What is compliance – and why is it important for companies?

In an increasingly complex business world, compliance has long been more than just a buzzword. It is a crucial factor for success. Not only to avoid legal risks, but also to anchor trust, integrity and sustainability in companies.

But what does compliance mean, and why should every company take it seriously?

What does ”compliance” mean?

The term compliance comes from English and literally means adherence or observance.

In a corporate context, it refers to compliance with all applicable laws, regulations, internal guidelines and ethical standards that are relevant to the company.

Examples:

• Laws and regulations (e.g. data protection, labour law, environmental regulations)
• Industry standards and certifications (ISO)
• Internal company guidelines
• Ethical principles such as integrity, fairness and transparency

In short, compliance means doing the right thing – even when no one is looking.

Why is compliance important?

1. Legal certainty

Companies that neglect compliance systems risk fines. A well-designed compliance management system helps to identify and prevent violations at an early stage. Please take a look at our product portfolio: Compliance-as-a-Service

2. Trust and reputation

A company that complies with laws and ethical standards builds trust among customers, investors and employees.

Scandals or cases of corruption, on the other hand, can cause lasting damage to the brand and industry image.

3. Competitive advantage

In many industries, demonstrable compliance is now a criterion in tenders or collaborations.

written by Carolin Wagner

January 01, 2026

Last month's final topic was the contract structure in contracts under German law and common law.

We remember:

Similarities of the contracts

• Identification of parties
• explain background information
• Contents main body

Differences

• Terminology
• Highlighting certain elements and legal principles

Main Clauses in the contracts

German law

• Subject
• Price
• Conditions
• Timeframe for performance
• Delivery requirements
• Quality standards

Common law

• Subject
• Payment terms
• Delivery requirements
• Performance obligations
• Warranties and representations
• Limitations of liability
• Termination provisions

Subtotal result

Similarities

• Clearly define the rights, obligations and conditions on which the parties have agreed

Differences

• Terminology
• Highlighting of certain points
• More detailed in common law

Requirements for the performance of the contract

German law

• Strict Adherence to Contractual Terms (Any deviation from the agreed-upon terms may constitute a breach)
• Good Faith (explicitly requirement)
• Punctual Performance (failure constitute a breach)
• Compensation for Delay (compensation for losses)
• Remedies for Breach (include damages, specific performance, and termination of the contract)

Common law

• Strict Adherence to Contractual Terms
• Fair Dealing (courts may still impose a duty of good faith and fair dealing in certain circumstances)
• Time is of the Essence (adherence to the deadlines)
• Mitigation of Damages (non-breaching party to take reasonable steps to mitigate their losses)
• Remedies for Breach (damages, specific performance)

Subtotal result

Similarities

• Strict adherence to contractual terms
• The availability of remedies for breach

Differences

• Emphasis on good faith
• Punctual performance
• Approach on mitigating damages

Overall result

Similarities

• E.g. Parties, background information, subject, price, timelines
• Correspondence in main contents
• Strict Adherence to Contractual Terms
• Availability of remedies for breach

Differences

• Big difference in point in time when the contracts come to an existence
• Both have their own specific formalities and terminology
• Emphasis on good faith (enforced in German law)

written by Carolin Wagner

December 01, 2025

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Contact us now for a no-obligation consultation!

The two best-known legal systems are civil law and common law. These have significant differences in their structures, which are presented in the current blog post.

Wording:

• Precedent - an action, situation, or decision that has already happened and can be used as a reason why a similar action or decision should be performed or made
• Codification - the act or process of arranging something, such as laws or rules, into a system
• Recital - the main details about a contract including who it involves and why they are making the contract, often given before the main text of a contract and starting with the word "whereas“

Introduction:

German law

• Based on codified laws and regulations
• Precedents do not have the same legal authority
• German law can be less flexible due to rigid codification of statutes
• Inquisitorial process where the judge plays a more active role in investigating facts and evidence

Common law

• Based on precedents and court decisions
• Precedents are crucial
• Adversarial proceedings in which two parties stand in court and present their arguments
• Applied in e.g. England & Wales or USA

Formal requirements for the formation of a contract:

German law

• Consent (Both parties must manifest their intent to be bound by the contract)
• Agreement on Essential Terms (such as the subject matter, price, and conditions)
• Formalities (if required)
• Legality of Purpose (cannot violate public policy or the law)

Common law

• Offer and Acceptance (unconditional, clear, definite, and communicated)
• Consideration (Both parties must provide something of value)
• Intention to create Legal Relations
• Legal Capacity (legal age, and not under the influence of drugs or alcohol)
• Certainty (clear and certain)
• Formalities (e.g. sale of land must be written and signed)

Subtotal result

Similarities

• Consent
• Agreement on essential terms

Differences

• Both have their own formalities
• Legal traditions
• Terminology

When is the point in time when the contracts come to an existence?

German law

• Contract formation happens if the parties reached the agreement of the essential terms
• No need for formal acceptance is communicated
• No strict requirement to direct communicate to the offeror
• Offer and acceptance can be implied or explicit

Common law

• Communication of acceptance to the offeror is required
• Can happen written or oral communicated
• Exception: mailbox rule acceptance is effective upon dispatch

Subtotal result

Similarities

• Both recognize the importance of offer and acceptance in contract formation

Differences

• Communication of acceptance
• German law places more emphasis on the consensus or agreement
• Common law focuses on the moment of acceptance communication

Contract structure:

German law

• Title (kind of contract, parties named)
• Parties and Recitals (background information)
• Main Body - Operative Provisions (rights, obligations, and terms agreed upon by the parties)
• E.g.: subject matter, price, and conditions, performance obligations, timeframe, termination and breach, method for resolving disputes)
• Formalities (notarization or registration if necessary)
• Good Faith (contractual obligations must be fulfilled in a manner that is based on standards of honesty, trust and fairness)

Common law

• Preamble (introduce the parties, provides background information)
• Recitals (explain the reasons for entering into the contract)
• Main Body - Operative Provisions (rights, obligations, and responsibilities of the parties)
• E.g.: subject, consideration (monetary payment, goods, services, or promises), Terms and Conditions, Representations and Warranties, Indemnification, Governing Law and Jurisdiction
• Boilerplate clauses (standard provisions e.g.: assignment, severability, amendment, waiver)

written by Carolin Wagner

November 05, 2025

The last two blog posts dealt with the main property and management rights of GmbH shareholders. Of course, there are other rights that authorize the shareholders and are described in the current article.

Right to appoint and dismiss managing directors

Appointment of managing directors

• A managing director is appointed in the articles of association by a formal shareholders' resolution
• The appointment must be filed for entry in the commercial register
• When selecting the managing director, the prohibition of discrimination under the General Equal Treatment Act (AGG) must be observed (as the appointment of a managing director affects access to gainful employment)

Dismissal of managing directors

• The dismissal of the managing director is carried out by resolution of the shareholders' meeting and represents the formal termination of the position on the executive body
• In principle, dismissal is possible at any time
• The articles of association may contain restrictions on dismissal at any time
• The articles of association may stipulate that dismissal is only permissible for good cause (e.g. gross breach of duty, inability to manage the company properly)

Contestation of shareholder resolutions - What needs to be considered?

Basics

• The German Limited Liability Companies Act does not contain any special provisions on the avoidance of shareholder resolutions
• In practice, the provisions of the German Stock Corporation Act (AktG) are used analogously

Time limit for contestation

• According to the Federal Court of Justice, the one-month period also applies as a guiding principle for the GmbH
• Challenges should therefore generally be filed within one month of the resolution being passed

Reasons for contestation

1. procedural defects (formal errors)

• Errors in the invitation procedure
• Inadmissible place or time of the meeting
• Violations of participation or voting rights
• Incorrect resolution (e.g. lack of majority)

2. substantive defects (material errors)

• The resolution violates the law or articles of association
• The resolution is immoral or contrary to good faith
• Unlawful discrimination against individual shareholders

Minority rights in the GmbH - influence through participation

Basis: Section 50 GmbHG

• Shareholders who hold at least 10% of the share capital have special minority rights

Convening of a shareholders' meeting

• Minority shareholders can request that a shareholders' meeting be convened
• Prerequisite: Specification of the purpose and reasons for the request
• This right serves to control and influence key decisions in the company

Further rights of the minority

• Filing an action for dissolution (§ 61 GmbHG)
• Application for the appointment or dismissal of liquidators (§ 66 GmbHG)

Provisions in the articles of association

• The articles of association can grant further minority rights
• The participation threshold for exercising these rights can be lowered, but not raised
• A tightening of the legal requirements for exercising the rights is not permitted

Special rights of shareholders in the GmbH

In a GmbH, individual shareholders can be granted so-called special rights.

Examples of special rights

• Veto rights for certain resolutions
• Rights to issue instructions to the management
• Right to the office of managing director (organizational special right)

Regulation in the articles of association

• Special rights must be expressly regulated in the articles of association
• Subsequent withdrawal of these rights is only permitted with the consent of the shareholder concerned
• They are considered individual contractual agreements and are therefore subject to the protection of legitimate expectations

written by Carolin Wagner

October 01, 2025

While the last blog post dealt with the property rights of GmbH shareholders, the current post deals with management rights.

Right to participate in the shareholders' meeting (administrative law)

In a GmbH, the shareholders' meeting is the central body for decision-making - it is therefore all the more important that the participation rights of all shareholders are legally secured and correctly implemented. But how exactly does this work?

Basic principle

• Every shareholder has a right to participate, irrespective of voting rights (§ 47 Para. 4 GmbHG)
• This means that every shareholder, even those without voting rights, may participate

Representation

• Shareholders may be represented (without exception in the articles of association)
• Representation requires a written power of attorney
• The power of attorney must be presented to the meeting
• Minors or shareholders who do not have full legal capacity are represented by a legal representative

Contestation in the event of non-admission to the shareholders' meeting

• The non-admission of a person entitled to participate can be contested
• Resolutions passed are then invalid
• A subsequent cure is excluded
• The meeting must be reconvened

Invitation

• Incorrect and late invitations violate the right to participate
• The statutory notice period for invitations is at least one week
• A waiver of form and deadline is only possible if all shareholders expressly agree

Inadmissibility of the convocation

Meetings that

• at a location that is excluded in the articles of association,
• at a location that is difficult for individual shareholders to reach,
• at a time that is unusual for the business,
• were convened by an unauthorized person

are invalid.

Good to know:

These violations can also lead to resolutions becoming invalid.

Voting rights (administrative law)

The right to vote is one of the central participation rights of a shareholder in a GmbH - its structure, limits and possible exclusions are therefore of considerable importance. The exercise of voting rights is subject to a duty of loyalty both to the company and to the other shareholders. Shareholders are obliged to exercise their voting rights in a manner that serves the interests of the company and respects the rights of the other shareholders. Abusive voting behavior can therefore be legally contestable.

Principles of voting rights

• Legal basis § 47 Para. 2 GmbHG
• Each shareholder exercises their membership rights in the shareholders' meeting through voting rights
• Each euro of the share corresponds to one vote
• Shareholders are not obliged to exercise their voting rights
• Abstentions are generally not counted
• In the case of abstentions, deviating regulations may be agreed in the articles of association (regarding counting, exercise of voting rights)
• Voting trust agreements are possible (consortium agreements)

Good to know:

If there are multiple voting rights, the number of votes increases accordingly.

Shareholders can be excluded from voting rights by law. This is the case if the resolution concerns the following topics:

• Discharges
• Release of the shareholder from a liability
• Clarification of a legal dispute concerning the shareholder
• The execution of a legal transaction with the respective shareholder

Legal standard: Section 47 (4) GmbHG

Good to know:

This provision is mandatory, which means that it must be applied.

In addition, further voting bans can be defined in the articles of association.

Good to know:

The voting right can be exercised by a proxy, as it is not personal.

Information and control rights (administrative law)

The shareholders' rights of control are a central element of transparency within the GmbH. They make it possible to monitor the management and make well-founded decisions. At the same time, clear limits apply to protect the company. The main details are listed below.

Basics of the right of control

• Each shareholder of a GmbH has a personal and individual right of control
• This includes:
• the right to information (§ 51a GmbHG)
• and the right of inspection (§ 51b GmbHG)
• in conjunction with the general right of control under the German Civil Code (Section 716 BGB)
• Meaning:
• Inalienable property rights of shareholders
• Essential component of the participation in the limited liability company

Scope of the right of inspection

The right of inspection extends to

• Balance sheets and business books
• all business documents of the company - regardless of form (paper or digital)

Definition of inspection: On-site inspection - no entitlement to the provision of originals or copies

However, shareholders may make copies or photos of the inspected documents at their own expense.

Right to information

Every shareholder may request information on all company matters. The information must be provided completely and truthfully and serves to enable the shareholder to properly exercise his rights in the company.

Limits of the right of control

• The company may refuse to provide information or access if disclosure threatens a significant disadvantage for the company
• The refusal must be justified and may only be made if there is a specific risk (e.g. if there is a threat of sensitive information being passed on to competitors)

written by Carolin Wagner

September 01, 2025

Anyone who founds or participates in a GmbH not only gets a piece of the company - but also a whole range of rights and obligations. As a shareholder in a GmbH, you are more than just a financial backer: you have a say, you may receive a share of the profits, but you also have to comply with certain obligations. How much influence you really have, what you are allowed to do - and what you have to do - is not only regulated by law, but often also by the articles of association. In this article, we take a closer look at the rights and obligations of GmbH shareholders - in a clear, practical and to-the-point way.

Profit participation right (property right)

Anyone with a stake in a GmbH expects to receive a share of the profits sooner or later - after all, this is a key incentive for many shareholders. Profit participation rights belong to the category of property rights. What does the law say about profit distribution?

• Legal basis: offers § 29 GmbHG
• Principle: Shareholders are entitled to the profit of the GmbH (annual net profit or balance sheet profit)
• Net profit for the year:
• Result of the profit and loss account
• Fluctuates depending on the economic situation
• Balance sheet profit:
• Annual result after taking reserves into account
• Enables more even distributions
• Distribution practice:
• The law provides for full distribution of the net profit for the year
• In practice, reserves are often formed (in accordance with Section 29 (2)GmbHG)
• Distribution:
• Normally in proportion to the shares
• Deviations possible per articles of association
• Significance:
• Inalienable property right of the shareholders
• Essential component of the participation in the GmbH

Right to liquidation proceeds (property right)

This right assures the shareholders that they will participate in the remaining assets of the GmbH as soon as all outstanding invoices have been paid and the so-called blocking year is over.

Here is an overview of the most important points:

The most important facts about the right to liquidation proceeds (Section 72 GmbHG):

• Definition: Shareholders are entitled to the remaining company assets after dissolution and complete liquidation of the GmbH.
• Prerequisite:
• Dissolution of the GmbH (e.g. due to lapse of time, insolvency)
• Start of liquidation
• Expiry of the legally prescribed blocking year
• Ensuring that all liabilities of the GmbH have been met
• Procedure:
• The liquidation is officially initiated
• After completion, debts are repaid, and any provisions are taken into account
• Only then are the remaining assets distributed
• Distribution:
• Generally, in proportion to the shares
• Deviating regulations are possible if they are included in the articles of association or if there is a unanimous shareholder resolution
• No obligation to make additional contributions: If there are still debts after liquidation, the shareholders are not personally liable - negative liquidation proceeds are not distributed
• Closing of the liquidation:
• The liquidators report the closure to the commercial register
• The GmbH is deleted in accordance with § 74 Para. 1 GmbHG

written by Carolin Wagner

August 01, 2025

In order to make working from abroad possible, there is the option of a secondment. This is linked to an A1 certificate and what this involves is explained in the new blog post.

What is an A1 certificate?

An A1 certificate proves whether the social security law of the sending state or that of the foreign state applies to a person in gainful employment who is temporarily staying in an EU state other than their own.

Good to know:

Iceland, Liechtenstein, Norway, Switzerland, Northern Ireland and the United Kingdom include the A1 certificate.

The relevant factor here is that the person in gainful employment is only staying temporarily in another member state. This is referred to as a posting. An A1 certificate from Germany documents that the person working abroad is still subject to German social security law.

The A1 certificate has the advantage that switching between different social security systems or simultaneous contribution payments in several member states can be avoided.

Good to know:

If you work in several member states, you also need the A1 certificate.

Who needs an A1 certificate?

• Employees, civil servants and self-employed persons
• for temporary, cross-border activities
• within the EU
• Regular activity
• Personal scope of application must be fulfilled

What is the personal scope of application?

The personal scope of application is to be equated with the personal requirements that must be met for the posting.

The personal scope of application is fulfilled if the nationality of the person concerned authorises posting to the intended country of employment.

EU nationality always authorises posting to another EU member state.

Good to know:

There is no basis in EU law for persons with other nationalities outside the EU (e.g. Norway).

How do I apply for the A1 certificate?

Employees:

• Electronically
• Via SV-Meldeportal or existing payroll accounting software
• By stating the insurance number of the person to be posted
• By the employer

Self-employed persons:

• Application is made by yourself
• via the SV reporting portal

Good to know:

The group of self-employed persons also includes partners, managing directors and similar persons who are integrated into a company and have the status of self-employed persons under social security law.

Good to know:

A paper application will be inadmissible from 1 January 2025.

written by Carolin Wagner

July 08, 2025

The last blog post dealt with the topics of company agreements, occupational health and safety and working hours. This issue deals with data protection law, tax law and social security aspects.

Data privacy

• the responsibility for compliance with data protection remains with the employer
• Compliance with the technical and organizational measures

Good to know:

Data processing in the EU is unproblematic if the technical and organizational standards are complied with. However, these are beyond the control of the employer. It is therefore advisable to develop a guideline in advance on how this can be guaranteed.

A case-by-case assessment is recommended for third countries.

Tax law

Assigning employees abroad also entails tax risks. If the assignment abroad exceeds a certain duration, for example, income tax must be paid in the country of employment. Employers must take care of this.

Tax law has a clear guideline for working from home in other EU countries:

• Absence of the employee does not exceed 183 days
• Employer not domiciled abroad and no local permanent establishment
• Compliance with double taxation agreements within the EU
• Place of residence remains Germany

Social security aspects

Since 2021, mobile work has been legally equivalent to work in a “traditional” workplace.

The frequent “mixing” of private and professional activities is problematic.

Key question: Is the specific behavior that led to the accident more likely to be classified as professional or private? Depending on this, statutory accident insurance may or may not apply.

Good to know:

When work-related and private activities intermingle, as is typical in mobile work, risks and gaps in protection arise that cannot yet be calculated with certainty due to the still “young” legal situation and the lack of established case law. One possible solution could be private accident insurance.

written by Carolin Wagner

June 02, 2025

Summer is just around the corner and many employees want to work from a different place in the world. In an increasingly digital and flexible working world, the concept of workation - a combination of work and holiday - is becoming more and more important. This gives employees the opportunity to carry out their professional activities from abroad while enjoying the benefits of a holiday environment. How companies can realise this is explained in the current blog series on the topic of ‘Workation’.

This edition focuses on the topics of company agreements, health and safety and working time:

Despite the obvious benefits, however, workation raises several legal issues. Employers and employees must ensure that legal requirements are adhered to avoid legal risks.

Good to know:

There are currently no legal regulations regarding the flexibilization of the place of work. In order to offer flexible working models, it is advisable to include these in employment contracts or works agreements.

What components should a works agreement have in this regard?

• Which employees can work mobile / use a workstation - which cannot?
• Agreements regarding working hours and availability (it is essential to take into account different time zones)
• Liability issues in the event of accidents and illness
• Limiting the duration and frequency of use of mobile working / workation
• Cancellation options

Occupational health and safety and mobile working - potential hazards of mobile working

Possible hazards and restrictions:

• Impairment due to unfavourable ergonomic working conditions (suitable office chair, lighting)
• Suitable conditions for VDU work (screen quality and size)
• Exposure to disturbing external influences (noise, air quality, temperature)
• Stress due to lack of communicative exchange with team members
• Lack of social connection to company events
• Mental stress due to time pressure, availability and insufficient recovery time

But how can the health and safety of employees be guaranteed and based on which legal standards?

• Provision of safe work equipment in accordance with Section 618 BGB
• Instruction of employees in accordance with § 12 ArbSchG
• Carrying out a risk assessment in accordance with 5 ArbSchG

Potential challenges:

Possibility of influencing work circumstances?

Possibility of enforcing instructions?

Working hours

A well-thought-out concept is required for compliance with working time regulations that takes into account the essential framework conditions. This could include working in different time zones. But how can this be mapped?

• Implementation by means of technical and organisational measures (adjustment of meeting times)
• Agreement on a written instruction

Good to know:

The Working Hours Act applies exclusively in the Federal Republic of Germany.

Basic regulations:

Maximum working hours:

8 hours per working day

10 hours a day

Rest breaks:

30 minutes after 6 hours

45 minutes after 9 hours

Rest periods:

11 hours between shifts and working days

Good to know:

Ban on working on Sundays and public holidays - with exceptions for specific areas

The other legal aspects of ‘workation’ will be explained in the next issue of the blog.

written by Carolin Wagner

May 02, 2025

The termination of an employment raises the question of a possible severance payment for many employees. But how much is a severance payment? While last month's blog entry explained the possible bases for claims relating to severance pay, this month's post focuses on the amount of potential severance pay. This article highlights the most important aspects of calculating the amount of severance pay and provides an overview of common calculation formulas and negotiation options.

The amount of the severance payment is based on the following three points:

• half a gross monthly salary per year of employment
• the duration of the employment (rounded up to one year after six months)
• the last monthly salary of the existing employment

Although this requirement for severance pay only applies in the event of dismissal for operational reasons, it is often used as a starting formula for termination agreements. However, the amount of the severance payment in detail is always a matter for negotiation and depends on the chances of winning an action for unfair dismissal.

Socially unjustified dismissal

If the dismissal is socially unjustified, there is an alternative to reinstatement:

• According to § 9 KSchG, the court must determine that the dismissal is socially unjustified
• Continued employment is not reasonable for the employee

At the employee's request, the court can then terminate the employment relationship in return for a severance payment.

• The amount of the severance payment is up to twelve months' salary in accordance with § 10 Abs. 1 KSchG
• The monthly salary is calculated as the value to which the employee is entitled in the month in which the employment relationship ends, including all benefits in cash and in kind

Good to know:

Different amounts apply for employees who have reached the age of 50 in conjunction with a certain length of service in accordance with § 10 Abs. 2 KSchG:

50 years of age and at least 15 years of service = 15 months' salary

55 years of age and at least 20 years of service = 18 months' salary

Tax and unemployment benefit entitlement

Good to know:

For tax purposes, severance payments are considered extraordinary income and are subject to income tax. However, they are not subject to social security contributions. In order to avoid an excessive tax burden, the so-called fifth rule could be applied until 2024. This rule spreads the tax burden arithmetically over five years and thus mitigates the progressive effect of income tax.

From 2025, however, the procedure will change so that employers will be relieved. They will no longer have to carry out the complex calculation of the one-fifth rule. For employees, this means that the severance payment will be fully taxed as wages in the month of payment. The tax relief provided by the one-fifth rule can be claimed retrospectively by submitting an income tax return.

Für die Arbeitnehmenden bedeutet dies, dass die Abfindung im Monat der Auszahlung voll als Arbeitslohn versteuert wird. Die steuerliche Erleichterung durch die Fünftelregelung kann nachträglich durch die Abgabe einer Einkommensteuererklärung geltend gemacht werden.

Good to know:

A severance payment can affect unemployment benefit entitlement. For example, if the notice period was not observed. There does not have to be a blocking period. In this case, employees do not receive any wage replacement benefit until the employer's notice period has expired. For a maximum of one year and only until the severance pay is deemed to have been used up.

written by Carolin Wagner

April 04, 2025

In employment law practice, the question often arises as to the circumstances under which an employee is entitled to severance pay. Contrary to popular belief, there is no automatic statutory entitlement to severance pay on termination of employment. Rather, such claims arise from specific situations or are reached as part of court settlements.
It is important to know that anyone who has worked for more than six months in a company with more than ten employees benefits from protection against dismissal under the KSchG. This means that an ordinary dismissal - also known as a dismissal with notice - can be reviewed in court.
Scenarios worth considering:

1. Severance pay solution pursuant to § 1a KSchG

Employers must make a conscious decision to offer severance pay in accordance with Section 1a KSchG and preferably offer it in the notice of termination. The prerequisites for this are

• The KSchG must be applicable, which means that the dismissed employee must have worked for more than six months in a company that employs more than ten employees
• The employer must have given notice of termination for operational reasons. In the case of employees who cannot be dismissed with notice, this can also be an extraordinary dismissal for operational reasons with the granting of an expiry period
• The letter of dismissal must state that the dismissal is based on urgent operational requirements and that the employee can receive a severance payment in accordance with Section 1a KSchG if he or she does not make use of the statutory period for taking legal action (against the dismissal)
• The dismissed employee must allow the statutory period of three weeks to lapse unused in accordance with Section 4 sentence 1 KSchG, so that the dismissal becomes legally effective

Good to know: § Section 1a KSchG does not contain a general or even mandatory statutory entitlement to severance pay.

2. Socially unjustified dismissal and unreasonableness of the continuation of the employment relationship

A statutory entitlement to severance pay arises from §§ 9 and 10 KSchG. The following requirements must be met:

• Filing an action for protection against dismissal within three weeks of receipt of the dismissal by the employer
• Determination by the labor court that the dismissal is socially unjustified and the employment relationship is therefore not terminated
• Determination of the unreasonableness of continuing the employment relationship, or determination that it is no longer to be expected that further cooperation in the interests of the company can take place

Good to know: Unreasonableness is to be assumed if the employee would be entitled to terminate without notice. Reasons that do not justify termination without notice can nevertheless make continuation unreasonable. For example, cases in which inaccurate defamatory allegations about the employee have been carelessly noted as grounds for termination or the relationship of trust has been destroyed in the course of the process through no significant fault of the employee. In such cases, the employment relationship is terminated by the court in return for a severance payment to the employee.

3. Contractual compensation claims

In addition to the options mentioned above, there is also the option of contractually agreeing a severance payment between the employee and employer. The best-known form is the termination agreement, which leads to the amicable termination of the employment relationship. It is important to note that the employee's consent to such an agreement can lead to disadvantages in terms of unemployment benefit. Specifically, this means the potential imposition of a suspension period.

written by Carolin Wagner

March 17, 2025