Termination for Operational Reasons : How & When?

Termination for operational reasons
Liz is Head of Legal at twinwin.
As an expert in employment law, Liz enjoys sharing valuable legal knowledge with HR professionals, enabling them to avoid costly legal mistakes. Her mission at twinwin is to make employment law easy for HR.

The triggers for operational termination can be different: The order situation has worsened drastically, the organization is being restructured or entire work areas are being closed. As a result, jobs are lost and the employer has to separate from one or more employees. As the name suggests, the reasons for operational dismissal lie within the responsibility of the employer. The employee therefore has no joint responsibility, such as in the case of personal or behavioural dismissal. The risk of an employee filing an action for protection against dismissal following an operational dismissal is correspondingly high. HR and employers should be prepared for this and therefore take into account all legal requirements for such termination.

In this article, you will find out what the HR department must pay attention to in the event of an operational dismissal, which legal pitfalls lurk and which procedure is recommended.

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What is an operational termination?

The employer may terminate an employment relationship for operational reasons if there are urgent operational requirements (Section 1 (2) Dismissal Protection Act (KSchG)), which make continued employment of the employee unreasonable for the company or the company. This is usually based on a specific entrepreneurial decision that has internal or external causes and results in the permanent loss of one or more jobs in the company or company.

 

This also means that the employer may not dismiss employees as a precautionary measure. If the employer only intends to outsource a department due to economic problems, then he cannot give the affected employees an operational dismissal. In such a case, it would be ineffective.

 

As a rule, for urgent operational reasons, a ordinary termination pronounced. One extraordinary termination For operational reasons, the employer may be eligible, but only if ordinary dismissal is not possible (e.g. in the case of employees who cannot be cancelled) and the employer would have to continue to pay the employee despite the lack of employment opportunity. This is the case, for example, when the workplace or an entire area of work has disappeared and the employer is unable to continue employing the employee despite using all reasonable means.

Legal basis for operational terminations

The Dismissal Protection Act provides the legal framework for operational redundancies. It applies when an employee works continuously in the company or company for more than six months (Section 1 Paragraph 1 Consumer Protection Act) and more than ten people are regularly employed there (Section 23 (1) Consumer Protection Act).

 

Is an employment relationship therefore subject to Protection against dismissal, the employer can only effectively end the employment relationship if he has a important reason In return, who socially justifies the dismissal in accordance with Section 1 (2) KSchG. The Dismissal Protection Act cites personal, behavioral and operational reasons as important reasons.

 

If the Dismissal Protection Act does not apply to an employment relationship, the employer generally does not have to give any reason for termination, but simply must comply with the period of notice.

Requirements for operational terminations

For an operational dismissal to be effective, the employer must meet certain requirements. If he does not comply, he risks employees defending themselves against the dismissal and filing a dismissal protection lawsuit.

Operational reasons for staff reductions must exist

The employer can only terminate for operational reasons. A poor order situation alone is not enough to justify a dismissal for operational reasons. Only when the employer reacts accordingly, for example by restructuring the company or the company and thus reducing the need for workers and eliminating jobs, can he dismiss employees due to operational reasons. In contrast to personal or behavioral dismissal, the employee has no joint responsibility here.

 

For protection against dismissal, it does not matter whether the decision to restructure was made due to economic problems or whether it makes economic sense at all. Rather, it is crucial that the decision is presented in a comprehensible manner. The employer can therefore just as easily resort to such measures if the company or company is doing well economically. Because if the entrepreneurial measure results in certain departments being eliminated and therefore no longer as many employees are needed as before, he can resort to operational dismissal.

 

The reasons for operational dismissal are manifold, although the employer can justify a work-related dismissal with internal or external reasons.

Examples of internal reasons

In the event of dismissal for internal reasons, the employer invokes measures that change the operating process and thus lead to the loss of jobs.

 

  • Change or stop production
  • Relocating or reducing production
  • Introduction of new production methods/processes that replace human labor
  • Acquisition of new machines
  • Restructuring or merging departments
  • Outsourcing of work processes/tasks, e.g. to freelancers or external companies such as temporary employment agencies
  • Reducing shift work
  • restructuring
  • Closure of locations or branches (branches)
  • Closure of a plant or company or branch
  • insolvency

 

Examples of external reasons

In the event of dismissal for external reasons, the employer generally reacts to circumstances that affect the company or the company from outside.

 

  • Shortage of orders or decline in orders
  • Sales declines
  • Sales difficulties
  • lack of profitability (due to excessive costs)
  • Shortage of raw materials (scarcity or increase in price)
  • Elimination of household remedies in the public sector
  • loss of subsidies or third-party funding
  • Changes in market structure

 

Important to know: Temporary fluctuations in order development are not enough to socially justify staff reductions. The order situation must worsen drastically. Under certain circumstances, the employer must prove to what extent external causes have forced him to reduce staff.

 

There must be urgency

A company dismissal must always be “urgent” and the last resort that the employer resorts to. If, for example, an employee is no longer needed due to the closure of a department, the employer must check whether there is the possibility of continued employment elsewhere in the company or company before dismissal. This in turn means that the other position should be comparable with the employee's previous tasks. Only when the audit shows that, even with appropriate continuing education or training, there is no alternative, such as a transfer, and that the employment opportunity for the employee ceases permanently, can the employer give notice of dismissal for operational reasons.

 

Balancing of interests

In the event of a dismissal for operational reasons, the employer must balance interests. This means that it must be considered whether the employer's operational interest in the dismissal prevails or the employee's interest in continued employment. In practice, the balancing of interests in terminating for operational reasons is in contrast to personal and behavioural termination of less importance. Because, as already mentioned, it is usually not what led to the business decision that matters, but its effects. Social selection is therefore paramount when terminating for operational reasons.

 

Carry out correct social selection

If several employees are eligible for a work-related dismissal, the employer cannot simply select which employees must leave first. When selecting employees to be dismissed, he must take social criteria into account so that the dismissal for operational reasons is Section 1 Paragraph 3 — Paragraph 5 Consumer Protection Act is socially justified. This process is known as social selection.

Lay off: Termination for operational reasons

What role does social selection play in work-related layoffs?

The law requires employers to make social choices when jobs are permanently lost and it is not possible for the affected employees to be employed elsewhere in the company. The HR department must then use personal characteristics as social criteria to decide which employees must leave the company. To these social criteria include:

 

  • the length of service
  • the age
  • statutory maintenance obligations
  • Severe disability, if applicable

 

In doing so, the legislator wants to ensure that the Dismissals distributed fairly socially are and certain groups of workers are not disadvantaged. Social selection therefore regulates which objective aspects should be used to determine the employees to be dismissed.

 

In practice, this means in many cases that a young, single and healthy colleague who has only recently joined the company is more likely to leave than an older colleague who has worked for the company for many years and also has maintenance obligations.

What do HR professionals have to consider when making social choices?

The HR department must first identify all employees who could be affected by job cuts and are therefore relevant to selection. In doing so, it forms so-called comparison groups, which means that the selected employees must work together based on their qualifications and previous work comparable and be fundamentally interchangeable (Section 1 (3) Consumer Protection Act).

 

Often, a points system used to identify workers who are least vulnerable. For these employees, it is assumed that dismissal would do them the least harm. In order to identify these employees, social points are awarded for the above criteria, for example one point per year of employment two points per year of employment, five points per dependent, etc. The total score is then determined for each employee concerned and the Ranking of need for social protection defined. In our example, employees with a low score would be considered less in need of protection and would therefore be more likely to be dismissed.

 

Important to know: The employer can usually decide for himself how he wants to weight the individual social criteria. However, if there is a works council in the company or company, it must Section 95 (1) Works Constitution Act (BetrVG) be involved in defining the points system.

Can individual employees be excluded from social selection?

After Section 1, paragraph 3, p. 2 KSchG Under certain conditions, the HR department may exempt individual employees from social voting if they have knowledge or additional qualifications critical to success which establish a legitimate interest on the part of the employer in continuing to work. This could be, for example, an employee with special language or specialist skills, whom the employer cannot replace.

 

In addition, there are groups of people who have a special protection against dismissal enjoy, such as pregnant women, employees on parental and care leave, severely disabled employees and works councils. When giving notice of dismissal, the employer must comply with the special procedural rules that apply to these groups of persons. For this reason, people from these groups generally do not participate in social selection, unless the employer has obtained prior approval from the relevant authority.

Employees who cannot be terminated under collective agreements are also generally not taken into account in social selection.

When is an operational termination definitely ineffective?

The HR department must consider a number of things when there are operational redundancies in the company or company. Because there are a number of pitfalls lurking when terminating for operational reasons. If the HR department makes a mistake, the dismissal may be ineffective and there is a risk of an action against dismissal protection if the employee defends himself against the dismissal in court.

Operational terminations may be ineffective for various reasons, for example:

  • The justification is missing or insufficient: It is not enough to state a decline in turnover or a poor order situation as a reason for termination. Instead, the employer must have decided on specific measures and be able to explain in a comprehensible way why these measures result in the loss of specific jobs. If he is unable to do so, the termination would be ineffective.
  • Continued employment would have been possible: If there is a vacant job in the company at the time of dismissal for which the dismissed employee would be eligible — for example even after a suitable retraining or continuing education measure — the dismissal would be ineffective. This also applies to jobs that become vacant during the notice period, for example because a colleague has retired in the meantime.
  • The social selection was not carried out properly: If the employer did not or did not sufficiently take into account the relevant social aspects in the social selection process, the dismissal is ineffective even if there are urgent operational reasons.
  • Works Council was not consulted or was not properly consulted: Operational termination is ineffective if there is a works council in the company or company and this was not or was not properly consulted before the termination.
  • The special protection against dismissal was disregarded: The same applies if, before dismissing an employee with special protection against dismissal, the employer has not obtained the consent of the competent authority (for example the approval of the Integration Office for severely disabled employees).
  • Formal requirements were not met: The employer must always send an ordinary notice of termination in writing (Section 623 Civil Code (BGB)), i.e. in letter form, and sign it himself. If he sends them by email or explains them via WhatsApp, this is not enough for effective termination. The employer must also comply with the prescribed notice periods for the termination to be effective. Particularly when laying off several employees, attention must be paid to the notice periods, as these are extended as the length of employment increases.

Severance pay in the event of operational dismissal: Are employees entitled to it?

In principle, there is no legal entitlement to severance pay in the event of termination. For example, if there is a social plan which is intended to protect the employee and to keep the effects low, the employee may be entitled to it if the dismissal is made on the basis of it and agreements on severance pay have been made in this plan. If there is no social plan compensation, this can be negotiated individually with the employer. In addition, the dismissed employee can Section 1a Consumer Protection Act Be entitled to severance pay if he waives an action for protection against dismissal. An employee has three weeks to defend himself against the dismissal and file a lawsuit. However, if he allows this three-week period to elapse, he can claim severance pay. However, the letter of termination must include a reference to this.

 

The amount of severance pay is set by law at half a gross monthly income per year of employment (Section 1a (2) Consumer Protection Act). However, the employer can also pay higher severance pay. Depending on what the employment contract regulates, benefits in kind, such as the transfer of a company car, can also play a role in severance pay (Section 10 (3) Consumer Protection Act).

Severance payment in the event of insolvency

In the event of insolvency, the company or company can no longer meet its financial obligations and is considered insolvent. If, as a result, internal restructuring or the closure of entire work areas, for example, this can lead to job losses. There is then the option of termination for operational reasons. However, even in insolvency proceedings, employees are generally not entitled to severance pay. Exceptions may include social plans or previous individual agreements. Another alternative is a termination agreement, which in many cases includes severance pay and also avoids the risk of a lengthy dismissal protection process.

Operational termination without severance pay

In the event of a dismissal for operational reasons, the employer is not obliged to pay severance pay because, as already mentioned, there is no legal claim to it. Severance pay is rather voluntary compensation for the fact that the employee loses his job and is not responsible for the dismissal. However, care must be taken: If the employee files an action for protection against dismissal and if it turns out in the process that the dismissal is ineffective, the employee can not only avert the dismissal, but also negotiate a severance payment.

It is therefore advisable for the employer to always seek legal advice in the event of redundancies due to operational reasons.

How should HR communicate an operational termination?

It is always difficult for a company to fire one or more employees. In principle, it is important that the employer and HR department take the time to take this step and organise the separation process professionally and in accordance with legal requirements. Unser Breakup manager offers you immediate help with such a high-risk issue as an operational termination. You'll receive an automated risk assessment for a potential separation, as well as useful tips and best practices to make the process enjoyable for both parties.

Successful offboarding, which accompanies the departing employee sensitively and respectfully, is also recommended. This is because in many cases employees are rather unprepared for operational reasons.

 

It is also important that the employer always communicates a dismissal clearly and directly in order to avoid misunderstandings or ambiguities. Benevolent wording is important and shows empathy, but must not impair the clarity of the message. It is therefore advisable to conduct the dismissal interview in the presence of a witness.

 

In addition, the employer should always declare an operational dismissal in writing and ensure that the notice has been properly received. This is because a notice of termination is only effective when it has been received by the recipient. It is advisable to hand over the letter of dismissal to the employee in the presence of one or more witnesses and to have receipt confirmed. In the event of a dispute, the employer must prove that the employee has received the dismissal in due time.

The issue of work-related dismissal is extremely complex and the employer must consider a number of things. Here is an overview of the most important points:

 

  • There is an operational dismissal if the job is lost for urgent operational reasons.
  • At the time of dismissal, it must be clear that the job will cease permanently and that there is no opportunity to continue working at another job.
  • In the event of a dispute, the employer must be able to explain and substantiate the measures to reduce staff.
  • If several employees are eligible for a work-related dismissal, the employer must make a social selection.
  • The employer can offer severance pay if the employee to be dismissed waives an action for protection against dismissal.