Employees often wonder about insolvency pay unfair dismissal when their employer goes bankrupt. The news of VBI Plastic’s insolvency in Morsbach creates great uncertainty among employees. When a company becomes insolvent, workers face a double burden: the threat of job loss while often still owed wages. In this situation, three topics are central: insolvency pay, handling of dismissal, and whether a unfair dismissal claim makes sense. Especially the combination of insolvency pay and an unfair dismissal claim often determines whether affected employees walk away empty-handed or enforce their claims. This article provides an overview of the most important rights and deadlines.
Insolvency pay unfair dismissal: what employees should know
Understanding how insolvency pay unfair dismissal works helps employees navigate the process after a company insolvency.
What happens to the employment relationship in an insolvency?
The employer’s insolvency does not automatically end the employment relationship. The insolvency administrator takes over the employer’s functions and can decide whether to continue operations or wind them down. In practice, operational dismissals are often issued because the business is shut down or restructured. For employees, the dismissal must still be socially justified in insolvency. Although the insolvency administrator has extended dismissal options, the basic dismissal protection under the Dismissal Protection Act (KSchG) remains in place – provided the business employs more than ten people and the employment relationship has lasted longer than six months. If you are unsure here, you should have it checked early whether insolvency pay and an unfair dismissal claim can be enforced together.
Insolvency pay: entitlement, amount, and application
Insolvency pay covers outstanding wage claims for the last three months before the insolvency event. It is paid by the Federal Employment Agency, not by the insolvency administrator. The requirement is an opening order for the insolvency proceedings or a dismissal due to insufficient assets. Insolvency pay covers the gross salary, including the employee’s share of social security contributions. Important: The application must be submitted to the Federal Employment Agency within two months of the insolvency event. Missing this deadline forfeits the claim. A common mistake is waiting for the insolvency administrator – the application goes exclusively to the Federal Agency. Likewise, insolvency pay and an unfair dismissal claim should not be overlooked, as the two procedures run independently.
Dismissal in insolvency: special considerations
Dismissals by the insolvency administrator are subject to special rules. Notice periods can be shortened if the insolvency court orders this (§ 113 InsO). Nevertheless, the dismissal must be in writing and – where a works council exists – the works council must be heard. If the hearing is missing or flawed, the dismissal is ineffective. The dismissal protection under the Dismissal Protection Act (KSchG) also continues to apply: the insolvency administrator must consider social factors when selecting which employees to dismiss (social selection). If you believe the social selection is flawed, you should raise this in the context of an unfair dismissal claim. In particular, the interplay of insolvency pay and an unfair dismissal claim often reveals procedural errors that strengthen the bargaining position.
Unfair dismissal claim despite insolvency – is it worthwhile?
Many employees wonder whether a lawsuit still makes sense if the business is shutting down anyway. The answer: Yes, often the lawsuit is worthwhile. The goal is usually not continued employment – which is hardly enforceable with a closed business – but a severance payment. Even in insolvency, employers (or the insolvency administrator) often pay severance to avoid litigation risk and costs. A lawsuit can also be useful if the dismissal has already been issued and the three‑week lawsuit period is running. Missing the deadline forfeits any chance of a severance. For more, see our article Received a dismissal – what now?.
The three‑week deadline under § 4 KSchG
The most important deadline in dismissal protection is the three‑week lawsuit period starting from receipt of the dismissal. It is an exclusion deadline: if missed, the dismissal is deemed lawful from the outset – regardless of how flawed it was. The deadline begins with the actual receipt of the dismissal, not the date on the letter. In insolvency proceedings, receipt can be through the insolvency administrator or a duly authorized lawyer. Important: Even if insolvency pay is being applied for or negotiations with the insolvency administrator are ongoing, the lawsuit period continues to run. It is not suspended. The exact legal provision can be found in § 4 KSchG – deadline for unfair dismissal claim. Those who file an unfair dismissal claim on time and simultaneously apply for insolvency pay preserve all options for a severance payment.
Severance in insolvency: what is enforceable?
A severance payment is not prescribed by law but is a matter of negotiation. In insolvency, the employer’s ability to pay is limited. Nevertheless, severance payments are often made because the insolvency administrator has an interest in a swift legal peace. The amount often follows the rule of thumb: half a month’s gross salary per year of service. However, skilled lawyers often achieve significantly more by highlighting the employer’s litigation risks – for example, errors in social selection, a flawed works council hearing, or ineffective notice periods. Our article Why many severance payments are too low and what good lawyers do differently shows what matters. The parallel strategy of an insolvency pay application, an unfair dismissal claim, and negotiation skill maximizes the outcome.
Don’t forget secondary claims: overtime, vacation, holiday bonus
Besides the base salary and a possible severance payment, secondary claims often arise: overtime pay, unused vacation, holiday bonus, shift allowances. These claims often expire faster than dismissal protection (sometimes already after three months contractually or by collective agreement). In insolvency, they are covered by insolvency pay only for the last three months before the insolvency event. Older claims must be registered in the insolvency schedule – often with a low payout ratio. Therefore, secondary claims should be reviewed early and, if necessary, sued, ideally combined with an unfair dismissal claim. Understanding how insolvency pay unfair dismissal works helps employees navigate these secondary claims.
Insolvency pay unfair dismissal: practical checklist
- Review the dismissal letter carefully: note the receipt date and start calculating the deadline.
- File an unfair dismissal claim with the labor court within three weeks (in writing or electronically).
- Submit an insolvency pay application to the Federal Employment Agency – deadline: two months after the insolvency event.
- Gather all pay slips, employment contract, dismissal letter, and correspondence.
- List secondary claims (overtime, vacation, special payments) and have them reviewed.
- Seek legal advice – ideally before the lawsuit deadline expires.
Conclusion: stay capable of action, keep deadlines
The employer’s insolvency is a shock, but no reason for passivity. Those who know the deadlines – three weeks for an unfair dismissal claim, two months for insolvency pay – and seek legal advice early secure the best chances of a severance payment and outstanding wages. The combination of an unfair dismissal claim and an insolvency pay application is the standard way to avoid walking away empty‑handed in insolvency. A well‑prepared unfair dismissal claim together with a timely filed insolvency pay application is often the lever that makes the difference.
Note: This article is for general information only and does not substitute legal advice in individual cases. For a free initial assessment of whether litigation funding is suitable for your case, you can contact RechtStark.
Note: This article is for general information purposes only and does not replace individual legal advice. For a free initial assessment of whether litigation funding may be an option for your case, you can contact RechtStark.