Restructuring and Notification of Mass Dismissals with regard to Labor Law


Challenges faced by companies during restructuring processes

"Fear, paranoia, insecurity." With this apocalyptic triangle, Rose Beauchamp, Stephen Heidari-Robinson and Suzanne Heywood describe in their article Reorganization without Tears the environment in which the reorganization of companies takes place. And in this article they are only referring to the non-legal aspects of change processes. A quick glance at the different aspects of restructuring in regard to labor law clearly shows that the topic is complex, sensitive and extremely emotional.

At least five different sets of laws are to be applied regularly to restructuring matters: Negotiation of the reconciliation of interests and social compensation plans with a works council, therefore §§ 111 et seq. of the Works Council Constitution Act (BetrVG); Consultation with the works council before the issuance of dismissals for operational reasons or by way of changes in contractual terms and conditions, therefore § 102 of the Works Council Constitution Act (BetrVG); Involvement of governmental agencies before termination of specially protected employees (expectant mothers or employees on parental leave and severely handicapped persons), therefore § 9 of the Maternity Protection Act (MuSchG), § 18 of the Law on Parenting Benefit and Parenting Leave (BEEG) and §§ 85 et seq. of Volume IX of the Social Insurance Code (SGB IX). Furthermore, there is the information and consultation of the employee representatives, which is to be carried out according to § 17 of the Employment Protection Act (KSchG), including the subsequent notification procedure at the Federal Employment Office.

When are we dealing with mass dismissals?

According to § 17 para. 1 of the Employment Protection Act (KSchG), a company wishing to dismiss a certain minimum number of employees must notify the competent Federal Employment Office. The obligation to notify the Federal Employment Office is triggered for

  • businesses with generally more than 20 and less than 60 employees when six employees are to be dismissed,
  • for 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
  • for businesses with generally at least 500 employees where the planned dismissals will affect 30 or more employees.

The personnel reduction must be completed within 30 calendar days. By law, governmental agencies must not only be notified of dismissals for operational reasons or by way of changes in contractual terms and conditions. They must also be notified of “other forms of termination of employment”, i.e. termination agreements, which are actively offered by the company to advance restructuring measures.

Two procedures concerning mass dismissals: Notification/consultation procedure and notification of governmental agencies

The notification requirement is divided into two completely separate procedures: The notification and consultation procedure with the works council (§ 17 para. 2 of the Employment Protection Act (KSchG)). The notification of mass dismissals that is to be submitted to the Federal Employment Agency (§ 17 para. 3 of the Employment Protection Act (KSchG)). In regards to the content of the information, both procedures are the same. The information and notification must contain (§ 17 para. 2 no. 1 – 6 of the Employment Protection Act (KSchG)):

  • the reason for the planned dismissals,
  • the number and occupational groups of employees to be dismissed,
  • the number and occupational groups of employees who are generally employed,
  • the period of time in which the terminations are to be carried out,
  • the criteria provided for the selection of workers to be dismissed, and
  • finally, the criteria to be used for calculating possible severance packages (in a social plan).

The notification and consultation procedure with the works council is considerably more difficult.

Mass dismissal procedure: View of the courts increasingly strict

The notification of dismissals was previously just a formality based on labor market policy. Now, however, labor courts have developed both the information and consultation procedure with the works council and the – somewhat weakened – notification procedure at the Federal Employment Office into a combination of interrelated formalities and participatory obligations. Companies are confronted with a severe obstacle to dismissal that can only be managed by experts. It can really be said: Today, a work-related personnel adjustment normally fails in court because of formal errors during the information, consultation and notification of mass dismissals.

In 2012 and 2013, the Federal Labor Court had defined a new goal for the notification of mass dismissals in a series of decisions. This was a shift away from the previously pure labor market policy-based goal of providing information on the number of workers who may be available in the labor market and towards an intensive consultation with the employee representation and the notification of the competent agency. The information and consultation procedure with the works council has now become more prominent. And there are more and more judgments in which termination of employment was declared null and void due to breach of the information and consultation obligations (§ 17 para. 2, para. 3 of the Employment Protection Act (KSchG) in conjunction with § 134 of the German Civil Code (BGB)).

Notification of mass dismissals – What should be done?

Turning the notification of mass dismissals and, above all, the information and consultation procedure with the works council, which forms the basis for the notification, into a lynchpin for restructuring measures is justified. Currently, the Federal Labor Court (Bundesarbeitsgericht, decision dated September 22, 2016 – 2 AZR 276/16) has once again reiterated that an insufficient statement of the status of consultation with the works council can lead to an ineffective notification of mass dismissals, thereby nullifying the dismissals. Shortly before this, the court had clarified (Bundesarbeitsgericht, decision dated June 9, 2016 – 6 AZR 405/15) that the absence of a briefing about the occupational groups (§ 17 para. 2 no. 2 and 3 of the Employment Protection Act (KSchG)), as information, represented a formal legal defect vis-a-vis the works council. This can be cured if the works council expressly declares that its legally mandated consultation requirement has been fulfilled. This minor relief, however, was decided in a case in which all employees were dismissed due to closures. The Federal Labor Court expressly stated that the information about the occupational groups was no longer relevant at the time of the dismissals of the employees. This was so because the works council already knew which occupational groups were going to be affected. Namely, all of them.

With regard to these obstacles, a checklist can help with the information, consultation and notification procedure:

  • Information in written form to the works council pursuant to § 17 para. 2 of the Employment Protection Act (KSchG)). The information must be provided at least two weeks before submitting notification of mass dismissals to the Federal Employment Office.
  • Actual consultation with the works council concerning the possibilities of avoiding or reducing the number of dismissals or mitigating their consequences.
  • Information to the competent Federal Employment Office about the information and consultation with the works council.
  • After completion of the information and consultation procedure with the works council, submission of the notification of mass dismissals in written form with the opinion of the works council. Or, if the opinion is not available, with prima facie evidence concerning the process and conclusion of the information and consultation procedure and the analysis of the current state of the consultation.
  • Reporting of the notification, which has been submitted to the Federal Employment Office, to the works council.

These are the difficulties that a legally sound notification of mass dismissals in restructuring situations must circumvent.

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Tags: #Labor Law, #Notification Of Mass Dismissals, #Restructuring, #Works Council

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