When a company with a works council closes a site, cuts a large number of jobs or reorganises fundamentally, it must negotiate with the works council. Two agreements come out of this: a reconciliation of interests (Interessenausgleich) on how the change is carried out, and a social plan (Sozialplan) on how the disadvantages for employees are compensated.
For most affected employees, the social plan is what matters: it usually contains a severance formula. Knowing how it works helps you check your offer and decide whether to accept it or challenge your dismissal.
When Is a Social Plan Required?
The rules apply if:
- the company has more than 20 employees with voting rights,
- there is a works council, and
- there is a major change to the business (Betriebsänderung), such as closing or relocating a site, merging sites, fundamental changes to the organisation or significant job cuts.
For pure job cuts, a social plan can only be enforced if a certain number of employees in the establishment is affected:
| Employees in the establishment | Affected employees needed |
|---|---|
| Fewer than 60 | 20 percent, at least 6 |
| 60 to 249 | 20 percent or at least 37 |
| 250 to 499 | 15 percent or at least 60 |
| 500 or more | 10 percent, at least 60 |
Termination agreements initiated by the employer count towards these numbers.
Newly founded companies are exempt from enforced social plans in their first four years after starting business, for all kinds of restructuring. This does not apply to new companies created by restructuring an existing company or group. The duty to try for a reconciliation of interests remains.
If there is no works council, there is no social plan. Your employer may still offer severance voluntarily. See severance pay in Germany.
Reconciliation of Interests and Social Plan
| Reconciliation of interests | Social plan | |
|---|---|---|
| German term | Interessenausgleich | Sozialplan |
| Content | Whether, when and how the change takes place, often with a list of names | Compensation for disadvantages: severance, relocation costs, transfer company |
| Enforceable? | No. The employer must only try in earnest to reach an agreement | Yes. If there is no agreement, the conciliation board decides |
| Effect for you | A name list makes it harder to challenge your dismissal | Gives you direct claims, for example to severance |
If the employer goes ahead without seriously trying to agree a reconciliation of interests, affected employees can claim compensation for disadvantages (Nachteilsausgleich).
Calculate Your Severance Pay
See a realistic range for your severance in under a minute. No sign-up, no contact details.
- Based on your salary and years of service
- Shows the usual range from 0.5 to 1.0
- Explains what strengthens your position
How Severance Is Calculated
There is no legal formula. Common formulas look like this:
Monthly gross salary × years of service × factor
The factor is negotiated, often between 0.5 and 1.5. Many social plans add amounts for age, children or disability, and set a minimum and a maximum.
Example. Monthly salary €5,000, eight years of service, factor 0.8: €5,000 × 8 × 0.8 = €32,000. With a €5,000 supplement for two children, the total is €37,000.
Employees who can draw an early pension soon after leaving often receive less. This is generally allowed, but not by reference to the early pension for severely disabled people.
Challenging Your Dismissal Despite the Social Plan
The social plan does not make your dismissal valid. You can still file a claim within three weeks, for example if the social selection was wrong or the works council was not properly consulted.
Your social plan severance may not depend on you giving up a claim. However, employer and works council often agree a separate bonus for employees who do not challenge their dismissal (Klageverzichtsprämie). This is allowed, as long as the social plan itself is adequate. Compare what you would gain through a claim with what you lose by giving up the bonus.
If you file a claim and reach a settlement, the social plan severance is usually the minimum. Settlements in strong cases are often higher. Note that most social plans offset severance from a settlement or judgment against the social plan payment, and that you receive no social plan severance if you win and keep your job.
Errors in the mass dismissal notice to the employment agency also make dismissals invalid. See mass dismissal.
Affected by a restructuring? Have your social plan offer and your chances in court checked side by side.
Get Your Free Case Review →Transfer Companies
Many social plans offer a move to a transfer company (Transfergesellschaft). You leave your employer and join the transfer company for up to twelve months. During this time, you receive a transfer short-time allowance from the employment agency, often topped up by your employer, and support finding a new job.
This can bridge the time until a new job, but your unemployment benefit entitlement starts later. Compare the total income and the effect on your severance before you agree.
Insolvency
If the employer is insolvent, social plans are limited by law: the total may not exceed two and a half months' salary times the number of affected employees, and no more than a third of the assets that would otherwise go to creditors. A social plan agreed in the three months before the insolvency application can be revoked. See employer insolvency.
Tax and Benefits
Social plan severance is subject to income tax, but not social security contributions. A tax relief can be claimed in your tax return. Severance from a German employer usually remains taxable in Germany even if you move abroad. See income tax on severance pay.
A dismissal under a social plan with the correct notice period does not usually lead to a blocking period for unemployment benefit. Signing a termination agreement can. See blocking periods.
Points for Expats
- Ask for the social plan. Your employer or the works council can give you the text. If it is only in German, ask for help translating the formula and the conditions.
- Short service. Formulas based on years of service favour long-standing staff. If you joined recently, a claim or individual negotiation may be worth more than the formula.
- Residence permit. A move to a transfer company usually does not meet the conditions of a Blue Card or skilled worker permit, which require a specific qualified job and salary. Check with the immigration office before you sign, and report the end of your job within two weeks.
Frequently Asked Questions
Can I negotiate more than the social plan?
The social plan applies to everyone within its scope, but individual settlements can go further, especially if your dismissal has weaknesses.
Do I lose the social plan severance if I resign?
Often yes, unless the social plan includes employees who resign because of the restructuring. If your employer prompted your resignation, you can usually not be excluded. Check the conditions before you resign.
Is there a social plan in a small company?
Not with 20 employees or fewer, and not without a works council.
When is the severance paid?
Usually with the last salary or shortly after the end of employment. The social plan sets the date.
