Summary: Termination protection reform – an overview
The planned termination protection reform is sparking considerable debate – similar to the earlier discussion of termination protection at VW within the 2030 future plan. This termination protection reform raises fundamental questions about the balance between employer flexibility and employee security. The black‑red coalition under Chancellor Friedrich Merz (CDU) and Vice‑Chancellor Lars Klingbeil (SPD) intends, by the parliamentary summer recess in mid‑July 2026, to adopt a far‑reaching reform package that envisages substantial interventions in the existing termination protection law. A top‑level meeting in the Chancellery on 10 June 2026 and the coalition committee meeting convened on 1 July mark the political timetable. The plans are flanked by an expert opinion from the economic sage Veronika Grimm, which categorizes German termination protection as an impediment to economic growth and calls for a deep‑going “flexibilization” of hiring and firing conditions.
I. Status quo: The systematics of German termination protection
Basic structure of the Dismissal Protection Act
The Dismissal Protection Act (KSchG) in its current version constitutes one of the fundamental achievements of German labor law. It applies to employment relationships in businesses with more than ten employees (§ 23 Abs. 1 KSchG – the so‑called small‑business clause) after a six‑month waiting period (§ 1 Abs. 1 KSchG). The law pursues a clear policy objective: to protect the workplace as the economic livelihood of the employee against arbitrary employer action.
The function of § 1 KSchG: Social unjustifiability as the foundation of job security
The core of the Dismissal Protection Act is § 1 Abs. 2 KSchG, which links every ordinary dismissal to three exhaustive grounds for justification:
- Person‑related reasons (e.g. lasting performance decline due to illness)
- Behavior‑related reasons (e.g. persistent breach of duty after an unsuccessful warning)
- Operational reasons (e.g. elimination of the job position by entrepreneurial decision)
A dismissal that does not meet any of these grounds is, according to § 1 Abs. 1 KSchG, socially unjustified and therefore legally ineffective. This construction shields against purely employer‑motivated arbitrary dismissals.
In addition, § 1 Abs. 3 KSchG stipulates, for operational dismissals, the obligation to conduct a social selection: the employer must choose, among comparable employees, who to dismiss on the basis of social criteria (length of service, age, maintenance obligations, severe disability). This prevents older, family‑bound or vulnerable employees from being systematically favored for dismissal.
§ 1a KSchG: Severance pay as an instrument of social peace
§ 1a KSchG allows, in the case of operational dismissals, the acquisition of a statutory severance entitlement by waiving a dismissal protection lawsuit (0.5 monthly salaries per year of employment). This provision forms a pragmatic compromise: it gives the employer planning certainty and the employee material security – without protracted court proceedings. Its existence is not a sign of a dysfunctional system but of a socially balanced one.
Conclusion on the legal situation: The Dismissal Protection Act is not an anti‑economic anomaly but an instrument of social peace that serves both individual job security and collective employee solidarity equally.
II. Analysis of the coalition plans: The attack on job security
III. The political timetable: Mid‑July or never
The coalition imposes considerable time pressure on itself. On 10 June 2026 Chancellor Merz, CSU leader Söder, SPD finance minister Klingbeil and top representatives of employers and unions met for more than three and a half hours in the Chancellery. No concrete decisions were taken. It was agreed, however, that the coalition committee will meet on 1 July to take final decisions. The aim is to have the reform package ready before the parliamentary summer recess (starting 10 July). The termination protection reform is central to these deliberations.
This timetable is politically highly risky. It forces the social partners into a role of acclamation rather than genuine co‑design.
IV. The substantive thrust: Flexibilization as a euphemism
According to the current state of play, the reform package addresses four areas: income tax, labor market, pensions and bureaucratic reduction. In the labor‑market field the dominant demand – supported by the opinion of the economic sage Veronika Grimm – is a substantial relaxation of termination protection and a flexibilization of hiring and firing conditions.
The most important measures under discussion are:
1. Differentiation by income groups (high‑earner exemption)
The economists Brunnermeier and Kolev have proposed completely abolishing termination protection for high earners. CDU economics minister Reiche and SPD finance minister Klingbeil showed openness to this debate. This amounts to an opening clause that is doctrinally highly problematic: once the principle is accepted that job security depends on income, the gate is opened for a systematic erosion for further employee groups.
2. General flexibilization of hiring and firing conditions
Employer associations demand a comprehensive flexibilization that, in effect, amounts to lowering the substantive requirements for the social justification of a dismissal under § 1 KSchG. Specifically disputed are:
- Reduction or abolition of the requirements for the social selection (§ 1 Abs. 3 KSchG)
- Facilitations for operational dismissals by lowering the employer’s burden of proof and argumentation
- A possible extension of the small‑business clause to firms with up to 20 employees
3. The Grimm opinion as scientific flank support
The economic sage Veronika Grimm, together with Désirée I. Christofzik, produced a study on behalf of the Joint Committee of German Trade and Industry that evaluates German termination protection as overly restrictive. The model taken as a reference is the Danish flexicurity model: simpler dismissals combined with strong social security and active labor‑market policy. Grimm herself warns, however, that an isolated adoption of the flexibilities without Denmark’s strong social net “would mainly lead to more insecurity and fear of decline, while the desired effect – for example more hirings – would not materialize.”
This self‑warning of the opinion is consistently ignored by the government and the employer associations.
4. The Coste comparison as a rhetorical campaign tool
Particularly effective in the public debate is an analysis by Oliver Coste: the average costs of a layoff in Germany amount, according to him, to around 31 monthly salaries – in Switzerland, where extensive dismissal freedom prevails, to merely 2.5 monthly salaries. Germany is thus alleged to be twelve times more expensive. Since 2024, DAX conglomerates are said to have paid a total of 16 billion euros in severance.
This comparison is, as shown in the following chapter, methodologically misleading in several respects.
III. Juristic and dogmatic criticism
Constitutional dimension: Art. 12 and Art. 20 GG
First: Art. 12 GG – Occupational freedom
According to the Federal Constitutional Court’s doctrine, Art. 12 Abs. 1 GG protects not only the freedom to choose and practise a profession but also establishes for employees a claim to protection against loss of the workplace as the factual basis of occupational exercise. The BVerfG has stressed in its jurisprudence that the legislator, when shaping labor law, must observe the fundamental‑rights‑protective duties in favor of the weaker contractual party – the employee. A far‑reaching liberalization of dismissal law that leaves the employee exposed to economic arbitrariness violates this protective‑duty dimension.
Second: Art. 20 Abs. 1 GG – Social state principle
The social state principle obliges the legislator to establish and preserve social justice. A job‑security guarantee for employment relationships is an expression of this constitutional mandate. Eroding the Dismissal Protection Act without compensatory measures – as the government model envisages – breaches the injunction to lower existing protection levels only with sufficient substantive justification. Mere reference to abstract growth arguments does not suffice as a constitutional justification.
The dogmatic danger: Undermining the social selection
Particularly alarming is the debate over a weakening of the social selection obligation (§ 1 Abs. 3 KSchG). It is the practically most important safeguard against discriminatory dismissal practice in operational dismissals.
Without a strict social selection the employer can, under the banner of “operational requirements”, act selectively: filter out older female employees, release fathers on parental leave, dismiss chronically ill workers despite above‑average tenure. What today is lamented as bureaucratic burden will tomorrow be the sole bulwark against structural discrimination. Weakening the social selection shifts the decision on dismissals from legally defined criteria to the managerial discretion – with all attendant abuse risks.
The Coste comparison: Methodological misdirection
The much‑cited comparison of 31 monthly salaries (Germany) with 2.5 monthly salaries (Swiss) deserves a critical classification:
- System differences: Switzerland has a fundamentally different social system. High private social‑insurance contributions, cantonal support services and a labor market with structurally different demand characteristics make a direct comparison methodologically impermissible.
- Selection of cases: Average severance costs of 31 monthly salaries are strongly skewed by executive severances and mass‑layoff procedures of large corporations. For the majority of employees the statutory severance formula of § 1a KSchG (0.5 monthly salaries per year of employment) applies, which, with ten years of tenure, amounts to only five monthly salaries.
- Ignoring causality: The 16 billion euro severance costs of DAX conglomerates since 2024 are primarily the result of massive restructuring processes driven by decarbonization, digitalization and relocation to low‑wage countries – and not a symptom of overly strong dismissal protection.
IV. Socio‑political and economic consequences estimation
Deconstruction: “Flexibilization creates jobs”
The central argument of the reform proponents – that easing termination protection would lead to more hirings – is empirically untenable. Relevant international research shows:
- Countries with high employment protection (e.g. Germany, Austria, Denmark) do not exhibit structurally higher unemployment than countries with low protection (e.g. USA, UK). OECD data have consistently shown: The Employment Protection Legislation (EPL) index does not correlate significantly with the overall employment rate.
- Employers do not refrain from hiring because termination protection is too strong. They hire less because demand is lacking, energy prices are high, infrastructure is dilapidated and skilled labor is scarce. Liberalizing termination law does not solve these problems.
- The Danish flexicurity model, which Grimm cites as a role model, is not replicable without its essential counterpart: high unemployment support (up to 90 % of the last wage), an active labor‑market policy with training obligations and massive state investment in job placement. The coalition plans none of these elements – only the reliefs for employers.
Precarization as a macro‑economic risk
The real danger lies not in the immediate employment effect but in the structural precarization:
Psychological dimension: If employees can no longer rely on the security of their workplace, their willingness to consume declines. This is not speculation but an empirically well‑documented phenomenon (cf. e.g. Auer/Berg/Coulibaly, ILO 2005). DGB leader Fahimi put it succinctly: “Everything in the so‑called reform agenda currently discussed focuses on saving and cutting. This stifles domestic demand at the root. What do people do when they have insecure jobs?”
Fiscal dimension: Every employee dismissed without an adequate social net immediately burdens the unemployment insurance (SGB III) and subsequently the basic security (SGB II). The costs of termination protection for firms are thus socially internalized – their abolition privatizes the gains from flexibility while socializing the follow‑up costs.
Wage development: Without job security the employee loses his most important bargaining chip: the certainty of continued employment. This structurally weakens the individual wage‑negotiating position and opens the door to wage dumping.
V. Alternatives: How economic growth without social dumping succeeds
The coalition should be clear: Termination protection is not the problem of the German economy. The genuine growth impediments have been documented for years and require other, politically braver answers:
1. Infrastructure and public investment
Decaying rail tracks, digital undersupply in rural areas, missing nursery places as an employment obstacle for women – here genuine efforts have been lacking for years. The special infrastructure fund is a first step, but it is insufficient.
2. Energy as a competitive factor
High energy prices constitute a concrete location problem for industry. Reliefs for industrial electricity prices would have an immediate impact on investment decisions.
3. Bureaucratic reduction in corporate law and approval procedures
Planning and approval procedures in Germany are structurally too long. Here there is genuine, broadly shared reform need – without affecting employee rights.
4. Qualification and co‑determination as growth motors
The forward‑looking model is not the “right to easy dismissal”, but the right to qualification and on‑the‑job training, supported by strong works councils. An employee who is taken along in the corporate transformation is more productive than one who is thrown out by a rationalization wave and then burdens the system for years.
5. The DGB’s demands as a counter‑model
DGB leader Fahimi has, with her demand for a mandatory occupational pension for all and a wealth tax for counter‑financing, sketched a counter‑model that aims to generate growth via strengthened purchasing power rather than via cost‑cutting on the employee side. This model has a solid macro‑economic foundation: domestic demand is, especially in a period of weak export dynamics, the stabilising growth driver.
VI. Conclusion and outlook
The political pressure behind the termination protection reform is immense. The coalition faces a budget gap of 20 billion euros, industry is losing jobs daily, and Chancellor Merz’s government is judged by its economic‑policy capacity. All of this is understood by this report.
Nevertheless: Constitutional obligations are not bargaining chips. A reform of termination protection must measure up to that standard. The social state principle of Art. 20 Abs. 1 GG and the fundamental‑rights protective duty from Art. 12 GG oblige the legislator to shield employees from economic arbitrariness. A reform package that dismantles this protection under the banner of growth promises is not only socially misguided – it is constitutionally vulnerable.
The coalition is targeting the wrong issue with its focus on termination protection. It abolishes a safety net that represents the sole protection against economic annihilation for millions of employees – and offers no structural growth impulses in return. What it creates: deeper insecurity among the populace, declining consumption propensity and rising societal acceptance problems for reform policy as a whole. The DGB leader is entirely correct: “Everything in the so‑called reform agenda currently discussed focuses on saving and cutting.”
The Federal Labor Court has, in decades‑old jurisprudence, established the ultima‑ratio principle as the guiding tenet of dismissal law: dismissal is the last resort, not the first. This evaluation is not merely labor‑law dogma but socially mandated. Undermining it would damage legal certainty on the labor market and sustainably shake employees’ trust in the state as a protective institution.
The coalition still has the choice: a reform policy that endures – or deregulation that divides. Unions, labor‑law scholars and the majority of employees in this country will resist any erosion of § 1 KSchG with all legal means – in parliament, before the labor courts and on the streets.
Primary sources: Börse Express, 12.06.2026 (Dr. Robert Sasse); ZDF Heute; MDR; NZZ; Finanznachrichten.de; DGB press releases. Supplemented by own legal‑dogmatic analysis.
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.