Terminations in small businesses: Obstacles and risks outside the scope of the Unfair Dismissal Protection Act

Applicability of the Unfair Dismissal Protection Act: Do employees abroad count?

According to Section 23, the Unfair Dismissal Protection Act can only apply if in total more than ten employees are regularly employed in the respective business unit. In exceptional cases, if the employees have been employed by the company before 31 December 2003, the Unfair Dismissal Protection Act already applies to companies with five or more employees.

However, it often happens that employees nevertheless try to claim that the Unfair Dismissal Protection Act applies to them even though the above-mentioned thresholds have not been reached. They often argue that foreign colleagues (from entities outside Germany) should also be included when determining the relevant number of employees.

So far, however, without success: In the past, the labour courts have repeatedly clarified that the Unfair Dismissal Protection Act only applies to business units in Germany and therefore only employees employed in Germany are to be taken into account for the threshold numbers (Federal Labour Court, ruling of 17 January 2008 – 2 AZR 902/06). Even the Federal Constitutional Court has confirmed this (Federal Constitutional Court, ruling of 12 March 2009 – 1 BvR 1250/08): If there are not enough employees working in the company in Germany, the Unfair Dismissal Protection Act does not apply in principle – regardless of how many employees are employed abroad. The Rhineland-Palatinate Regional Labour Court recently reaffirmed this principle in a legal dispute and ruled in favour of the employer, represented by us (Rhineland-Palatinate Regional Labour Court ruling of 2 September 2025 – 4 SLa 200/24). In this case, the employee argued that the Unfair Dismissal Protection Act was applicable even though he was the only employee working in Germany. The employment contract was originally concluded with a German subsidiary. Later, though, the employment relationship was transferred to the Spanish parent company. All processes regarding the employment relationship were managed from Spain. The employee also regularly coordinated with his Spanish colleagues and regularly travelled to Spain for work related exchanges. However, the court did not consider the Unfair Dismissal Protection Act to be applicable and once again repeated the established case law, that for the relevant threshold only employees employed in Germany are relevant and the Spanish colleagues are not to be taken into account when calculating the thresholds. Since the employee was the only employee in Germany, there was no room for any discussions on the applicability of the Unfair Dismissal Protection Act.

Besides that, the court also clarified that the exclusive consideration of employees employed in Germany does not violate the fundamental right to freedom of occupation (Art. 12 (1) GG) or the principle of equal treatment (Art. 3 (1) GG). The principle of equal treatment fundamentally only requires equal treatment of employees within Germany. Freedom of occupation also does not require any exceptions, provided that the employer has its own self-organised unit in Germany. Exceptions may be necessary if the management is located abroad, but a sufficient number of employees is employed in Germany. Another decisive factor is whether the employment relationship is otherwise governed by German law. If German law applies in principle, this must also apply in cases of termination of the employment relationship.

In this regard it must also be noted that a dismissed employee of a small business is not left without protection despite the inapplicability of the Unfair Dismissal Protection Act. The general regulations nevertheless guarantee sufficient protection.

General grounds for invalidity of a termination

If the Unfair Dismissal Protection Act does not apply, employees can still invoke general civil law clauses to defend themselves against termination. The most important general clauses are Section 134, Section 138 and Section 242 of the German Civil Code. According to Section 134 of the German Civil Code, terminations that violate a prohibition law are invalid. The relevant prohibitive laws include, above all, the prohibitions of discrimination in the General Equal Treatment Act. Terminations based on race, ethnic origin, gender, religion, ideology, disability, age or sexual identity are therefore fundamentally invalid. Terminations based on other reprehensible motives or under reprehensible circumstances usually offend common decency and will therefore most likely be invalid under Section 138 of the German Civil Code. Other terminations contrary to good faith can also be seen as invalid under Section 242 of the German Civil Code.

Special grounds for invalidity

In addition to the general regulations, there are further special prohibitions on termination, which will lead to the invalidity of the termination, if violated. These apply regardless of the number of employees and are also applicable to small businesses.

1. Protection against termination during parental leave

During parental leave, employees may not be dismissed in accordance with Section 18 (1) of the German Federal Parental Leave Act. This prohibition on termination also applies to small businesses. Fundamentally, protection against termination begins when the employee makes the request, i.e. from the point at which the employee notifies the employer of their parental leave. If the child is below an age of three years, protection against termination can begin at the earliest eight weeks before the start of parental leave. If a child is between three and eight years old, protection against termination begins at the earliest fourteen weeks before the start of parental leave. If a child is between three and eight years old, protection against termination begins at the earliest fourteen weeks before the start of parental leave. Since May 2025, this notification can also be made in text form. This means that the request no longer has to be submitted in paper form and signed by the employee. Instead, the notification can now also be submitted digitally (e.g. by email). This digital notification means that employees can now trigger protection against termination much more quickly without further strict formal requirements. (Read more about this topic here).

This means that once an employee has requested parental leave, they can no longer be dismissed without further ado. A termination in such cases is only effective in exceptional cases if the occupational safety authority declares it to be permissible. By requesting parental leave, employees can therefore quickly obtain protection against termination by giving short notice. Employers should be aware of this.

2. Protection against termination for whistleblowers

Another reason for the invalidity of terminations may arise from Section 36 (1) Whistleblower Protection Act. This prohibits reprisals against whistleblowers. If a termination constitutes retaliation for the report, the termination is void pursuant to Section 36 (1) Whistleblower Protection Act. In order to effectively protect employees from such retaliation, Section 36 (2) Whistleblower Protection Act contains a provision on the reversal of the burden of proof. If an employee is a whistleblower within the meaning of the Whistleblower Protection Act, it is presumed that the employer took the measure on the basis of the employee’s report. Section 36 (2) Whistleblower Protection Act therefore presumes that the measure constitutes an inadmissible reprisal.

However, the Lower Saxony Regional Labour Court has clarified that the presumption does not automatically benefit the employee (LAG Lower Saxony, ruling of 11 November 2024 – 7 SLa 306/24). In this case, the employee was dismissed during his probationary period. Shortly before the termination was announced, the employee had repeatedly expressed legal concerns regarding a customer contract. He had discussed these concerns with the managing director of the company he was employed at on several occasions. The employee brought an action for unfair dismissal, arguing that the termination constituted an inadmissible reprisal for raising the issue and was therefore invalid under Section 36(1) of the Whistleblower Protection Act. The court clarified that the presumption only applies if the employee is actually considered as a whistleblower under the Whistleblower Protection Act. He (the employee) must therefore first explain and, if necessary, prove what specific report he made, when and where, and to what extent it was the cause of the termination. In the particular case, the employee was unable to convince the court of this.

3. Severely disabled persons

There are also some special considerations when dismissing severely disabled employees. According to Section 168 of Social Code Book IX, the termination of a severely disabled person may only take place with the prior consent of the integration office. If the employer dismisses the employee without the required consent, the termination is invalid.

If an employee has already submitted an application for recognition of severe disability and this application has not yet been decided at the time of termination, protection against termination may still apply. If the employee submitted the application at least three weeks before receiving notice of termination, the protection applies retroactively. However, this is subject to the condition that the employee informed the employer of the pending application within three weeks of receiving notice of termination.

(Many thanks to our academic assistant Judith Purrer for her support with this article.)