to make the painful choice of conducting layoffs in today’s globally connected and dynamic employment market. Germany, which is renowned for its strict labor protection laws, has put in place particular rules to guarantee that workers are treated fairly during such trying times. This article seeks to give a general overview of the Layoffs and Severance Pay in Germany.

What is Layoffs and Severance Pay?

Companies may need to cut their personnel when they have financial difficulties, reorganize, or change their business strategies. Employers must follow tight legal guidelines in Germany when executing layoffs. Protecting the rights and interests of employees is the main goal throughout the process.

Severance pay, sometimes referred to as Abfindung, is money given to workers who are let go. When an employee’s employment is terminated, they are given severance money. Severance compensation is customary but not required in Germany. The amount of severance pay to which an employee is entitled varies depending on their age, length of service, and reason for termination, among other things. It attempts to support people during the transition time and acts as a type of compensation for the loss of job. Severance pay amounts vary depending on a number of factors, including the length of employment, salary, and reason for termination.

Who are eligible to get the Severance Pay?

When an employee is dismissed for legitimate reasons, severance compensation is often paid. This covers dismissals resulting from layoffs, corporate restructuring, or firm collapse. When an employee is let go for serious wrongdoing or because of poor health, severance money may also be given.

Finally, under the terms of Section 1(a) of the German Dismissal Protection Act, the following circumstances may give rise to a claim for severance pay:

1. Employer dismisses employee for business-related reasons
2. In the letter of termination, the employer explicitly states that the dismissal is due to urgent operational needs and that the employee may be eligible for a severance payment under Section 1(a) KSchG after the three-week window for taking legal action to prevent dismissal has passed.
3. The employee waits until the three-week window for submitting a motion has passed before filing an action for protection from termination.

The employee will “automatically” be entitled to a severance payment entitlement of one-half of one month’s income for each year of work in this situation. Over-six-month work periods will be rounded up to a full year. As an illustration, if someone worked for four years and seven months, the number will be rounded up to five years.

Severance Pay for Unfair Dismissals

Unfair dismissal actions don’t guarantee compensation; they focus on determining if the employment termination was unfair. However, dismissal protection lawsuits strongly encourage amicable dispute resolution. In fact, in 2014, around half of all unfair dismissal cases were resolved through settlements.

The likelihood of success in a dismissal protection lawsuit plays a significant role in the employer’s willingness to “voluntarily” offer a settlement. A prolonged legal process increases the employer’s financial risk of reimbursing wages lost if the employee wins the lawsuit.

In rare cases, although theoretically possible, the court may order the employer to pay severance under Sec. 9 – 10 KSchG. This applies if the court deems the termination invalid and it’s unreasonable to expect the employee to continue due to derogatory statements. These steps highlight the favorable possibility of receiving a severance payment in a dismissal protection case.

How Severance Pay is calculated?

There is no set formula for calculating severance pay in German labor legislation. Instead, it is usually decided by collective bargaining agreements or is negotiated between the company and the employee. The business often determines severance pay using the employee’s monthly wage and the number of years they have worked.

In Germany, the standard severance payment is half the annual income, with a maximum of 12 months’ pay. For workers over 50 with 15 years of service, it increases to 15 months’ pay, and for those over 55 with 20 years, it becomes 18 months’ salary.

What are the steps involved in getting severance pay in Germany?

If you are eligible for severance pay in Germany, there are a few easy actions you must do to make your claim. First, your employer must give you a written notice of termination. This notice should include the explanation for your termination as well as the amount of severance pay to which you are entitled.

You must submit a severance pay claim to your employer after receiving your notice of termination. A copy of your termination notice, employment contract, and any other pertinent paperwork should be included with your claim.  After that, your employer will have a set length of time to consider your claim and decide. If your claim is granted, our company will give you the severance pay you are due

In conclusion, layoffs and severance pay in Germany are subject to specific legal regulations that prioritize employee protection and fair treatment. Labor laws ensure employers follow procedures, provide compensation, and consider alternatives to layoffs, promoting fairness and sustainability. Understanding these laws helps employers and employees navigate workforce reduction with fairness and respect for all parties involved.

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