Dismissal protection in small businesses

What is a small business?

A small business in the sense of labor law is a business that regularly employs ten or fewer people (Section 23 (1) KSchG). In such businesses, the Unfair Dismissal Protection Act generally does not apply, with significant consequences for the employees concerned.

Important: However, this does not mean that employers in small businesses are "free" to terminate employment. Even without the KSchG, there are legal limits that can render a termination invalid.

Why the Unfair Dismissal Protection Act does not apply

The legislature deliberately excluded small businesses from the scope of the KSchG. The background: In small businesses, personal cooperation is closer, and the employer should not be burdened by a costly dismissal procedure if economic capacity is limited.

In concrete terms, this means that in small businesses, employers do not have to prove a reason for dismissal within the meaning of the KSchG. The requirements for social selection, as prescribed for redundancies for operational reasons in larger companies, also do not apply.

At first glance, this appears to be a disadvantage for employees. However, over decades of case law, a minimum level of protection has been developed that also applies to small businesses.

How employees are counted for the size of the company

Whether the KSchG applies depends on the number of employees regularly employed. The calculation follows clear rules:

• Full-time employees count as 1.0
• Part-time up to 20 hours per week: counts as 0.5
• Part-time up to 30 hours per week: counts as 0.75
• Part-time over 30 hours per week: counts as 1.0
• Trainees are not counted
• Temporary workers are counted if they are employed on a regular basis

The decisive factor is not the workforce on a specific date, but the regular number of employees. Seasonal fluctuations or temporary temporary workers only change the calculation if they are the norm.

Tip: The burden of proof for the size of the company generally lies with the employee. Anyone who wants to file an action for unfair dismissal should therefore gather information about the actual number of employees in the company at an early stage.

Protection under Section 242 of the German Civil Code (BGB): Good faith

Even in small businesses, every termination is subject to the principle of good faith (Section 242 BGB). Case law recognizes that even without the KSchG, a minimum level of social consideration must be maintained.

A termination may be invalid under § 242 BGB if it:

• is arbitrary or irrelevant, i.e., without any comprehensible reason
• violates the prohibition of disciplinary action (§ 612a BGB), for example if the dismissal is in response to the employee asserting legitimate claims
• is based on contradictory behavior on the part of the employer, for example, termination shortly after a promotion or contract extension
• Is clearly contrary to good faith or abusive, for example, out of personal vindictiveness or harassment

However, the requirements for substantiation are higher in small businesses than in the scope of the KSchG. The employee must specifically explain why the termination is contrary to good faith.

Special protection against dismissal also applies in small businesses

Special protection against dismissal applies regardless of the size of the company. Even in a small business with only five employees, the following groups are specially protected:

• Pregnant women and mothers according to § 17 MuSchG
• Employees on parental leave in accordance with Section 18 of the Federal Parental Leave Act (BEEG)
• Severely disabled persons pursuant to Section 168 of SGB IX
• Works council members pursuant to Section 15 KSchG (if a works council exists)
• Data protection officers pursuant to Section 6 (4) BDSG

In these cases, the same strict requirements apply as in larger companies – including the obligation to obtain official approval before giving notice of termination.

AGG and other protective regulations

The General Equal Treatment Act (AGG) protects employees from discrimination – even in small businesses. Termination is invalid if it is based on one of the characteristics specified in the AGG:

• Gender or sexual identity
• Age
• Disability
• Ethnic origin or race
• Religion or belief

In addition, the prohibition of reprisals (Section 612a BGB) protects against dismissals that are made in retaliation for the legitimate exercise of employee rights, for example after a complaint about outstanding wages or after reporting grievances.

Statutory notice periods (Section 622 BGB) must also be observed in small businesses. Termination without notice and without good cause is just as invalid as it is in larger companies.

Unfair dismissal claims in small businesses

Even if the KSchG does not apply, an action for unfair dismissal in a small business can be sensible and successful. The action is particularly promising if:

• The dismissal appears to be manifestly unjustified or arbitrary
• It was made for personal reasons
• It took place shortly after the assertion of legitimate claims
• Special protection regulations (AGG, special protection against dismissal) have been violated
• There are formal errors, such as failure to comply with the written form requirement or failure to observe notice periods

Negotiating leverage: Even if the prospects of success of the lawsuit are not certain, filing a lawsuit may persuade the employer to negotiate a severance payment . Many small businesses shy away from the effort and expense of legal proceedings.

Important: The three-week deadline (§ 4 KSchG) also applies to small businesses. Anyone who misses it loses the opportunity to challenge the dismissal in court – even if it was unlawful.

Practical steps to take after being dismissed from a small business

If you are dismissed from a small business, you should take the following steps:

• Don't just accept the dismissal: There are also protective mechanisms in small businesses. Have the dismissal reviewed promptly before the deadline for filing a lawsuit expires.
• Check the size of the company: Determine how many employees are actually employed on a regular basis. Count part-time workers, temporary workers, and employees in other branches. The KSchG may still apply.
• Check for special protection against dismissal: Are you pregnant, severely disabled, on parental leave, or a member of the works council? If so, special protection against dismissal applies regardless of the size of the company .
• Question the reason for termination: Even if the employer does not have to give a reason – if there is evidence of arbitrariness, discrimination, or disciplinary action, the termination may be invalid.
• Observe deadlines: The three-week deadline for filing an action for protection against dismissal is mandatory. Contact a labor law attorney immediately.
• Don't forget to register as unemployed: Regardless of any possible lawsuit, you should register as a job seeker with the Employment Agency within three days of learning of the termination.