Termination settlement shows that winning an unfair dismissal claim does not always guarantee job retention, as an application for dissolution can lead to a severance and end the employment relationship even if the dismissal was ineffective. Anyone seeking a severance or wanting to oppose such an application should understand the mechanism behind it.
Termination settlement: Application for Dissolution and Severance
If the labor court finds that a dismissal was socially unjustified and therefore ineffective, the employment relationship does not actually end – the employee should have continued to be employed. Section 9 of the Dismissal Protection Act (KSchG) nevertheless opens a way out for both parties: upon application, the court can still dissolve the employment relationship if a further harmonious cooperation is no longer to be expected. In this case, the court orders the employer to pay a severance under Section 10 of the Dismissal Protection Act (KSchG).
This application can basically be filed by either party. For the employee, it is sufficient if continuing the employment relationship is no longer reasonable – for example, after serious allegations or a shattered trust relationship. The employer, on the other hand, must meet stricter requirements and concretely explain why further cooperation that serves the business purposes is no longer to be expected – a mere desire to part ways with the employee is not enough.
When Courts Accept an Employer’s Application for Dissolution
The labor courts examine this strictly, because otherwise the application for dissolution would become an easy way out of dismissal protection. Recognized grounds include:
- The employee raises serious, unsubstantiated allegations against the employer in the ongoing proceedings (e.g., the accusation of a crime), which permanently destroy the trust relationship.
- There are insulting or disparaging statements about superiors or colleagues that go beyond permissible criticism in the context of the defense.
- The employer can prove that continued employment in the previous or a comparable position is organizationally no longer possible – however, they must also explain why no reasonable alternative position could be offered.
If the employer cannot substantiate these requirements, the dismissal remains ineffective and the employee is entitled to continued employment and pay for the intervening period (back‑pay) – regularly a considerably greater financial lever than a severance.
How the Severance Amount Is Calculated Under Section 10 KSchG
If the court dissolves the employment relationship, it sets the severance amount at its discretion – limited by the maximum amounts specified in Section 10 KSchG, which increase with age and length of service. In court practice, a rule of thumb has emerged as a rough orientation:
Gross monthly salary × years of employment × factor 0.5 to 1.0
The factor is higher the clearer the dismissal is ineffective, the longer the tenure, and the harder it would be for the employee to find a new job on the labor market. With very long tenure and advanced age, the severance may accordingly lie significantly above the lower end of this range. However, there is no fixed formula – the court assesses the individual case.
What Affected Employees Should Do
Considering a termination settlement early can help you decide whether to pursue litigation or negotiate a severance.
Anyone who, like the BMW employees affected by layoffs recently, receives a redundancy dismissal and believes that the job has not actually been eliminated or that a suitable alternative position has been withheld, should file an unfair dismissal claim in a timely manner – within three weeks. If the dismissal is declared ineffective, it is worthwhile to examine carefully whether there are indeed grounds for a dissolution application by the opposing party, or whether continued employment with payment of back‑pay is enforceable. Both should be assessed by a lawyer before hastily accepting a low severance.
Since such proceedings can last several months and involve a genuine cost risk, many affected parties shy away from going to court. Litigation funding by RechtStark assumes this risk, allowing a justified claim to be pursued without having to advance the litigation costs themselves.
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.