Senior employees occupy a special position under German dismissal protection law. Learn about the particularities of § 14 KSchG, when dissolution applications are possible and how severance payments are negotiated.
Dismissal Protection for Senior Employees -- Particularities and Pitfalls
German dismissal protection law is regarded as one of the most employee-friendly systems in Europe. Yet not all employees are treated equally: senior employees (leitende Angestellte) are subject to a range of special provisions that present both opportunities and risks. In practice, this frequently leads to disputes because neither employers nor the individuals concerned are fully aware of the precise boundaries and legal consequences. This article examines the key particularities and provides practical guidance.
Who Qualifies as a Senior Employee Under the KSchG?
The definition of a senior employee under the Protection Against Dismissal Act (KSchG) is narrower than under other German statutes. Pursuant to § 14(2) KSchG, a senior employee is a person who:
- Is authorised to independently hire and dismiss employees, or
- Holds a general power of attorney or Prokura that is not insignificant in relation to the employer, or
- Regularly performs other duties that are of material significance for the continued existence and development of the company
The Authority to Hire and Dismiss as the Key Criterion
In the case law of the Federal Labour Court (BAG), the authority to hire and dismiss has emerged as the most important criterion in practice. What matters is not the formal job title but the function actually performed. The authority must:
- Actually exist in the internal relationship (not merely on paper)
- Relate to a substantial proportion of the workforce
- Be exercisable independently, without prior approval from a superior
Practical Difficulties in Classification
Classifying someone as a senior employee is frequently contentious. Typical issues include:
- Title inflation: Not every "Head of" or "Director" automatically qualifies as a senior employee under § 14 KSchG
- Restricted authority: Someone authorised to hire only up to a certain salary grade may not meet the requirements
- Matrix organisations: In complex corporate structures, actual decision-making authority is often unclear
- Prokura as a formality: The mere grant of Prokura is insufficient if it is insignificant in relation to the employer
The Special Status Under § 14 KSchG
No Protection Against the Dissolution Application
The most far-reaching particularity for senior employees concerns the employer's dissolution application. Under § 14(2) KSchG in conjunction with § 9 KSchG, the employer may apply for dissolution of the employment relationship without stating reasons if:
- The dismissal was socially unjustified (i.e. the unfair dismissal claim would succeed), and
- The employer files a dissolution application
For ordinary employees, the employer must demonstrate comprehensible reasons why continued cooperation serving the company's purposes cannot be expected. For senior employees, this requirement to state reasons is entirely eliminated.
Practical Consequences
This provision has far-reaching practical implications:
- The employer can effectively terminate any employment relationship with a senior employee in exchange for severance
- Unfair dismissal claims lose their leverage for senior employees, as they cannot lead to continued employment
- Negotiations focus on the amount of severance rather than job retention
Severance for Senior Employees
Statutory Severance Under §§ 9, 10 KSchG
Where the employment relationship is dissolved on application, the senior employee is entitled to severance. The statutory caps are:
- Generally up to 12 months' salary
- For employees over 50 with at least 15 years of service, up to 15 months' salary
- For employees over 55 with at least 20 years of service, up to 18 months' salary
Severance in Negotiation Practice
In practice, severance payments for senior employees are frequently negotiated well above the statutory benchmarks. Key factors include:
- Length of service: Long tenure increases negotiating leverage
- Salary level: The higher the salary, the higher the absolute severance typically negotiated
- Labour market prospects: Age and specialisation affect the negotiating position
- Employer's litigation risk: An obviously unlawful ground for dismissal strengthens the employee's position
- Contractual severance clauses: Many managing director and board member contracts already contain severance provisions
Tax Treatment
Severance payments may benefit from preferential tax treatment under certain conditions. The one-fifth rule under § 34 EStG permits reduced taxation if the severance is paid as compensation for lost earnings and is received in a single tax year. Careful tax structuring of the settlement agreement is therefore essential.
Works Council Protection and Senior Employees
No Works Council Coverage
Senior employees are excluded from the scope of the Works Constitution Act under § 5(3) BetrVG. This means:
- The works council does not need to be consulted before dismissal (§ 102 BetrVG does not apply)
- The special dismissal protection for works council members (§ 15 KSchG) does not apply
- The works council's co-determination rights regarding individual personnel measures do not apply
The Spokesperson Committee
Instead, senior employees in companies with at least ten senior employees may form a spokesperson committee under the Spokesperson Committee Act (SprAuG). However, its rights are considerably weaker than those of the works council: there is merely a right to information and consultation in the event of dismissals, but no right to object.
Special Grounds for Dismissal of Senior Employees
Loss of Trust as a Ground for Dismissal
For senior employees, a loss of trust is more readily recognised as a ground for dismissal by the courts than for other employees. The prominent position and the associated special relationship of trust mean that higher standards of loyalty are imposed.
Strategic Realignment
A corporate restructuring resulting in the elimination of a senior employee's position can justify a dismissal for operational reasons. While social selection under § 1(3) KSchG must in principle be carried out, it is significantly restricted in practice by the narrow comparison group formation for senior employees.
Practical Recommendations
For Employers
- Verify before dismissal whether the individual genuinely qualifies as a senior employee under § 14 KSchG
- Document the actual authority to hire and dismiss
- Develop a severance strategy early and budget accordingly
- Consider a settlement agreement as an alternative to dismissal -- consensual solutions are often faster and more cost-effective
For Senior Employees
- Review contracts when concluding the employment agreement: negotiate severance clauses, change-of-control clauses and non-compete covenants carefully
- Seek legal advice early when a separation becomes foreseeable
- Observe the three-week deadline: senior employees must also file an unfair dismissal claim within three weeks of receiving notice (§ 4 KSchG)
- Consider the disqualification period for unemployment benefits: settlement agreements and voluntary resignation may trigger a disqualification period of up to 12 weeks
Recent Case Law
The case law continues to evolve. Particularly noteworthy are:
- BAG, judgment of 27.09.2024 (2 AZR 79/23): Confirmation that the authority to hire and dismiss must be substantive and not merely formal
- BAG, judgment of 21.11.2024 (6 AZR 154/24): Clarification on the distinction between senior employees and corporate officers in a GmbH
- LAG Düsseldorf, judgment of 14.03.2025 (5 Sa 287/24): On comparison group formation in social selection for senior employees
Conclusion
Dismissal protection for senior employees represents a tension between employee protection and entrepreneurial flexibility. The special status under § 14 KSchG -- particularly the right to seek dissolution without giving reasons -- shifts the balance of power in favour of the employer. At the same time, the substantial severance entitlements provide effective economic protection.
What matters is that both sides know their rights and exercise them strategically. Early and competent advice is essential -- both when drafting contracts and during the separation process.
At compleneo, we provide comprehensive advice to both companies and senior employees on all aspects of dismissal protection law. From contract drafting through dismissal management to severance negotiations, we stand at your side with our employment law expertise.
