Determining the size of the business in accordance with Section 23 of the German Employment Protection Act (KSchG) in the event of planned staff reductions

LAG Berlin-Brandenburg, judgment of July 25, 2025 – 12 SLa 640/25

An organizational unit for objectors (remaining business) that is managed separately after a transfer of business must be assessed for the applicability of the German Unfair Dismissal Protection Act (KSchG) pursuant to Section 23 (1) KSchG based on the typical number of employees at the time of the uniform corporate downsizing decision. If the residual business is already a liquidation business at the time of its formation, the number of employees at that time is decisive, as shown by the judgment of the Berlin-Brandenburg Regional Labor Court of July 25, 2025 – 12 SLa 640/25.

Facts

The plaintiff had been employed by the defendant or its legal predecessor since 2004. The defendant employs a total of approximately 49,000 people. On July 1, 2023, the business unit to which the plaintiff's company belonged was transferred to I-GmbH. The plaintiff and 37 other employees objected to the transfer of the business.

The defendant then set up a "residual operation" to which the objecting employees were assigned. The purpose of this residual operation was to (gradually) terminate the employment relationships of the remaining employees. Between August 2023 and February 2024, the plaintiff applied internally 41 times without success.

In a letter dated January 30, 2024, the defendant gave the plaintiff ordinary notice of termination of employment effective August 31, 2024. At the time of termination, five employees were still working in the residual business. The labor court dismissed the action for unfair dismissal on the grounds that the Unfair Dismissal Protection Act (KSchG) was not applicable because the threshold of ten regular employees (§ 23 (1) sentence 3 KSchG) had not been reached. The plaintiff appealed against this ruling.

Reasons for the decision

The Berlin-Brandenburg Regional Labor Court upheld the appeal and declared the dismissal to be socially unjustified and therefore invalid. In the opinion of the Regional Labor Court, the KSchG applies to the present case.

The company meets the minimum number of employees required under Section 23 (1) sentence 3 KSchG of more than ten employees.

It is true that, when determining the size of the company in accordance with Section 23 (1) KSchG, the number of employees "normally" employed at the time of receipt of the termination is generally decisive. However, the decisive factor is whether a reduction in personnel is based on a uniform business decision on how many employees are expected to be laid off in total – even if this decision provides for the reduction in personnel to be carried out in stages.

In the present case, the defendant carried out the winding up of the remaining business in stages through transfers, partial retirement, termination agreements, and finally through the issuance of notices of termination. In the court's opinion, the defendant had already made the decision to terminate the employment relationships of the dissenting employees when the remaining operations were established, in particular because there was no intention at any point in time ( ) to continue the reduced remaining operations. Against this background, the gradual implementation of this plan through partial retirement, transfers or termination agreements and ultimately through the issuance of notices of termination represents the implementation of a uniform plan.

The termination failed on the merits under Section 1 (2) sentence 2 of the German Employment Protection Act (KSchG). The plaintiff had demonstrated opportunities for alternative employment within the company by applying for specific internal vacancies. Therefore, the defendant had a graduated burden of proof to explain in detail why the plaintiff could not be transferred to the respective positions. A blanket statement that there were no suitable positions "throughout Germany" was not sufficient. The plaintiff's mere participation in the internal job market does not replace the legal obligation to examine reasonable continued employment in a vacant position before pronouncing a termination for operational reasons and, if suitable, to implement it.

Practical tip

If, after a transfer of operations, a residual operation is formed for objecting employees and is clearly run as a liquidation vehicle from the outset, the threshold value of Section 23 (1) KSchG cannot be "circumvented" by staggered reduction steps. According to the Berlin-Brandenburg Regional Labor Court, the decisive factor is the number of employees at the time of the uniform reduction decision or the constitution of the residual business. Employers are well advised to document the planning decision, its objective and scope of the intended reduction, and the organizational decision on the residual business in a comprehensible manner.

The company-wide obligation to continue employment also remains central to the social justification of redundancies for operational reasons. Internal applications by employees substantiate their claims of suitability and trigger a substantial burden of proof regarding suitability, requirement profiles, and staffing decisions. A blanket statement is not sufficient. In order to reduce legal and litigation risks, vacant or expected vacant positions must be identified at an early stage, requirement profiles must be created, and the suitability assessment must be documented in a comprehensible manner. A structured matching process and verifiable selection decisions are essential components of legally compliant personnel measures during downsizing phases.