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GmbH liquidation: Employees' severance pay, dismissal and your rights
Expert article in labor law
What employees need to know legally during the liquidation or insolvency of a GmbH (limited liability company).
The news that one's employer is being dissolved often catches employees off guard. Besides the personal uncertainty, practical questions immediately arise: How does the termination process work? Am I entitled to severance pay? What happens in the event of insolvency? The good news first: The dissolution of a GmbH (limited liability company) does not automatically terminate existing employment relationships – and this opens up legal avenues that employees should be aware of and utilize.
Dissolution of a limited liability company and employment law: What applies first
With the resolution to dissolve, a limited liability company (GmbH) enters the liquidation phase, but initially remains legally capable of acting. The company continues to exist as a legal entity until it is fully liquidated and removed from the commercial register. For existing employment relationships, this means that they do not end with the resolution to dissolve, but must be actively terminated by notice of termination or a mutual termination agreement.
Employment law remains fully in effect during this phase. The Protection Against Unfair Dismissal Act (KSchG) applies, notice periods must be observed, and provisions under works constitution law – such as the consultation of the works council pursuant to Section 102 of the Works Constitution Act (BetrVG) – remain binding. Anyone who receives a notice of termination and believes it may be flawed still has three weeks to file a lawsuit with the labor court.
Have any notice of termination you receive reviewed by a lawyer as soon as possible – the three-week period stipulated in Section 4 of the German Protection Against Unfair Dismissal Act (KSchG) begins upon receipt of the notice of termination and cannot be extended.
Business closure or transfer of operations during the dissolution of a GmbH (limited liability company): A crucial difference
During the liquidation of a limited liability company (GmbH), it is common for parts of the company to be transferred to other companies – be it through sale, spin-off, or transfer within the framework of insolvency proceedings. This is precisely where one of the most important legal decisions lies for affected employees.
If a business is permanently closed, dismissals for operational reasons can be legally valid – provided the closure has been seriously and definitively decided and the company demonstrably ceases operations. The legal situation is different in the case of a transfer of business: If a business or a substantial part of a business is transferred to another company, Section 613a of the German Civil Code (BGB) applies. The employment relationships then transfer to the acquiring company by operation of law – and a dismissal issued solely because of the transfer is invalid according to Section 613a Paragraph 4 of the German Civil Code (BGB).
In practice, distinguishing between a closure and a transfer of undertaking is often difficult, especially when individual business units, customer bases, or production equipment are sold. Whether a transfer of undertaking has occurred depends on a comprehensive assessment of all circumstances – and this classification can determine job security.
If you receive a notice of termination while parts of your company are being transferred to a new owner, you should have this connection reviewed by a lawyer – employers do not always communicate potential business transfers transparently.
Severance pay upon dissolution of a GmbH: When does a claim exist?
One of the most frequently asked questions after a termination of employment during the dissolution of a GmbH (limited liability company) is: Will I automatically receive severance pay? The legal answer is clearly no. A statutory entitlement to severance pay does not arise simply because the company is dissolved. However, there are several ways in which an entitlement to severance pay can arise.
First, the termination letter can explicitly refer to severance pay in accordance with Section 1a of the German Protection Against Unfair Dismissal Act (KSchG). If the employee subsequently waives their right to file a claim for protection against unfair dismissal, they are entitled to severance pay in the legally stipulated amount. Second, a social plan can also give rise to entitlement to severance pay: If there is a works council and the change in operations is subject to co-determination within the meaning of Section 111 of the German Works Constitution Act (BetrVG), a reconciliation of interests and a social plan can be negotiated, which provides for severance payments and other compensation.
Thirdly, severance payments in practice often arise from settlements – out of court or in court: If a dismissal is legally contestable, an agreement on a severance payment is often reached. Fourthly, employment contracts or collective bargaining agreements may expressly provide for an entitlement to severance pay.
The actual amount of severance pay is not legally fixed. In practice, a rough guideline is half a gross monthly salary per year of employment. However, the decisive factor is always the individual case, including the length of employment, the employee's age, their position within the company, and, above all, the likelihood of success in an unfair dismissal claim.
Termination of a GmbH (limited liability company) upon dissolution: Valid or contestable?
Even during the liquidation of a limited liability company (GmbH), a dismissal is not automatically valid simply because the dissolution has been decided upon. The general requirements of labor law remain unchanged. A dismissal for operational reasons requires that the need for the specific position has permanently ceased. Furthermore, notice periods must be observed, and if several employees are being dismissed, a proper social selection process must be carried out in accordance with Section 1 Paragraph 3 of the German Dismissal Protection Act (KSchG).
If a limited liability company (GmbH) employs more than 20 people and a certain number of dismissals are issued within 30 days, the notification requirement under Section 17 of the German Dismissal Protection Act (KSchG) also applies. Errors in the mass dismissal notification can render the dismissals invalid. Similarly, a dismissal can be invalid if the works council was not properly consulted before it was issued.
Such formal or substantive errors significantly improve the negotiating position – be it for continued employment, the conclusion of a termination agreement on better conditions, or the enforcement of a severance payment through settlement.
A termination notice should always be reviewed to ensure all requirements are met. Errors that may seem minor at first glance can render the termination completely invalid.
Special considerations in insolvency proceedings: What employees need to know
If a limited liability company (GmbH) is not liquidated voluntarily but rather wound up through insolvency proceedings, special rules apply. The insolvency administrator assumes the power to act and can terminate existing employment contracts with a shortened statutory notice period of a maximum of three months in accordance with Section 113 of the German Insolvency Code (InsO) – regardless of any longer contractual or collectively agreed notice periods.
Existing wage claims, holiday pay, or potential severance pay entitlements must be registered in the insolvency schedule to be considered in the insolvency proceedings. Employees can apply for insolvency benefits from the Federal Employment Agency for outstanding wages from the three months prior to the commencement of insolvency proceedings. This application must be submitted within two months of the insolvency proceedings being opened; if this deadline is missed, the claim expires.
Furthermore, in the event of insolvency, employees should promptly investigate whether a transfer of undertaking is imminent. It is not uncommon for parts of a company to be sold to investors as part of insolvency plan proceedings. The employment law consequences of such a transfer can differ significantly for individual employees compared to others.
In insolvency proceedings, every day counts: applications and claims must be submitted on time. Those who act too late risk losing existing claims.
When is legal advice worthwhile when dealing with the dissolution and severance payment of a GmbH (limited liability company)?
For employees who receive a dismissal notice as part of the dissolution of a GmbH (limited liability company), legal support almost always pays off. This is because the deadline for filing a claim for unfair dismissal is only three weeks from receipt of the dismissal notice – after which the dismissal is considered valid, even if it would actually have been contestable.
Early legal advice is particularly useful if it is unclear whether a transfer of undertaking has taken place, if several employees are being dismissed at the same time and the conditions for a mass redundancy notification are being considered, if no social plan has been negotiated even though a works council exists, or if there are arrears in wages and the possibility of registering for insolvency benefits.
TURGERLEGAL advises employees on employment law – from reviewing dismissals to enforcing severance pay claims and representing them before the employment court.
Conclusion: Dissolution of a GmbH (limited liability company) - employees know their rights, deadlines must be met
The dissolution of a limited liability company (GmbH) is a stressful situation for affected employees – however, the legal situation is not as clear-cut as it might initially appear. Employment relationships do not end automatically, dismissals must be legally valid, and in many cases there are concrete opportunities to negotiate severance pay or improved terms.
The key is to act quickly: The three-week period for filing a wrongful dismissal claim begins on the day the dismissal notice is received. In the event of insolvency, further deadlines apply, and missing these deadlines results in the loss of claims. Those who seek legal support early on secure the best starting position – whether for enforcing legitimate claims or for reaching an amicable solution on fair terms.
Whether it's a business closure, a transfer of undertaking, or insolvency: the specific circumstances of each individual case are decisive. A general assessment without knowledge of the exact situation is not possible – and that is precisely why legal advice is so valuable at this stage.
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FAQs – Frequently Asked Questions about GmbH Dissolution and Employees
No. The dissolution of a GmbH (limited liability company) does not automatically terminate existing employment relationships. The company remains capable of acting until its complete liquidation, and dismissals must be actively issued. The same legal requirements apply as for a standard redundancy dismissal. Only when the company is completely dissolved do the last contractual obligations end.
A statutory entitlement to severance pay does not arise solely from the termination of employment. However, an entitlement may arise under Section 1a of the German Protection Against Unfair Dismissal Act (KSchG) if the employer expressly refers to this in the dismissal notice, or through a social plan if a works council exists and a change in operations requiring co-determination has occurred. In practice, severance payments are frequently reached through settlements, particularly if the dismissal is legally contestable.
There is no legally mandated severance payment amount. A rough guideline is half a gross monthly salary per year of employment. However, the actual amount depends on many factors: length of service, age, position within the company, salary, and the likelihood of success in a potential unfair dismissal claim. The financial situation of the GmbH (limited liability company) can also influence the negotiating position.
Section 613a of the German Civil Code (BGB) governs the transfer of undertakings: If a business or a substantial part of a business is transferred to another company, the employment relationships automatically transfer to the acquiring company. A dismissal issued solely because of this transfer is invalid. In the context of the dissolution of a limited liability company (GmbH), where parts of the business are frequently sold, the distinction between closure and transfer of undertakings is therefore crucial for the continued existence of the employment relationship.
According to Section 4 of the German Protection Against Unfair Dismissal Act (KSchG), the deadline for filing a claim for protection against unfair dismissal is three weeks from receipt of the written notice of termination. If this deadline is missed, the dismissal is considered valid from the outset – even if it was flawed in content or form. Subsequent admission of the claim is only possible in very limited exceptional circumstances. Therefore, a dismissal should be reviewed by a lawyer immediately.
Insolvency pay secures outstanding wages for the three months prior to the commencement of insolvency proceedings. It is paid by the Federal Employment Agency upon application. The application must be submitted within two months of the commencement of insolvency proceedings. The insolvency pay corresponds to the net wages the employee would have been entitled to during this period. Failure to apply within this timeframe results in the irretrievable loss of this entitlement.
Yes. According to Section 113 of the German Insolvency Code (InsO), the insolvency administrator can terminate employment contracts with a maximum notice period of three months to the end of the month, regardless of any longer contractual or collectively agreed notice periods. Employees do have a claim for damages for any resulting losses – such as lost wages beyond the shortened notice period – but this claim must be registered as a standard insolvency claim in the insolvency schedule.
The absence of a social plan does not automatically render a dismissal invalid. However, if a works council exists and a change in operations requiring co-determination has occurred, the works council has the right to enforce a social plan – if necessary, through conciliation proceedings. Employees without a works council cannot generally invoke the absence of a social plan themselves, but should check whether the dismissal is contestable on other grounds.
A termination agreement is a mutually agreed-upon end to an employment relationship and is often offered as an alternative to dismissal. It can offer advantages for both parties, but also poses risks for employees: In particular, it can lead to a waiting period for unemployment benefits of up to twelve weeks. Before signing a termination agreement, legal advice should be sought to fully assess the terms and risks.
Legal advice is always worthwhile when a notice of termination or a settlement offer is received. The three-week deadline stipulated by the German Protection Against Unfair Dismissal Act (Kündigungsschutzgesetz) leaves little time, and errors in the termination notice are often overlooked without legal review. Particularly in cases of business transfers, insolvency, or suspected errors in the notification of mass redundancies, early legal support can make the difference between losing out and successfully enforcing legitimate claims.
