Germany Eases Dismissal for Top Earners While Courts Tighten Mass Layoff Rules — A New Compliance Minefield

A recent ruling from Germany's Federal Labor Court (Bundesarbeitsgericht) has raised the stakes for employers planning large-scale redundancies. Any mistake in the mandatory consultation with the works council or in the timing of the notification to the Federal Employment Agency can render terminations void — and the defect cannot be fixed retroactively. The March 19, 2026 decision, reinforced by two rulings on April 1, 2026, makes clear that the 30-day standstill period required under European law must be strictly observed. For workers, the three-week deadline to file a wrongful dismissal claim becomes a critical window when procedural errors occur.

While the courts are hardening compliance standards for mass layoffs, the German coalition government is simultaneously moving to loosen job protections in other areas. A reform package agreed in early July 2026 targets high earners: companies will be able to terminate the employment of individuals earning roughly €15,000 per month (about €177,000 annually) more easily in exchange for a severance payment. The same proposal revisits the small-business exemption. Currently, the general dismissal protection law (Kündigungsschutzgesetz) applies only to companies with more than ten employees. Under the planned changes, that threshold would jump to 50, effectively removing social justification requirements for dismissals in firms with up to 50 staff. Protections for pregnant women, severely disabled workers, and works council members remain untouched.

The coalition also wants to extend the maximum duration of fixed-term contracts without cause from the current limit to four years, with up to six renewals within that period. As a counterweight, the government is raising the top income tax rate (the so-called "Reichensteuer") to 47 percent for individuals earning above €280,000 annually.

Even agreements that seem final can unravel when compliance breaches surface. The Solingen Labor Court ruled on June 15, 2026, that a former employee forfeited his entitlement to more than €415,000 gross in severance — despite a signed termination agreement. The man had used the company's internal purchasing system for private orders. The court based its decision on the principle of "disturbance of the basis of the contract" (Section 313 of the German Civil Code). The message is clear: serious misconduct can carry financial consequences even after a separation deal has been struck.

Employers are exploring various tools to structure workforce reductions. Grouping employees by age remains a common method to keep the personnel profile balanced, but errors in the social selection process frequently undermine the validity of dismissals. Behavioral grounds are gaining importance: violations of home-office policies or irregularities in expense reports are increasingly cited as reasons for termination. On the other side, employee representatives are using data-protection rights to demand information — a tactic that often leads to a settlement with a severance payment.

For those who do lose their jobs despite the existing protections, unemployment benefits (ALG I) in 2026 amount to 60 percent of the previous net salary — 67 percent for parents. The calculation is based on gross earnings from the last 12 months, capped at the contribution assessment ceiling of €8,450 per month. The duration depends on age: under 50s can receive payments for up to 12 months, while those aged 58 or older may qualify for up to 24 months. Workers who resign voluntarily or sign a termination agreement without a compelling reason face waiting periods before benefits begin.

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