What rights does an employee have when the company they work for is declared insolvent? Under German civil law, insolvency is not, by itself, a valid ground for dismissal — dismissal is only possible on the general grounds: liquidation of the company, a reduction in headcount, or a reduction of staff. Insolvency proceedings only lead to liquidation once the insolvency process has run its full course. Insolvency therefore cannot be treated as an automatic ground for liquidation, and so it is not, on its own, a valid ground for dismissing employees. Moreover, at German companies with more than ten employees, the Dismissal Protection Act (German: Kündigungsschutzgesetz, KSchG) applies, protecting employees from unfair dismissal. Its provisions cover employees who have worked at the company for at least six months and hold an open-ended employment contract. It should also be kept in mind that the longer an employee has worked at a company, the longer the notice period must be during which, after being notified of dismissal, they may still continue working — or for which the employer must pay them compensation instead.
So, in order to dismiss an employee covered by the Dismissal Protection Act, the employer must properly justify the reason for the dismissal and observe the required notice period before that employee's dismissal takes effect.
Notice periods
Under § 622 BGB, with two to five years of service the notice period increases by at least one month — with more than 20 years of service it can reach as much as 7 months.
Natalia — as we'll call our law firm's client — had worked for 17 years as a sales assistant at a company that runs a chain of hardware stores across Germany. Throughout her employment, Natalia never received a single complaint or reprimand from her employer. But, as people now like to say, amid global economic turmoil the company ran into financial difficulties and was forced to file for insolvency. An insolvency administrator (German: Insolvenzverwalter) was appointed to run the insolvency proceedings. All of the company's employees, including our client, were given three months' notice of dismissal by the insolvency administrator. Natalia came to us for advice on whether the insolvency administrator's actions were lawful.
The lawyer explained to the client that, under § 113 sentence 2 InsO (Germany's Insolvency Code), where a company becomes insolvent its employees must be given three months' notice of dismissal. In her case, however, in addition to the provisions of the InsO, the provisions of German civil law and the Dismissal Protection Act also had to be applied. Under § 622 para. 2 no. 6 BGB (the German Civil Code), an employee with 15 years or more of service must be given at least 6 months' notice of dismissal. In other words, her dismissal itself was lawful — but, under the German Civil Code and the Dismissal Protection Act, she was entitled to claim damages from her employer. The amount of the damages is determined by her gross (German: Brutto) salary for three months. Any income the employee earns from other sources is deducted from that amount — for example, wages if the employee has already found a new job, or unemployment benefits.
Natalia asked the lawyer to help her recover the money owed to her. The lawyer prepared and sent a claim for damages to the insolvency administrator — who was now the proper defendant. In the claim, the lawyer set out the client's situation in detail, cited the provisions of German civil law and the Dismissal Protection Act, and stated the amount claimed based on the salary the client had been paid while working at the company. The insolvency administrator did not respond to the lawyer's letter at all. Several follow-up reminders sent by the lawyer likewise went unanswered.
As we've explained to our readers in previous articles, labor disputes in Germany are heard by specialized labor courts, whose distinguishing feature is how quickly they resolve cases. After consulting with the client and obtaining her consent, the lawyer filed a claim on her behalf with the labor court. Having reviewed Natalia's claim, the court ruled in her favor, ordering the insolvency administrator to pay our client damages equal to three months' salary.
Once the insolvency proceedings are concluded, our client's claim will be satisfied as a priority claim on the basis of the court's ruling.
All rights reserved. Copying or republishing this article requires a link to the original source.
