The ongoing economic downturn in Germany in 2025 is putting pressure on many companies, including subsidiaries and branches of foreign enterprises. In some cases, reducing personnel becomes unavoidable. However, German labor law provides employees with strong protection against dismissal. Employers must carefully observe legal requirements when terminating employment contracts to avoid disputes and legal consequences.

In the following, we provide an overview of the key rules concerning dismissals during the current economic situation. Please note that this information is for general guidance only and does not replace case-specific legal advice.

1. General Protection Against Dismissal in Germany

Germany is known for its strict employment protection. The Kündigungsschutzgesetz (German Protection Against Dismissal Act) applies if:

• The company has more than 10 full-time equivalent employees.
• The employee has been employed for more than 6 months.

If these conditions are met, a termination is only valid if it is socially justified, meaning there is a valid reason for the dismissal.

2. Valid Grounds for Termination during an Economic Crisis

In the context of an economic crisis, dismissals may be based on operational reasons (betriebsbedingte Kündigung), such as:

• Declining sales and reduced workload
• Closure of departments or entire business units
• Other structural changes to ensure the company’s survival

However, employers must prove that:

• There is indeed a persistent or significant reduction in work.
• No possibility of continued employment exists within the company.
• A proper social selection (Sozialauswahl) has been made, taking into account seniority, age, maintenance obligations, and disability status of the employees 

3. Notice Periods for Terminations in 2025

Unless otherwise agreed in the employment contract or collective agreements, the statutory notice periods apply:

• Starting from 4 weeks (to the 15th or the end of a calendar month)
• Up to 7 months for long-term employees

4. Severance Payments (Abfindung) — Are They Mandatory?

German law does not automatically require severance payments. However, they are common in practice, especially to avoid litigation. Courts often recommend settlements, which usually result in severance payments.

Typical severance formulas:

• Half a month’s gross salary per year of service is a common rule of thumb.
• The actual amount can vary depending on negotiations and the employee’s social situation.

In some cases, social plans (Sozialpläne) and collective agreements may also stipulate mandatory severance payments.

5. Procedural Requirements and Risks for Foreign Employers

Foreign companies employing staff in Germany must pay particular attention to:

• Correct notice periods and formal requirements (written form, signature)
• Works council involvement if applicable
• Justification and documentation of the termination reasons

The risk of unfair dismissal claims before German labor courts

6. Specialized Legal Advice is Highly Recommended

Due to the complexity of German labor law, foreign employers are strongly advised to seek qualified legal assistance before initiating dismissals. At WW+KN, a Baker Tilly Company, we work closely with experienced labor law attorneys within the Baker Tilly network. This allows us to offer our clients integrated advice covering payroll, HR compliance, and labor law aspects.

Important Note

This article provides general information only and does not constitute legal advice. Each case should be carefully reviewed in detail before any employment termination is implemented.

If you have any questions regarding payroll, employment law, or HR compliance in Germany, please feel free to contact us.

We are WW+KN, a Baker Tilly Company.

You can reach us at info@payrollgermany.de.