In the first part of our article on employer insolvency, we explained what insolvency actually means and how insolvency proceedings work. Here is the sequel. We answer the important question: Can I be dismissed in the event of insolvency?
If the employer becomes insolvent, the employment relationship initially remains in place (Section 108 InsO). The fate of the employment relationship depends heavily on how the company continues. This is decided by the insolvency administrator after analyzing the economic situation and considering possible options. The decision may consist of shutting down a business completely or partially. However, the insolvency administrator can also decide to continue the company for the time being and strategically reposition it.
Dismissal possible in principle – protection against dismissal remains in place
If the insolvency administrator decides to cease operations in whole or in part, the employment relationships of the employees are specifically at risk. The insolvency administrator can terminate the employment relationship if the conditions for termination are met.
However, employees are still protected against dismissal. Employers who regularly employ more than ten employees in a company in Germany need a reason for dismissal. This can be for operational reasons, for example. However, insolvency alone is not enough! Rather, the employer or the insolvency administrator must make an organizational decision that leads to the permanent loss of the need to employ the employees. This is not always easy in practice and harbors numerous sources of error.
In the event of insolvency, it is often decided to shut down the company in whole or in part. In most cases, the works council must also be involved in this decision, if there is one.
If the insolvency administrator decides to shut down the business in whole or in part, he must check whether there are other employment opportunities in the company for all affected employees – even if they are in significantly lower-paid positions.
Social selection
If the employer does not dismiss all employees, it must also ensure that it selects the right ones. The selection cannot be made arbitrarily. Rather, it depends on which employee is least worthy of protection. The criteria for this are regulated conclusively by the Dismissal Protection Act: It depends on the employee’s length of service, age, maintenance obligations and any severe disability. The insolvency administrator must carefully examine each individual employee on the basis of these criteria to determine whether dismissal is an option. In practice, mistakes are often made here. If the insolvency administrator does not observe the social selection criteria or makes mistakes, the dismissals are invalid.
Shortened notice period
In principle, a notice period of three months to the end of the month applies in insolvency (Section 113 InsO). This can be particularly annoying for long-term employees. This is because they often have longer notice periods. The longer the employment relationship has existed, the longer the notice periods usually are. In some employment contracts, significantly longer notice periods are agreed from the outset, regardless of length of service. In the event of insolvency, employees lose some of this protection. This is because the statutory regulation stipulates that all notice periods are reduced to three months in accordance with Section 113 InsO. However, if the law or the employment or collective agreement provides for a shorter notice period, this also applies in insolvency.
Does it make sense to take legal action against a dismissal?
Employees should consider carefully whether to take legal action against a dismissal if it is issued during insolvency proceedings. If the employer shuts down its business completely, the lawsuit will come to nothing. As a rule, there is no hope of a high severance payment because the employer does not have the financial means to do so. However, if there is a works council, it may be able to negotiate a social plan with the employer.
The chances of success are different if the insolvency administrator decides to continue at least part of the business and only dismiss some of the employees. In this case, an attempt can be made to save the employment relationship or negotiate a severance payment. To do this, employees must file an action for protection against dismissal with the labor court within three weeks.
The chances of success can also be quite good if the insolvency administrator decides to sell the company. This is because, in principle, all employment relationships are then transferred to the buyer (so-called transfer of business, Section 613a BGB). Dismissal by the new employer is then only possible – if the Dismissal Protection Act is applicable – if the new employer can provide a valid reason for the dismissal.
Unfortunately, things looked bad for the employees of Germania in this respect. The take-off and landing rights could have been sold to other airlines, which could have resulted in a transfer of operations if the licenses were the company’s main assets. However, this will probably not happen because flight operations will be discontinued.
Next step: Register as unemployed
If notice of termination has been given, employees should register in person with the employment agency at least three months before the end of their employment relationship in order to avoid disadvantages when receiving unemployment benefits at a later date. If this is no longer possible due to a termination at short notice, they must register within three days of becoming aware of the termination date. This obligation applies regardless of whether an action for unfair dismissal is filed.
To summarize: What specific steps do you need to take if your employer files for insolvency?
- Register claims in writing with the insolvency administrator,
- Contact the employment office,
- Apply for insolvency money,
- It is essential to have the termination checked,
- if you need help or have any questions: Contact Tölle Wagenknecht Wulff Attorneys at Law.