Terminating an Employment Contract

Terminating an employment contract may be quick to do—but from a legal perspective, it is one of the most delicate measures in an employment relationship. Contrary to popular belief, it is not enough to simply comply with notice periods and communicate the decision within the company.

With every termination, employers navigate legally complex terrain: procedural errors, unclear justifications, or a failure to consult the works council can be enough to render a termination invalid—with far-reaching financial and organizational consequences.

This is precisely why it is crucial to proceed on a sound legal footing even before issuing a termination notice. We at Marten & Graner, certified specialist lawyers in employment law, support employers in assessing valid grounds for termination, ensuring proper implementation, and communicating the decision in a strategically sound manner.

1. Why are terminations usually a sensitive issue for employers?

Terminations initiated by employers are among the most conflict-prone measures in an employment relationship and are particularly legally sensitive for employers, carrying specific risks. Contrary to popular belief, it is not enough simply to issue a termination notice and comply with the statutory notice periods. Even formal errors—such as an incomplete statement of reasons, a flawed works council hearing, or a lack of proof of delivery—can render the termination invalid.

Special Requirement When the KSchG Applies

As soon as the Employment Protection Act (KSchG) applies, the employer must prove in the event of a dispute that the termination is socially justified. This is only possible if certain grounds exist, such as operational, behavioral, or personal reasons. Each of these three grounds for termination is subject to strict requirements that are scrutinized closely in the event of a dispute. And even if one of the grounds for termination exists, additional requirements must be met, such as a proper social selection process, a substantiated health prognosis, or a prior written warning.

Special Protection Against Termination

Groups of employees with special protection, such as pregnant women, individuals with severe disabilities, or works council members, can only be terminated under the additional conditions of the respective special protection against termination. Improper terminations in these cases can have significant financial and legal consequences.

Legally Sound Termination Through Legal Support

This is precisely why it is crucial for employers to seek legal advice early on. A legally sound termination requires a careful review of the grounds for termination, strict adherence to all deadlines, proper implementation, and strategically sound communication—all of which must take place before the termination is actually issued.

We understand that terminations are sensitive not only from a legal perspective but also from a human one. That is why we provide you with comprehensive support aimed at minimizing legal risks, avoiding conflicts, and finding a viable solution for your company.

In short: A termination is not a mere formality. It is a precise legal procedure—and that is precisely why it is so delicate for employers.

2. What types of termination are there?

Before issuing a termination, the employer should know exactly which type of termination applies in the specific case and what the objective of the termination is. Different legal requirements apply depending on the type of termination. In the case of ordinary and extraordinary termination, the focus is on ending the employment relationship. If the employee is to be retained despite a breach of duty, a termination with the option of modified employment may also be considered. However, termination with the option of modified employment is primarily considered in the context of corporate restructuring or reorganization.

2.1 Ordinary Termination

Ordinary termination is the most common form of termination of an employment relationship by the employer. It is carried out in compliance with the contractual or statutory notice period.

Key points:

• The notice period is governed bySection 622 of the German Civil Code (BGB) ,but may differ under a collective bargaining agreement or employment contract.
• The longer the employee’s tenure with the company, the longer the statutory notice period for the employer.
• A reason for termination need not be stated until the Unfair Dismissal Protection Act (KSchG) applies and the employee files a lawsuit against the termination. No reason for termination needs to be given prior to that.

Note: Even ordinary terminations require careful review. If the KSchG applies, a socially justifiable explanation regarding the grounds for termination is mandatory, albeit only during the employee’s unfair dismissal lawsuit.

If no grounds for termination are stated in the notice of ordinary termination, the termination is not invalid for that reason. A reason for termination does not have to be stated in the notice of termination.

2.2 Termination for Cause Without Notice

Extraordinary termination ends the employment relationship immediately and without observing a notice period. It is permissible only if there is “good cause” as defined in Section 626 of the German Civil Code (BGB).

Typical cases include serious violations by the employee of obligations under the employment contract that permanently destroy the relationship of trust. Examples include time-sheet fraud, theft, gross insults, or persistent refusal to work.

Key points:

• The reason for termination must be so serious that continuing the employment relationship—even until the end of the regular notice period—would be unreasonable.
• The termination must be declared within two weeks of becoming aware of the grounds for termination. This period may be suspended if the employer must initiate extensive investigations into the employee’s misconduct (e.g., compliance investigations).
• A prior hearing with the employee may be required if a so-called “dismissal on suspicion” is issued. The right of the works council to be heard, if one exists, must also be observed.
• In the case of extraordinary termination, the reason for termination must be stated at the employee’s request (Section 626(2), Sentence 3 of the German Civil Code (BGB)).

Note: Terminations without notice require a thorough legal review, as the thresholds (e.g., regarding the severity of the breach of duty) are high. It is strongly recommended that a lawyer review the matter before issuing an extraordinary termination.

2.3 Termination with Modification

Termination with an offer of amended terms is a special case: It means that the employment relationship is terminated in compliance with the notice period, but the employee is immediately offered continued employment under amended terms. These may include, for example, different working hours, a different work location, or adjusted compensation.

If, for example, an employee has committed gross breaches of duty in customer contact, the employer may consider issuing a notice of termination with an offer of amended terms and, as part of this notice, assigning the employee to a new position that no longer involves customer contact. However, this depends heavily on the circumstances, the available employment opportunities, and the employer’s willingness to retain the employee within the company.

Key points:

• If the Employment Protection Act (KSchG) applies, it also applies to notices of termination with modification—meaning the modification or termination must be socially justified.
• The employee may accept, reject, or accept the offer of modification with reservations (§ 2 KSchG ).
• If the offer of modification is rejected, the notice of modification is converted into a notice of termination.

Areas of application:

• Structural reorganization
• Economic reasons requiring certain adjustments
• Avoiding a full termination

Notice Note: Notices of termination with the option to modify the employment contract require careful strategic consideration. They should therefore only be drafted and issued with legal guidance to avoid future lawsuits and to improve the employer’s chances of success.

3. Can an employer simply terminate an employee’s employment?

As an employer, you cannot terminate an employee’s employment “just like that.” Even if, in the heat of the moment during a dispute, the phrase “You’re fired” is uttered, this does not constitute written notice of termination, and furthermore, the legal requirements for termination were not verified when such a statement was made.

While an employer can issue a notice of termination at any time, whether it is actually effective is an entirely different matter. This is because German employment law imposes strict requirements on the termination of an employment relationship, particularly when general protection against dismissal under the German Protection Against Dismissal Act (KSchG) applies.

A termination is legally effective only if it:

• is formally proper (in writing, signed by hand, within the required notice period, and properly served), meets
• the statutory requirements (e.g., social selection, consultation with the works council
• ), and—provided that protection against termination applies—is socially justified.

Otherwise, the termination may be overturned by the labor court. This can have far-reaching consequences for the employer, such as back pay, obligations to continue employment, or costly settlement negotiations.

Applicability of the Unfair Dismissal Protection Act

Depending on whether the Unfair Dismissal Protection Act—and thus general protection against dismissal—applies or not, the requirements for an employer’s termination vary. The applicability of the Unfair Dismissal Protection Act (KSchG) is therefore a central aspect of an employer’s termination.

There are two requirements for the applicability of the Unfair Dismissal Protection Act, both of which must be met. The first requirement is that the business regularly employs more than ten employees, calculated based on employment quotas rather than headcount. In this context, employees working up to 20 hours per week are counted at a factor of 0.5, employees working between 20 and 30 hours per week at a factor of 0.75, and all employees working more than 30 hours per week at a factor of 1.0. The second requirement is that the specific employment relationship has lasted longer than six months, regardless of any agreed-upon probationary period (waiting period).

If the Unfair Dismissal Protection Act applies, this is also referred to as the applicability of general protection against dismissal, and the employer may only terminate the employment if the termination is socially justified. Therefore, one of the three grounds for termination—personal, behavioral, or operational—must be present.

Socially Justified Grounds for Termination

If general protection against termination applies, one of the three legally recognized grounds for termination must be present:

• Termination for personal reasons: This requires that the employee is permanently unable to perform their job duties, e.g., due to a long-term illness with no prospect of recovery. Termination due to illness is a subset of termination for personal reasons. Additionally, the employee’s absence must significantly impair business operations, and there must be no possibility of assigning the employee to other duties.
• Termination for cause: This centers on controllable misconduct by the employee, such as repeated unexcused absences, refusal to work, or gross breaches of the obligations under the employment contract. As a rule, a valid written warning is required before termination can be issued.
• Termination for business reasons: This occurs due to business decisions, such as restructuring, a decline in orders, or the closure of departments. The employee’s position must actually be eliminated, and there must be no reasonable possibility of continued employment. In addition, a proper selection process must be conducted among comparable employees—a particularly sensitive issue that is frequently the subject of labor court disputes.

Consultation with the Works Council

If there is a works council at the company, it must be properly consulted prior to any termination ( Section 102 of the Works Constitution Act (BetrVG)). In doing so, the reason for termination, the type of termination, and details regarding the employee must be communicated in a complete and comprehensible manner. If the consultation is omitted or conducted improperly, the termination is generally invalid, regardless of how well-founded the grounds for termination may be. Employers should therefore prepare thoroughly for the consultation with the works council and present a coherent case as to why the termination of an employee is justified.

Specially Protected Groups of Employees

Another key issue concerns specially protected groups of employees and the associated “special protection against termination.” These include, among others, pregnant women, employees on parental leave, severely disabled individuals, works council members, and special company representatives (e.g., data protection officers).

For these groups of employees, termination is either completely prohibited or permitted only with the approval of a government agency (typically the occupational safety and health authority) or the works council. The specific protections against termination vary for each group of employees, particularly with regard to when they take effect, their scope, and the possibility of termination with the approval of the government agency or the works council.

Violations of the special protection against termination generally render the termination invalid and usually also result in high costs and significant reputational risks.

Consequences of the Non-Applicability of the Protection Against Dismissal Act

If the Unfair Dismissal Protection Act does not apply—for example, because the company employs ten or fewer employees or the employment relationship has lasted less than six months—the employer has more lenient options for termination. In these cases, the termination does not need to be socially justified. It is sufficient that it is formally correct, i.e., in writing and given with proper notice.

Important: Even without general protection against dismissal, important protective provisions still apply. These include, for example, special protection against dismissal for pregnant women, severely disabled individuals, or works council members. Furthermore, dismissals that are arbitrary, contrary to public policy, discriminatory, or lack a minimum degree of social consideration are invalid even outside the scope of the KSchG.

It may be that the legal hurdles are lower without the KSchG, but terminations in small businesses or during the probationary period should not be issued lightly. A careful review remains essential.

4. What are potential procedural errors in a termination?

In practice, it is often the case that terminations fail not because they are ill-intentioned, but because they are implemented incorrectly from a formal or tactical standpoint. The legal requirements for a valid employer termination are stringent, and many pitfalls can only be avoided with careful preparation and legal expertise. Employers who want to be on the safe side should be aware of the following common mistakes:

Termination without a legal review of protection against dismissal A common source

Of problems is an incorrect assessment of protection against termination. Especially in small and medium-sized businesses, it is often overlooked that the Protection Against Dismissal Act (KSchG) applies to companies with more than ten regularly employed workers— including part-time employees. The calculation is based on employment quotas, as outlined above. If an employee is terminated without first verifying whether there are socially justifiable grounds, the termination risks being overturned in court.

Missing or Incomplete Written Warning in the Case of Dismissal

For Conduct-Related Reasons Dismissals based on conduct—such as misconduct or breaches of duty—are also particularly prone to errors. In such cases, at least one prior valid written warning is almost always required, and it must relate to a similar or identical violation. Many employers settle for general (verbal) warnings or fail to adequately document the misconduct in a written warning. This results in the termination being upheld in court. A proper written warning with a specific description of the allegation is therefore essential.

Formal Defects in the Notice of Termination

Serious errors are also repeatedly made regarding the form of the termination notice itself. For example, verbal terminations, terminations via email, or terminations without a signature are legally invalid. The law expressly requires the original written document with a handwritten signature (Section 623 of the German Civil Code (BGB)). Even digital signatures using appropriate tools are not sufficient. In addition, receipt of the notice of termination should be documented in a legally secure manner, e.g., by personal delivery with a confirmation of receipt or by courier. The courier must also have seen what they are placing in the sealed envelope.

Missing or Flawed Social Selection in Redundancy-Based

Terminations Redundancies for operational reasons are also particularly critical, as they require compliance with the legally mandated social selection process. Criteria such as age, length of service, support obligations, and, where applicable, severe disability must be taken into account. If the selection is made without a discernible system or if it disadvantages employees who are particularly deserving of social protection, the termination is vulnerable to challenge, and a lawsuit is often successful.

Termination Without Consultation in Cases of Special Protection Against Dismissal Finally,

The handling of employee groups with special protection—such as pregnant women, employees on parental leave, or those with severe disabilities—should not be underestimated. While termination is often possible in cases of very serious breaches of duty, official approval must be obtained before the termination is issued. Without this approval, the termination is not only invalid but also legally valid. To avoid such cases, employers should always seek legal advice.

4.1 Terminations are complex and should be handled with legal guidance

Terminations are not a mere formality but a highly complex legal process. Employers who wish to avoid common mistakes must terminate the employment relationship not only strategically but also in a formally correct manner. A legal review in advance not only prevents lawsuits but also avoids costs, damage to the company’s reputation, and can prevent internal unrest. Employers who proceed professionally in this matter—ideally with the support of a lawyer—protect themselves legally while also acting responsibly toward their employees.

5. What alternatives are there to termination?

Termination is rarely the most elegant solution for ending an employment relationship, as there is often a legal risk that the termination will be declared invalid in labor court proceedings. Employers who wish to terminate or restructure an employment relationship should therefore always examine whether there are safer or more flexible alternatives to termination. Two tried-and-true tools are particularly relevant in practice: the termination agreement and the settlement agreement.

5.1 Mutual Termination Agreement

A termination agreement is a mutual agreement between the employer and the employee regarding the termination of the employment relationship. Once this agreement is signed by both parties, the employment relationship is legally and securely terminated, and, in the best-case scenario, all further claims are settled. The advantage is that no formal notice of termination needs to be given, and neither party to the employment contract is bound by statutory notice periods or protection against unfair dismissal.

This results in numerous advantages for the employer: it gains legal certainty, lengthy and costly unfair dismissal lawsuits can be avoided, and the employment relationship can—subject to a corresponding agreement—be terminated even on very short notice. A works council generally does not need to be involved, which creates additional flexibility.

In addition, a termination agreement can be tailored to individual circumstances. In addition to the termination date, binding provisions can be agreed upon regarding, for example, an amount of severance pay, a period of leave, arrangements for the return of work equipment, or the content of the employment reference.

Important: The employee must not be pressured or coerced into signing. They should be given sufficient time to consider the agreement. Otherwise, the agreement may be contested later. Employers should be aware that a termination agreement typically results in a waiting period for the employee’s unemployment benefits. This can create room for negotiation, but may also necessitate additional consultation.

5.2 Settlement Agreement

A settlement agreement is somewhat different. It comes into play after a notice of termination has been issued and is used primarily when both parties wish to reach an out-of-court settlement. The settlement agreement does not replace the termination notice but merely regulates its consequences, such as e.g., an amount of severance pay, a leave of absence until the end of the employment relationship, or the wording and overall rating of the employment reference. Confidentiality agreements, obligations to return company property, and non-compete clauses can also be bindingly agreed upon here.

However, caution is advised: If a settlement agreement includes “concessions” such as an amount of severance pay, this may be interpreted as an admission that the termination may have been invalid. For this reason as well, it is advisable to have such agreements drafted by a lawyer to avoid errors in wording.

5.3 Termination or a Mutual Agreement

Anyone who is not required to terminate the employment relationship should seriously consider alternatives. Mutually agreed-upon solutions are often legally safer, more cost-effective, and less stressful for everyone involved. Whether it’s a termination agreement or a settlement agreement—both options allow for the orderly termination of employment relationships without exposing the employer to the risk of a wrongful termination lawsuit. Provided, of course, that they are drafted with due care and legal expertise.

6. Why should employers consult a specialized certified specialist lawyer in employment law even before a lawsuit is filed?

Many employers only pick up the phone once the termination has already been issued and a wrongful termination lawsuit has been filed. But those who wait until then have already forfeited much of their room to maneuver or are taking avoidable risks. This is because the actual legal uncertainty does not arise only in court, but rather at the very moment when a termination is first being considered internally.

Terminations Require Tact The decision

To terminate an employment relationship is never purely a legal one. It requires tact, strategic thinking, and a solid understanding of employment law. Errors in the justification, form, or preparation are difficult—if not impossible—to correct after the fact. Even seemingly minor oversights—such as those related to the works council hearing, the selection of employees for layoff, or documentation—can cause an otherwise justified termination to fail in labor court.

Legal Support Even Before Termination

Employers should therefore seek legal counsel not only when a dispute arises, but well in advance. Lawyer Martin Graner, a specialist in employment law, provides comprehensive advice to employers on all matters related to the legally sound termination of employees.

Ideally, this consultation begins before the termination letter is drafted: by assessing whether and which grounds for termination are valid, evaluating protection against wrongful termination, correctly calculating the notice period, ensuring legally sound wording, and, last but not least, minimizing risks with regard to potential subsequent claims.

6.1 Consultation with a Certified Specialist Lawyer in Employment Law Is Valuable for Employers

As specialized certified specialist lawyers in employment law, we at Marten & Graner are not only familiar with the legal intricacies but also with the practices of labor courts—and thus the specific points where terminations regularly fail. Our goal is not only to resolve conflicts but to prevent them from arising in the first place. Employers benefit from clearly structured, transparent, and strategically sound advice that also takes human factors and operational implications into account.

Anyone who wants to terminate an employment relationship in a legally sound manner should not wait until a lawsuit is filed. An early legal review by a lawyer helps identify legal risks and prepare the necessary steps.

7. Conclusion

• Terminations are legally complex and prone to errors: A termination is not a simple administrative act. Even formal errors—such as an insufficient review of the grounds for termination, a failure to consult the works council, or an incorrect form (e.g., verbal instead of written)—can render the termination invalid—with significant financial and organizational consequences.
• The German Unfair Dismissal Protection Act (KSchG) imposes strict requirements: The KSchG applies to companies with more than ten employees and to employment relationships lasting more than six months. In these cases, termination is permitted only for reasons related to the employee’s person, conduct, or operational necessity—and these must be rigorously reviewed and documented.
• Special protections against termination must be observed: Certain groups of employees, such as pregnant women, individuals with severe disabilities, those on parental leave, or works council members, enjoy special protection against termination. In such cases, termination is only possible under stricter conditions or with official approval.
• Different types of termination with their own requirements: Ordinary, extraordinary (without notice), and termination with the option to modify the employment contract are each subject to different legal requirements. In particular, termination without notice and termination with the option to modify the employment contract carry significant risks and should only be issued after a legal review.
• Mutually agreed-upon solutions are often the better alternative: When drafted correctly and fairly, termination and settlement agreements offer a more flexible and often legally secure way to end an employment relationship. They help avoid lawsuits for unfair dismissal and can be tailored to individual circumstances.
• Seeking legal advice early on protects against costly mistakes: Lawyer Martin Graner, a specialist in employment law, assists employers even before a termination is issued by reviewing the grounds for termination, ensuring proper implementation, and providing guidance on strategic communication. After all, legal certainty is established not only during litigation but well before it begins.

8. FAQ