German Layoff Blunders: How a Common Social Selection Error Can Double Severance Payouts
Published on 07/09/2026 at 05:33 | Redaktion boerse-global.de
A wave of job cuts is building across Germany, with industry observers estimating that up to 60 percent of companies plan to reduce headcount by 2030. Yet employers are stumbling over one of the most basic requirements of labour law: the social selection process. Data shows that half of all dismissals fail in court precisely because of mistakes in this area.
Under Section 1, Paragraph 3 of the German Protection Against Dismissal Act (KSchG), companies must select employees for redundancy based on four criteria: length of service, age, maintenance obligations, and severe disability. The aim is to retain those most in need of protection. But the most frequent error, lawyers say, is defining the comparison group too narrowly. A simple job title is insufficient – the key question is whether one employee could genuinely perform another's tasks. Germany's Federal Labour Court (BAG) has repeatedly made clear that overly restrictive groupings invalidate the social selection.
Many employers try to factor in performance, but that approach is misguided. "The social selection is designed to identify the least protected employees, not the poorest performers," explains Alexander Birkhahn, a specialist in labour law. There is a narrow exception for high performers under Section 1, Paragraph 3, Sentence 2, but it is often stretched too far. A legitimate business interest only exists when retaining the individual is essential for operations, for instance due to specialised expertise. Another permissible tool is grouping employees by age to prevent an aging workforce.
The consequences of getting the selection wrong are expensive. A typical severance in Germany runs at 0.5 monthly salaries per year of service. For an employee with twelve years and a gross monthly salary of 4,500 euros, that amounts to 27,000 euros. When social selection errors are present, the payout can double to 54,000 euros as employers settle to avoid drawn-out litigation.
The BAG issued two significant rulings this year that add to the complexity. In a judgment dated 1 April 2026 (case number 6 AZR 152/22), the court confirmed that in mass layoffs the consultation procedure with the works council must be completed before the mandatory notification to the Federal Employment Agency. Getting that sequence wrong renders every dismissal ineffective. However, a second decision on 25 June 2026 (6 AZR 7/26) showed a more lenient approach: if the number of redundancies reported to the agency deviates only slightly from the actual figure, the dismissals remain valid.
Separately, the federal government is planning to reform dismissal protections for high earners. Employees with an annual income above 177,500 euros would be able to end their employment contracts more easily via a severance payment, with proposed payouts of up to 18 months' salary. Experts are sceptical about the impact. The affected group is small, and many executives already negotiate individual termination agreements with tailored conditions.
The combined effect of these developments means German employers must tread carefully. A single procedural misstep in the social selection process can turn a planned reduction into a costly legal battle – and the upcoming wave of restructuring makes the stakes higher than ever.
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