Working End > Insolvency > Social Plan

Social Plan in Case of Mass Dismissals

Mass dismissals subsequent to company changes require a legal procedure comprising a social programme (“Sozialplan”) and a reconcilement of interests. This is meant to prevent or alleviate subsequent economic disadvantages, for affected employees mainly. What counts as “mass dismissals” are: for companies of 500 employees, more than 30 employees that are to be dismissed within 30 calendar days in regular dismissal (“Kündigung”) or with cancellation agreements (“Aufhebungsvertrag”). In smaller companies, thresholds are lower. Legal basis of social programmes are §112 and §112a of German works constitution act (BetrVG). The social programme has the legal effect of a negotiable company agreement and, additionally, may regulate incomes, working hours, or dismissal protection, which are normally part of collective agreements.

What counts as a company change:

• Constriction, closedown or re-location of the company or of great parts of the company
• Fusion with other companies or splitting of one
• Restructuring measurements that change the organization, the facilities, or the object of the company or that require introduction of fundamentally new working methods

Contents of the social programme can be:

• Who is integrated in the social plan. Sometimes minijobbers and employees whose working hours have been cut
• Compensation payments to employees who have been cancelled or whose income have been cut
• Paid exemption from work
• Working conditions for transfers
• Regulations concerning transition companies ("Transfergesellschaft")
• Absorption of employees’ new-application expenses
• Regulations concerning further-education measurements
• Supportive payments for travel expenses
• Moving support, moving expenses, brokerage charges
• Limited-time job warranties
• Articles on protection of vested rights, i.e. company pension, company social payments
• Hardship regulations, early-retirement regulations
• Partial payments of short-time workers’ money

The amount of compensation payments is calculated with a formula that can contain values of company-membership, age, wage and position within the company. Examples for calculation of compensations in a social-programme are (source: Employees chamber Bremen):

• Age x years-of-membership x monthly-wage (gross) / divisor; Divisor: e.g. 50. Results in: A 50 years old is paid 1 monthly wage / year of membership, a 40 years old 0.8 monthly wages / year of membership
• Age x years-of-membership x fixed-amount
• Share-by-rating system: Names of employees to dismiss are known. Employees are getting rating-points according to their duration of membership, age, obligations to support and disablements. The employees’ compensation amounts are shares of the whole social-programme budget and are proportional to their rating. The social-programme budget depends on the company's economic capacity and on the occasion requiring the social programme. For the occasion being profit optimization, the court will size the budget larger than for company-rescuing restructurizations
• If the company becomes insolvent, compensations can be a total of 2 ½ monthly wages. However, the social programme budget must not exceed more than 1/3 of the company’s capital

Parallel to the social programme issues, the reconcilement of interests regulates the way in that the personnel cuts are done. Here, no conciliation council, as regulated in §76 BetrVG can be involved (a kind of arbitrating body).

Companies younger than 4 years are exempt from social programme obligations.

If a company change consists solely in dismissing a number of employees by cancellation agreements, then the conciliation council can enforce a social programme (given a minimum number of employees to dismiss). This is regulated by §112a BetrVG and depends on the overall number of employees.

• The employer has to inform the works council about the following points:
  • Reasons for the dismissals
  • Number and occupational categories of affected employees
  • Number and occupational categories of all employees
  • Time frame of the dismissals
  • Criteria for selecting the employees to dismiss
  • Criteria for calculating amounts of potential compensation payments

• Also, the employer has to announce “mass dismissals” meeting the definition of §17 Abs. 1 Kündigungsschutzgesetz (dismissal protection) to the labour agency, in advance. Along with the written announcement, they must send the letter addressed to the works council and their response

• A works council in a company of more than 20 workers and employees can enforce a social programme against the employer’s will, with the help of a conciliation council
• For the works council:
  • Always negotiate social programmes and reconcilements of interests together
  • Get yourself some model social programmes. Regard, though, that those are results of negotiations, not the initial situations
  • Inform yourselves about the company’s economic situation and take that into account for your demands

• Social plan and reconcilement of interests have to be written down and signed by the management and the works council
• If no agreement can be made between the company and the works council, either can request help from the labour agency. If that does not succeed, a conciliation council is involved
• If the conciliation council does not achieve agreement, they manage building the social programme, taking into account consequences for employees, job market prospects and economic concerns of the company
• As an employee benefitting from the social programme, you should definitely read exclusion clauses, otherwise your claims might become invalid
• Attention: No personnel cuts must be made as long as the reconcilement of interests and the social programme have not been signed by both sides. This block of actions can last about 6 months
• For realizing social programme dismissals legally valid, employers should consult a specialist solicitor