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Dismissal Protection 2026-07-22 • 3 min read

The 10-Employee Threshold: German Dismissal Protection Explained

Under German law, crossing the 10-employee line changes your statutory employer liabilities completely. Understand how headcounts, FTEs, and statutory dismissal protection work.

DU
RA Dominik Unger
Specialized German Employment Lawyer • Constance Law

The German Dismissal Protection Act (Kündigungsschutzgesetz - KSchG) is one of the most unexpected legal boundaries for expanding international firms. Many foreign managers assume standard at-will termination principles apply, only to face extensive litigation and mandatory back-pay liabilities in German Labor Courts.

1. The Critical Boundary: 10 Employees (Small Business vs. Standard Operations)

If your regular headcount in Germany is 10.0 or fewer full-time equivalents (excluding apprentices), your business qualifies as a small business (Kleinbetrieb under Section 23 KSchG). In this initial phase, statutory dismissal protection under the KSchG does not apply. Employers can terminate employees by respecting contractually or statutorily agreed notice periods without having to prove a statutory justification, provided the termination is not arbitrary, discriminatory, or in breach of special protection laws.

However, as soon as your regular workforce exceeds 10.0 employees, every staff member who has been employed for more than 6 months (the statutory waiting period under Section 1 KSchG) enjoys full statutory protection against unfair dismissal. From this moment on, any notice of termination is legally void unless supported by statutory grounds.

2. Meticulous Full-Time Equivalent (FTE) Calculations

Germany does not count physical heads; it calculates full-time equivalents (FTE) based on agreed weekly working hours:

  • Employees working up to 20 hours/week = 0.5 FTE
  • Employees working up to 30 hours/week = 0.75 FTE
  • Employees working over 30 hours/week = 1.0 FTE
  • Trainees, apprentices, and genuine interns are excluded from the headcount.
  • Temporary agency workers (Leiharbeiter) are included if their deployment covers regular operational headcount needs.

Practical Calculation Example:

If a company employs 8 full-time staff (8.0 FTE), 2 part-time staff at 20 hours/week (1.0 FTE), and 3 part-time staff at 25 hours/week (2.25 FTE), the total operational size is 11.25 FTE. Statutory dismissal protection applies in full, even if executive leadership believed they were still operating under small business exemptions.

3. The Three Statutory Justifications Required

Once subject to the KSchG, employers cannot terminate at will. Every dismissal must be legally justified under one of three strict categories:

1.Operational Reasons (Betriebsbedingte Kündigung): Urgent business needs causing role redundancy. Requires a strict, mathematically defendable Social Selection process (Sozialauswahl) comparing comparable employees on length of service, age, dependent children/spouses, and severe disability.
2.Personal/Medical Reasons (Personenbedingte Kündigung): Lack of personal capability or prolonged illness. Requires a documented Occupational Health Management process (BEM) and a negative long-term health prognosis.
3.Conduct-Related Reasons (Verhaltensbedingte Kündigung): Culpable breach of employment duties. Requires at least one prior, legally watertight written warning (Abmahnung) for an identical or highly similar breach.

4. Strategic Guidance for Scaling Tech & US/UK Subsidiaries

Companies approaching the 10-employee threshold should audit employee performance, probation outcomes, and contract structures strictly before employees hit their 6th month of service. Proactive HR governance prevents unexpected long-term liabilities.