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What are small businesses?
Under Section 23 (1) of the German Protection Against Dismissal Act (Kündigungsschutzgesetz, KSchG), the term “small business” means a business with 10 or fewer employees. Note that an operation counts as a business in its own right if it functions sufficiently independently – particularly in HR matters. Small parts of a company can therefore count as a business, for example individual branches.
The number of full-time employees is used to calculate the headcount. The following applies:
- The figure is based on full-time employees. These are all staff who work more than 30 hours per week
- All staff who work 20 to 30 hours a week count as only 0.75 employees
- Employees working fewer than 20 hours per week count as 0.5 employees
- Apprentices are not included.
Example
A company has a total of 12 employees with different weekly working hours:
- 3 work 40 hours a week
- 3 work 35 hours a week
- 4 work 25 hours a week
- 2 work 15 hours a week
That gives the business the following calculation:
(3 x 1) + (3 x 1) + (4 x 0.75) + (2 x 0.5) = 10
This business is a small business.
There is a special rule for staff who were hired before 2004. In 2004 the employee threshold for small businesses was raised from 5 to 10. So when it comes to dismissal law for employees hired before 2004, what matters is how many full-time employees in the business were likewise taken on before 2004:
- if there are more than five, general protection against dismissal applies
- if there are fewer than five or exactly five, general protection against dismissal does not apply
For employees hired after 2004, the 10-employee threshold applies. That threshold also includes the long-serving employees who were hired before 2004.
Protection against dismissal in small businesses
When it comes to protection against dismissal in small businesses, the most important thing is to look at which rules on protection against dismissal do not apply to small businesses.
Does not apply to small businesses
Grounds for dismissal. Employers running small businesses do not need ordinary grounds for dismissal. So there does not have to be an illness-related, operational or extraordinary ground for dismissal.
Social selection. In small businesses there is no need to take the employee's personal circumstances into account. So there is no need to consider who the dismissal would hit least hard. Employees who have no maintenance obligations, for example, do not have to be treated differently from employees with children.
Also applies to small businesses
Formal requirements. The dismissal must be in writing and signed by an authorised person – usually the managing director. The works council – where one exists in the business – must also be consulted in small businesses.
Substantive requirements. A dismissal in a small business must not breach any statutory prohibition. Examples are the prohibition of retaliation (Maßregelungsverbot), the German General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz, AGG), and dismissals in bad faith or contrary to public policy.
Special protection against dismissal. In small businesses too, certain groups of people enjoy special protection against dismissal. These are works council members, apprentices, pregnant employees and people with severe disabilities. In addition, an employee on a fixed-term contract cannot be given ordinary notice unless this has been agreed beforehand in the contract or collective agreement.
Notice period. The statutory notice period applies in small businesses. It is based on the length of service and depends on how long the employee has been with the business. In small businesses, however, it can be shortened to as little as 4 weeks by a collective agreement.
| Length of service | Notice period (to the end of the calendar month) |
|---|---|
|
6-month probationary period |
2 weeks |
| 2 years | 1 month |
| 5 years | 2 months |
| 8 years | 3 months |
| 10 years | 4 months |
| 12 years | 5 months |
| 15 years | 6 months |
| 20 years | 7 months |
Dismissal without notice. Dismissal without notice is only permitted in exceptional cases. Examples are theft of the employer's property or working time fraud.
Severance pay on dismissal in small businesses
In small businesses too, an employment relationship can be ended early and without observing notice periods by means of a termination agreement (Aufhebungsvertrag). For that, both parties have to agree to end the contract early on a specific date. In return, a severance payment from the employer is agreed. Like a dismissal, this termination agreement has to be made in writing.
A termination agreement cannot be challenged by an unfair dismissal claim (Kündigungsschutzklage). After a termination agreement, employees risk losing their entitlement to unemployment benefit.
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