1. Why German Termination Rules Matter
If your business is expanding into Germany, you will quickly discover that employee rights are heavily protected by mandatory legislation. Even if an employment agreement is drafted under your company’s standard US frameworks, you cannot simply “contract around” German rules. The key principles of fairness, notice, and valid justification for termination are mandatory.
Before hiring or letting employees go, make sure you have reviewed your employment documentation and overall compliance approach. Our guide on German employment contracts provides practical insights into how to structure agreements in line with local labor requirements.
2. Company Size Determines Termination Flexibility
German termination law, particularly the Kündigungsschutzgesetz (Protection Against Dismissal Act), distinguishes sharply between small employers and those with more than ten employees.
- Small businesses (up to 10 employees): You have considerably more flexibility. You do not need to provide a formal reason for terminating an employee and can terminate for any reason as long as the termination is not discriminatory, abusive, or otherwise unfair. The standard notice period still applies, but you are not obliged to justify the decision.
- Larger businesses (11 or more employees): The Kündigungsschutzgesetz applies in its entirety. You may only terminate an employee for legally recognized reasons — personal, behavioral, or operational.
3. The Three Categories of Valid Termination Reasons
When your business employs eleven or more people, any termination of an employee with at least 6 months tenure with your business must fall within one of three categories:
- Personal reasons: Situations related to the employee as a person — for example, when a long-term illness or physical limitation renders them permanently unable to perform the essential duties of their position even with appropriate accomodation.
- Behavioral reasons: Misconduct or repeated breaches of obligations, such as chronic lateness or lack of reliability. Usually, before terminating for behavioral reasons, you must issue at least one formal warning.
- Business-related reasons: Economic or structural changes in your company — such as downsizing, loss of business, or reorganization — can justify termination. However, the selection of employees must be made fairly and according to social criteria.
If a works council exists, the employer must consult it before any dismissal. Additionally, special employee groups, including pregnant employees or those with disabilities, require approval from relevant authorities before termination.
4. Notice Periods and Extraordinary Termination
Under German law, a notice period generally applies in every case. The length of the notice depends on the employee’s tenure and the terms of the employment agreement and any applicable collective bargaining agreements. Only in exceptional cases of severe misconduct — such as criminal acts or serious breaches of trust — can you terminate without notice (“extraordinary termination”). The threshold for this is high, and you must act quickly once the reason becomes known.
5. The Employee’s Right to Challenge a Termination
After dismissal, employees may challenge the termination by filing a Kündigungsschutzklage (unfair dismissal claim) before the labor court. The court will examine two main questions: whether the proper process was followed and whether a valid reason existed. Employers must be ready to justify the decision with factual and lawful grounds.
6. Key Takeaways for US Companies
- Termination rules are largely mandatory — you cannot waive them by contract.
- Company size (10 or fewer vs. 11 or more employees) fundamentally changes your obligations.
- Proper documentation and fair process are crucial to defend against dismissal claims.
Before entering the German market, we recommend evaluating your readiness for Europe and its legal frameworks through our quick check tool: Are you ready for Europe?
By understanding these framework conditions, you can minimize legal risks when building your German or European operations.
