Job Cuts: What Founders Definitely Need to Know

Gorillas, Klarna, Kontist: Several companies have recently laid off employees on a large scale. Founders must prepare well for job cuts – or else there is a risk of legal repercussions, which can be expensive. Alicia von Rosenberg is a lawyer at her labor law office in Berlin. It explains what employers need to consider when planning downsizing.

It depends on justification

Employees in Germany are highly protected against dismissal. “Recruitment and dismissal” is only possible in this country during the probationary period and in small companies – an obstacle that venture capitalists from abroad in particular often overlook. However, anyone who wants or has to interrupt work should pay special attention to justification.

It is important to rely on the so-called internal conditions. If a funding round fails, for example, and the company has to be permanently downsized, jobs could be eliminated. The same applies if the company permanently withdraws from a work area and therefore needs fewer employees.

The so-called non-operating conditions should be treated with caution. This means a drop in sales or something like that. Phrases such as “We feel compelled to take this step because of the system situation” have already caused many dismissals to fall.

VERY IMPORTANT: A good resignation letter does not contain any reasons. Only in court should you comment on the chapter. So the termination letter should be kept short, so that the discussion remains open. Justification is mandatory only for trainees and in other special cases.

Which employee can I fire?

No employee can be terminated at will, so called social selection is crucial. Therefore priority should be given to the dismissal of the least socially worthy employees. The critical criteria are age, maintenance obligations, disabilities, and length of time with the company.

Social choice often forces companies into a tight corset. However, good design leaves some room. You decide (within certain limits) the details of the selection and may retain special talent in the company. In addition, the following applies: firing employees who deserve protection is not impossible, but simply more expensive.

Be careful during the notification period

Startups are particularly dynamic. While one branch of a business is shutting down, a new one may actually emerge. After laying off jobs, caution is advised here. If new comparable jobs are created, the dismissed employee can ask to be reinstated. You are not allowed to fill the position with new applicants. At least this applies during the notification period. After this time you can play for free again.

Notify the employment agency

If you fire a large number of employees within 30 days, you must report them to the employment agency. If this is not done well in advance of the dismissal, all cases of dismissal are open to appeal. Whether the economy is old or new: many job cuts have failed due to the complexities of the so-called collective redundancy notice. The result is higher costs. This also shows that good preparation is worth a lot.

Is there a business council?

If so, the voltage is much higher. Employee representatives must participate comprehensively and at an early stage in job cuts. A social plan is necessary, which often provides for severance payments and can be implemented by the Labor Council if necessary. Negotiations must also take place with the Labor Council about how and when jobs will be cut. Unlike the social plan, the commission cannot impose an agreement here. In addition, there are early consultations and hearings on each individual termination.

Are there more attractive alternatives?

yes. In many cases it makes sense to convince the employee of a termination agreement. If the employee agrees, the employment relationship is terminated almost without prejudice. But talks about a termination agreement must also be well prepared. An employee’s agreement to a termination agreement is rarely free, and termination payments or similar benefits are often not circumvented. But this usually occurs in the context of termination.

If you resign, you have to take into account a long and expensive court process. The result is months and sometimes years of uncertainty – a nightmare for founders. As a rule, terminations end with a so-called settlement, that is, an agreement in court. In it, the dismissed drops their case, accepts the dismissal and receives severance payments in return. On the other hand, if the termination agreement is successful, you don’t have to worry about social selection or new projects during the notice period.

About the author
Alicia von Rosenberg is a lawyer at her labor law office in Berlin.

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