Mercedes’ factory closure doesn’t just affect its own employees – it also impacts many workers at suppliers. For them, the question of severance pay when a supplier’s factory closes is particularly urgent. When a large corporation like Mercedes closes a factory, suppliers often lose their most important customer. As a result, job terminations are threatened. In this article, you’ll learn your rights, how to negotiate severance pay, and when a cancellation agreement makes sense.
The Impact of a Factory Closure on Suppliers
A factory closure at an automaker has a ripple effect: Suppliers that derive a significant portion of their revenue from that factory suddenly lose their most important order source. When production stops, orders drop, and suppliers must adjust their capacity – often through workforce reductions in practice.
For suppliers’ employees, this means: A termination can threaten even if the company itself isn’t insolvent – it’s just losing a major customer. In many cases, employers can cite urgent operational needs to justify a termination. What matters is whether the loss of orders actually leads to a permanent reduction in jobs or is just a temporary fluctuation.
In practice, labor courts carefully check whether the employer has taken all reasonable measures to avoid terminations – such as short-time work, transfers, or deployment at other sites. However, if your employer can credibly show that the business basis has permanently disappeared, you as an employee have limited options to prevent the termination. That’s why it’s all the more important to know your rights regarding severance pay and cancellation agreements.
Your Right to Termination Protection When a Major Customer Closes
As a general rule, the general termination protection also applies to suppliers. If your employment relationship has lasted more than six months and your employer employs more than ten workers, you can rely on the Termination Protection Act. A termination for operational reasons is only valid if the employer can prove that the termination is due to urgent operational needs and that you cannot be reemployed at another workplace.
However, when a major customer closes a factory, the employer is in a strong position: The loss of orders is usually an objective operational reason that can justify a termination. That doesn’t mean you have no options. You should definitely challenge the termination in writing with the labor court within three weeks of receiving it – otherwise, it will be considered valid from the start, even if it may be unjustified.
An important point is the social selection: The employer must choose the least protected workers among several comparable employees – for example, based on seniority, age, and dependents. If the social selection is incorrect, the termination can be invalid. Therefore, have the termination checked by a labor law specialist before you respond.
Severance Pay When a Supplier’s Factory Closes: What’s Realistic?
If a termination is threatened or has already been made, the question of severance pay arises. It’s important to know: There is no general legal right to severance pay when the employer terminates for operational reasons. In practice, severance pay is usually agreed upon via a social plan or a cancellation agreement. In a social plan negotiated by the works council with the employer, severance pay is often provided for according to a specific formula – such as half a month’s gross salary per year of employment.
However, these values are just guidelines, not guarantees. The actual amount depends on several factors: your seniority, age, salary, and the employer’s financial situation. For suppliers that are also suffering from the loss of orders, the room for generous severance pay is often limited. Still, don’t accept an offer that is far below what is usual in comparable cases. A good starting point for negotiations is the formula from Section 1a of the Termination Protection Act: 0.5 months’ gross salary per year of seniority – but only if the employer explicitly offers this severance pay in the termination letter. If such an offer is missing, you’ll need to negotiate. Base your approach on your individual situation and seek support if needed to strengthen your negotiating position. On our site, you’ll also find information on severance pay upon takeover, which covers similar issues.
Cancellation Agreement or Termination Protection Lawsuit: Choosing the Right Strategy
Many employers offer a cancellation agreement for operational terminations to avoid a labor court proceeding. A cancellation agreement is a mutual termination of the employment relationship – it may include severance pay, but it also has drawbacks: If you sign the agreement without a valid reason, you lose your right to unemployment benefits, as a suspension period of up to twelve weeks may apply.
A termination protection lawsuit, however, can strengthen your position: If the court finds the termination invalid, you are entitled to reinstatement or a higher severance pay as part of a settlement. However, the process is time-consuming and costly – and for suppliers that are economically struggling, a lawsuit can strain the relationship with the employer.
The right strategy depends on your goals: If you want clarity and severance pay quickly, a cancellation agreement may make sense. If you’re fighting for your job or want to significantly increase the severance pay, a termination protection lawsuit is the better approach. Consult a labor law specialist here who can realistically assess your chances. A litigation funder like RechtStark can cover the costs of such a process if the chances of success are good – this eases your budget and gives you negotiating security. More negotiation tips can be found in our article Negotiating Severance Pay: Tips.
When Does the Parent Company’s Business Risk Apply?
A common question among suppliers’ employees is whether they can claim directly against the parent company – such as Mercedes. However, this is only possible in exceptional cases in practice. As a general rule, the so-called business risk applies: Every company bears the risk that orders will be lost or a major customer will leave. When Mercedes closes its factory, this is a business risk for the supplier that cannot be shifted to the parent company.
Liability may be considered only if the parent company influences the supplier in a way that amounts to de facto integration – for example, if Mercedes completely controls the supplier’s production planning. However, such scenarios are rare and difficult to prove. In practice, when it comes to termination and severance pay, you must therefore rely on your own employer.
A consolation: If your employer has to file for insolvency, insolvency benefits apply, which the Employment Agency pays for the last three months before insolvency. So even if the parent company closes the factory, you have a social safety net – even if it doesn’t completely eliminate the uncertainty.
Checklist: These Steps You Should Take Now
If your employer, as a supplier, is affected by Mercedes’ factory closure, you should proceed systematically. This checklist will help you stay on track:
- Check the termination deadlines: From the date you receive the termination, you only have three weeks to file a termination protection lawsuit. Note the date carefully.
- Have the termination reviewed: A labor law specialist can assess whether the termination is valid and whether the social selection was correct.
- Negotiate the severance pay: Take the opportunity to negotiate before agreeing to a cancellation agreement. An offer is always just a starting point. Remember: The amount of severance pay when a supplier’s factory closes depends on many factors – don’t let yourself be pressured.
- Think about the employment reference: You are entitled to a positive employment reference – even for a operational termination. State your wishes early.
- Clarify the tax consequences: Severance pay can be tax-advantaged under the five-twelfths rule – consult a specialist to avoid unnecessary taxes. More on this in our article Five-Twelfths Rule and Severance Pay.
- Assess your negotiating position: If you’re unsure whether a termination protection lawsuit will succeed, a litigation funder like RechtStark can cover the costs – this significantly strengthens your negotiating position.
Additionally, it may be helpful to inform yourself about alternative options such as short-time work if you are older – our article Short-Time Work and Severance Pay provides an overview.
Conclusion: Go to the Negotiation Informed and Prepared
Mercedes’ factory closure is an existential challenge for suppliers’ employees – but it’s not a situation where you’re helpless. With knowledge of your rights regarding termination, severance pay, and cancellation agreements, you can negotiate actively and find a sustainable solution. Severance pay when a supplier’s factory closes isn’t automatic, but with the right strategy, you can significantly improve your chances. Rely on professional support: A labor law specialist will protect your claims, and a litigation funder like RechtStark can cover the financial hurdle of a process. This way, you’ll go into the negotiation strengthened – and secure the severance pay you’re entitled to.
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.