Achieving the impossible?

Information on mass layoffs in Germany and how to get it right

By Dr. Jan Tibor Lelley, LL.M., and Dr. Julia Bruck

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Why should we expect the impossible to be simple? In reality it ranges from a mere formality to a complex and critical obligation. Apart from many different laws applying on restructuring cases, such as negotiation of reconciliation of interests (Interessenausgleich) and social compensation plan (Sozialplan) or works council consultation before terminations, there is the information and consultation – of the works council – and then again information – of the Labor Office – prior to a reduction in force (RIF) or mass dismissal. This procedure has to be carried out according to § 17 of the Dismissal Protection Act (KSchG).

This information and consultation process used to be seen as a formality based on labor market policy where the labor office would receive information on the number of individuals joining the labor market. Today, however, German labor courts have developed it into a combination of formalities and obligations driven by EU Directive 98/59/EG. The information and consultation procedure with the works council is now more prominent. Today, any error or failure to comply with this highly formalistic procedure regularly invalidates terminations in a RIF and therefore creates major financial risks for companies when restructuring.hy should we expect the impossible to be simple? In reality it ranges from a mere formality to a complex and critical obligation. Apart from many different laws applying on restructuring cases, such as negotiation of reconciliation of interests (Interessenausgleich) and social compensation plan (Sozialplan) or works council consultation before terminations, there is the information and consultation – of the works council – and then again information – of the Labor Office – prior to a reduction in force (RIF) or mass dismissal. This procedure has to be carried out according to § 17 of the Dismissal Protection Act (KSchG).

What triggers the process?

A company is obliged to inform the relevant Federal Labor Office according to § 17 paragraph 1 KSchG if the dismissal of a certain minimum number of employees is planned. This notification duty is triggered for

  • businesses with generally more than 20 and less than 60 employees when more than five employees are to be dismissed,
  • businesses with generally at least 60 and less than 500 employees when 10% of the regular employees or more than 25 employees are to be dismissed, and
  • businesses with generally at least 500 employees where the planned dismissals will affect 30 or more employees.

The term “employee” in § 17 paragraph 1 KSchG includes executive employees and even managing directors. The RIF must be completed within 30 calendar days. Due to European Union requirements, “dismissal” is no longer the coming into effect of the termination on the last day of the notice period, but the receipt of the notice of termination. This includes not only dismissals in the literal sense but also, for example, termination agreements which are actively offered by the company to advance restructuring measures.

If employees with special protection against dismissal are impacted by the RIF, special rules apply. Recently, the Federal Labor Court (case 6 AZR 442/16) ruled that a protected employee (protected because of parental leave) needs to be included in the notification/consultation process with the works council and also notification to the Federal Labor Office even if the dismissal is outside the 30-day period of § 17 paragraph 1 KSchG. In this case, it is enough that the company applied to the relevant agency for permission to terminate the protected employee. It is very likely that this ruling is also relevant for other groups of protected employees, for example expectant women, mothers or disabled employees.

Two procedures for mass dismissals

The notification requirement consists of two completely separate procedures: The notification and consultation procedure with the works council (§ 17 paragraph 2 KSchG) and the notification to be submitted to the Federal Labor Office (§ 17 paragraph 3 KSchG). Regarding the content of the information, both procedures are the same. According to § 17 paragraph 2 numbers 1 – 6 KSchG, the information/consultation and notification must include:

  • the reason for the planned dismissals,
  • the number and profession of employees to be dismissed,
  • the number and profession of employees who are regularly employed,
  • the timeframe in which the terminations will be issued,
  • the criteria chosen for the selection of employees to be dismissed, and
  • the criteria to be used for calculating possible severance packages (in a social compensation plan).

Notification/consultation procedure with the works council

The notification and consultation procedure with the works council is much more difficult than notifying the Federal Labor Office.

First of all, it has to be carried out with the works council of the affected plant. If there is no works council, the procedure is dispensable. If the consultation procedure concerns senior employees, the works council is not responsible. In this case, the representative body for executive staff has to be involved.

The procedure according to § 17 paragraph 2 KSchG consists of two components,

  • the notification process and
  • the consultation process.

The goal of notification and consultation is to inform the works council about the planned dismissals in a timely fashion and to facilitate consultation between the employer and the works council. Management needs to start the process as soon as the employer is seriously considering steps leading to mass dismissals. In order to be compliant with § 17 paragraph 3 KSchG, the procedure should be initiated at least two weeks before the Federal Labor Office is notified of the mass release.

In addition to the content as per § 17 paragraph 2 no. 1 – 6 KSchG, the notification must entail an express offer of consultation to the works council. It is best practice to include a timetable for the planned mass dismissal with two specific dates for consultation with the works council. Consultation with the works council should take place no earlier than one week after the first notification. This gives the works council time to prepare and, if necessary, request further information. The schedule can also specify when the works council would make its statement on mass dismissal and when notification to the Federal Labor Office is planned.

Notification of the works council must be given in writing. While it was controversial for a long time whether this meant the legal form of § 126 of the German Civil Code (BGB), the Federal Labor Court has recently ordered that the legal written form – which would mean wet-ink signature – is not necessary. But nevertheless, it is best practice to document the whole process properly in case there is any dispute.

During the process, the employer and works council have to consult on how to avoid redundancies and or how to mitigate the consequences of the intended RIF. This may include measures such as severance payments, retraining of staff, transfer to a different company or short-time work (Kurzarbeit). However, no agreement has to be reached. The consultation process is over when the works council issues a statement or by establishing prima facie evidence of the notification and consultation process after at least two weeks.

Notification to the Federal Labor Office

The Federal Labor Office must always be notified, whether or not there is a works council. The notification is sent to the district’s office where the plant conducting the RIF is located. If several plants of one company are conducting RIFs, several notifications must be submitted to the local labor offices, in this case the place of the corporate headquarters is not crucial.

The Federal Labor Office has to be notified after the works council has given its statement or two weeks after starting the information/consultation procedure. In this case, without any available statement from the works council, management needs to confirm in a special form that the information and consultation process is complete. In order to fully comply with the notification obligations set out in § 17 paragraph 3 KSchG, we recommend using the forms provided by the Federal Labor Office. Afterwards a copy of the notification must be sent to the works council for information purposes according to § 17 paragraph 3 KSchG.

How to get it right?

  • Make no mistake: The notification of mass dismissals to the labor office and in particular advance information and consultation with the works council is a lynchpin in every RIF.
  • Using a checklist can help to successfully navigate the murky waters of the information, consultation and notification procedure:
  • Prepare information for the works council in writing. Provide the information at least two weeks before submitting notification for a mass dismissal to the Federal Labor Office.
  • Consult with the works council concerning possible options to avoid RIF or reduce the number of dismissals or mitigating their consequences for employees.
  • Inform the labor office about the start of the information and consultation procedure with the works council.
  • After completing the information and consultation procedure with the works council: Submit notification of mass dismissals in writing to the labor office, together with a statement from the works council. Or, if such a statement is not available, with prima facie evidence concerning the completed information and consultation process and a report on the current state of the consultation.
  • Forward a copy of the notification sent to the Federal Labor Office to the works council.

lelley@buse.de / Twitter: @JanTiborLelley