Dismissal Due to Restructuring or Job Cuts: What Employees Should Check Now

Your company is restructuring, merging, outsourcing functions - and you receive a dismissal. The reason sounds plausible, maybe even unavoidable. But a redundancy dismissal for business reasons is legally much more vulnerable than many employees assume under German employment termination law.

The social selection is the most complex and error-prone part of a redundancy dismissal - and this is where most dismissals fail in court. Anyone who looks closely at what has happened will often find starting points to significantly improve the financial outcome - whether through a termination agreement, negotiations on severance pay after dismissal, or an unfair dismissal claim.

This article is aimed at employees who have received a redundancy dismissal following a reorganisation, job cuts, an acquisition, or outsourcing. It explains the key legal points - and which questions you should be asking yourself now.

Why the "business reason" alone is not enough

Many employers dismiss employees with the explanation that a position is being cut "due to restructuring" or "due to job cuts". That sounds compelling - but it is not sufficient from a legal perspective.

Under section 1 (2) of the Protection Against Dismissal Act (KSchG), a redundancy dismissal for operational reasons is only valid if there are urgent business requirements that prevent the continued employment of the employee. Three conditions must be met cumulatively:

1. Entrepreneurial decision - The employer must have taken a concrete decision that permanently leads to the loss of the job. A measure that is merely planned but not yet implemented is generally not enough.
2. No possibility of continued employment - There must be no vacant, comparable position in the company to which the employee could be transferred - if necessary even under changed conditions.
3. Correct social selection - The employer must select who is dismissed based on statutory selection criteria for redundancy.

The Protection Against Dismissal Act applies if you have been employed by the company for more than six months and the business has more than ten employees. If you work in a larger company and have been there for some time, you therefore enjoy significant statutory protection - even if it does not feel like it at first glance.

Typical scenarios: Restructuring, acquisition, outsourcing

Depending on what has actually happened, different legal starting points apply to a dismissal due to restructuring or job cuts.

Internal restructuring or reorganisation

Departments are merged, management levels removed, tasks redistributed. The employer claims that your position is being eliminated. The decisive question is: Has the need for your role permanently disappeared - or are other employees essentially performing the same tasks under a new title?

Courts only review entrepreneurial restructuring decisions for arbitrariness or obvious unreasonableness; they do not examine the business rationale in detail. What they do examine closely: whether the job has in fact been cut and whether the social selection has been carried out correctly.

One critical point: If the employer hires someone into a comparable position within three to six months after your dismissal, this speaks against a permanent loss of the job.

Dismissal after acquisition or merger

Particular care is needed here. If a business or part of a business is transferred to a new owner by way of a legal transaction, this constitutes a transfer of undertakings under section 613a of the German Civil Code (BGB). Typical cases: sale of a business, merger, spin-off.

Under section 613a (4) BGB, a dismissal because of the transfer of undertakings is invalid - whether given by the old or the new employer. This applies to all employees, regardless of company size or length of service.

However, redundancy dismissals for independent economic reasons remain possible even after a transfer - as long as the transfer of undertakings is not the real or predominant reason for the dismissal. Courts look closely here: Would the job have disappeared even without the transfer?

In the case of a pure share deal (purchase of company shares), there is no transfer of undertakings in the legal sense, because the employer as a legal entity remains the same. In such cases, the normal rules of redundancy dismissal and employment termination law apply.

Dismissal due to outsourcing

If an area of work is outsourced to an external service provider, the key question is what exactly is being outsourced. If only the tasks are transferred - without employees and operating resources - there is no transfer of undertakings, and the internal position can be made redundant for operational reasons.

However, if employees, operating resources and tasks are transferred together to the external service provider and this provider continues the economic unit, there may be a transfer of undertakings under section 613a BGB. The consequence: your employment relationship automatically transfers to the new employer, and a dismissal by the old employer would be invalid.

Social selection: The most common employer error

Social selection is the statutory process by which the employer determines, in the case of redundancy dismissal, which employees may lawfully be dismissed. Under section 1 (3) KSchG, four criteria are decisive: length of service, age, maintenance obligations and the existence of a severe disability.

The basic logic: employees who are socially more secure should be dismissed first so that more vulnerable employees remain in the company.

Step 1: Defining the comparison group

Before the four criteria can be applied, the employer must define the correct comparison group. Only those employees may be compared who, in terms of role, qualifications and experience, could replace each other within a reasonable induction period.

Employers tend to define comparison groups too narrowly - which is open to challenge in court. If you are compared within a small group in which you are the least protected socially, even though you should have been compared with employees from a larger area, you may be able to claim that the dismissal is invalid.

Step 2: Incorrect weighting of the social criteria

If age, length of service, maintenance obligations or a severe disability are not correctly recorded or are weighted incorrectly, the social selection is open to attack. If, for example, a younger colleague with a shorter length of service and no maintenance obligations is retained, while you are dismissed after 12 years of service with two children to support, this strongly indicates an incorrect social selection.

Step 3: Exclusion as a "key performer"

Employers can exclude employees from the social selection if their continued employment is in the legitimate business interest - for example due to special expertise or to maintain a balanced workforce structure. This exception is, however, narrowly defined and cannot simply be invoked for all so-called "key employees".

Possibilities of continued employment: Often overlooked

Before issuing a redundancy dismissal, the employer must examine whether continued employment on another vacant position in the business is possible - even if this would require retraining. This includes in particular:

• Transfer to an equivalent vacant position
• Dismissal with an offer of re-employment on changed terms (for example lower pay or different role)
• Reduction of agency workers before permanent staff are let go

If the employer has not seriously examined these options, the dismissal may be socially unjustified under employment termination law.

The role of the works council

If your company has a works council, it plays an important role in any dismissal and works council communication is legally regulated.

Under section 102 of the Works Constitution Act (BetrVG), the works council must be properly consulted before every dismissal. If this consultation is missing or defective, the dismissal is invalid - regardless of how strong the business reason may be.

The works council can object to the dismissal - for example in the case of incorrect social selection or if options for continued employment have not been examined. If an unfair dismissal claim is filed after such an objection, the employee is often entitled to continued employment until the court reaches a decision.

In larger restructurings, the works council also negotiates a reconciliation of interests (which roles are cut) and a social plan (what financial compensation is offered). Important: social selection and social plan are two separate issues - a social plan does not replace proper social selection.

Financial aspects: What is often at stake in restructurings

Especially in cases of higher income, long service or managerial responsibility, a redundancy dismissal is rarely just about severance pay after dismissal. The following points should form part of an overall strategy:

• Severance payment: No statutory entitlement, but in practice it is almost always the subject of negotiations. The amount depends on length of service, salary and the prospects of success of a claim.
• Garden leave: Under what conditions are you released from work? Is the garden leave paid? Are remaining holiday and overtime offset?
• Variable pay / bonus: Pro-rated bonus for the current year, commissions, profit shares - these claims do not automatically end with the dismissal.
• Company car: Does use end immediately? How is use during garden leave treated?
• Reference letter: What rating, what wording - a good reference is particularly important after restructurings for your next career step.
• Non-compete clause: Do you have a post-contractual non-compete? Under what conditions is it enforceable, and is it compensated?
• Waiting period for unemployment benefits: Anyone who resigns themselves or signs a termination agreement without a valid reason risks a waiting period for unemployment benefits. In the case of a dismissal due to restructuring or job cuts issued by the employer, this risk is generally lower.

Those who factor these points into their strategy early on usually achieve better outcomes than those who focus solely on the amount of severance pay after dismissal. An overview of all economically relevant issues is also provided in our article on redundancy dismissal: social selection, severance pay and legal protection.

Your interactive self-check

Use our short self-check to get an initial assessment of which legal aspects might be particularly relevant in your specific redundancy dismissal situation.

Overview: Typical angles of attack at a glance

The three-week deadline: The critical time factor

If you receive a redundancy dismissal, you must file an unfair dismissal claim with the competent labour court within three weeks of receiving the written notice of dismissal (section 4 KSchG). If this deadline is missed, the dismissal is deemed valid from the outset - regardless of whether it was actually lawful under employment termination law.

This means: even if you have not yet decided whether you want to litigate, you must act within these three weeks. Filing a claim does not rule out a later out-of-court settlement - it actually opens up the full scope for negotiation.

You will find a structured overview of what to do in the first few days after a dismissal in our article Dismissal received: What you must do in the first 7 days.

Legal expenses insurance: Check early

If you have legal expenses insurance that covers employment disputes, this is a major advantage: the insurer will generally cover lawyers' fees and court costs for your unfair dismissal claim in a redundancy dismissal case.

Important: apply for cover approval at an early stage - ideally before your first meeting with an employment lawyer termination specialist or at least in parallel. Have the following documents ready:

• Insurance policy (showing employment law cover)
• Letter of dismissal with date of receipt
• Employment contract

Whether and how your insurer will pay depends on the specific terms of your policy. Our article Legal expenses insurance and dismissal: What the insurer pays explains the process step by step.

What you should do now: Checklist

If you have received a dismissal due to restructuring or job cuts:

• ✅ Note the date of receipt - the three-week deadline starts when you receive the written dismissal
• ✅ Do not sign immediately - do not sign any "confirmation of receipt" that could be interpreted as your consent
• ✅ Gather documents - employment contract, dismissal letter, payslips for recent months, works agreements, social plan (if any)
• ✅ Check works council involvement - was the works council properly consulted? Was an objection raised as part of the dismissal and works council process?
• ✅ Identify comparable colleagues - who has a similar role and has stayed?
• ✅ Request the reasons for the social selection - you have the right to ask your employer for the social selection criteria
• ✅ Check legal expenses cover - do you have legal expenses insurance for employment disputes?
• ✅ Consult an employment lawyer - before the three-week deadline expires

Conclusion: The business reason is only the starting point

A dismissal due to restructuring, job cuts, acquisition or outsourcing is not automatically valid. The employer must clear three hurdles: urgent business requirements, no possibility of continued employment - and correct social selection.

In practice, it is especially the social selection that is often vulnerable. Employees who have been with the company longer, have higher maintenance obligations or were assessed within a comparison group that was too narrowly defined often have good prospects of significantly improving the financial outcome through legal review.

Our specialist employment lawyers will review your redundancy dismissal in a structured way - focusing on the real financial scope, not on a standard formula.

Frequently asked questions about dismissal due to restructuring