Protection against dismissal in an international context – what companies need to know

Employers headquartered outside Germany employ staff in Germany in numerous areas, such as sales, local technical support, and IT, who often work from home due to a lack of their own domestic premises. The relevant law regarding the protection against dismissal of these employees is – provided that the employment relationship is subject to German law – the Protection Against Dismissal Act (KSchG). Outside the scope of the KSchG (and regardless of regulations on special protection against dismissal), employees do not generally enjoy comprehensive protection against dismissal. According to Section 23 (1) KSchG, this protection against dismissal generally only applies in companies that regularly employ more than ten full-time employees, with part-time employees being taken into account on a pro rata basis. The legal requirements in Germany must be met, which is why, for example, the number of employees working abroad is irrelevant.

In practice, it is often overlooked that the existence of a "company" within the meaning of the KSchG depends on a number of criteria that must be cumulatively fulfilled. As a result, the assessment of individual cases may lead to the KSchG not applying despite a foreign employer having dozens of employees in Germany, or to it applying from the eleventh employee onwards despite the employer not having its own premises in Germany.

The term "establishment" refers to an organizational unit in Germany that carries out the uniform deployment of operating resources and human resources and has a management structure that independently makes key decisions on personnel and social matters. The decisive factor here is whether the core of the employer's functions in social and personnel matters is exercised in Germany – in other words, whether decisions on working conditions and organizational issues as well as on essential personnel decisions such as hiring, dismissals, and transfers are primarily made in Germany. If there is no corresponding management authority located in Germany, there is no regular operation within the meaning of Section 23 of the German Employment Protection Act (KSchG). This means that the course for the applicability or non-applicability of the KSchG can be set as early as when the first employment relationships are established, but also at a later date.

Our experience shows that a technical right to issue instructions exercised in Germany has only a very minor influence on the overall assessment of the situation. This means that even teams that numerically exceed the threshold of ten employees can operate outside the scope of the KSchG under the technical management of a team leader based in Germany. Conversely, however, limits must also be observed in such a model of cross-border employment, as courts examine such constructs for abuse.

Particularly in the case of cross-border structures, careful examination of the organizational structure is therefore crucial in order to avoid legal risks. Even minor changes to reporting lines and disciplinary responsibilities can have a significant impact on protection against dismissal and severance pay in the context of a cross-border employment relationship in Germany.

Our team has extensive expertise in advising internationally active companies on labor law and will be happy to assist you in designing your employment models in a legally compliant manner.