Will top earners still need protection against dismissal in the future? From the point of view of Christoph Abeln and André Kasten, the planned reform falls short. In their guest article, they analyze the labor law, constitutional and economic policy consequences for protection against dismissal for top earners and show why it is not the actual obstacle to investment.
Executive Summary
Protection against dismissal for top earners – reform with far-reaching consequences
- The challenge: The federal government is planning to fundamentally change protection against dismissal for top earners. In the future, it should be possible to terminate the employment relationship in return for severance pay – based on the model of the risk-taking regulation in the financial sector. This would mean that the existing protection for an entire group of employees would be at stake.
- The decision: Christoph Abeln and André Kasten show that protection against dismissal does not represent a significant obstacle to investment and that there are already differentiated exceptions. They analyze the labor law, constitutional and economic policy effects of the reform and explain why basing it solely on the level of income raises significant legal questions.
- Your benefit: The guest article classifies the reform plans legally, explains their possible consequences for companies and managers and shows which questions the legislature must answer in the further legislative process.
- Focus: Protection against dismissal for top earners, protection of existing employees, protection against dismissal, reform of protection against dismissal, severance pay instead of protection of executives.
With the resolutions of the coalition committee on July 2, 2026, a political discussion has become a concrete reform project. The federal government is planning to introduce a regulation for employees with an annual income above 1.75 times the contribution assessment limit for the statutory pension insurance that will enable the employment relationship to be terminated in return for severance pay – expressly “analogous to the risk-taking regulation in the financial sector”.
This means that nothing less than a paradigm shift in German dismissal protection law is imminent.
As specialist lawyers for labor law, we have been representing managers, executives, managing directors and board members for almost 30 years. Hardly anyone accompanies separation processes for top earners more often than we do. This is precisely why we view the current reform with considerable skepticism.
Protection against dismissal is not the problem
The political debate is based on the assumption that more freedom of dismissal automatically leads to more investment, innovation and employment.
This thesis has been repeated for years.
It has not yet been convincingly proven.
Even the German Economic Institute sees the causes of Germany’s investment weakness primarily in bureaucracy, high energy prices, lengthy approval procedures, a shortage of skilled workers and geopolitical uncertainties. General protection against dismissal is not identified there as a central obstacle to investment.
Our practical experience also confirms this assessment.
The Dismissal Protection Act does not prevent dismissals. It only requires that they be socially justified (§ 1 KSchG). Dismissals for personal, behavioral and operational reasons are already possible today if they are carefully prepared and legally justified.
Most dismissal protection proceedings do not arise because of supposedly too strict protection against dismissal, but rather because of avoidable errors in the preparation and implementation of personnel measures.
Dismissal protection is not an employment guarantee system. It is a justification and control system that protects employees from arbitrary dismissals while at the same time taking into account the legitimate interests of employers.
High income does not justify lower protection
The planned reform is based exclusively on the level of income.
This is exactly their biggest problem.
A high salary does not make an employee less vulnerable.
Managers in particular take on considerable economic responsibility, often change employers while giving up secure positions, are subject to non-competition clauses and receive significant portions of their remuneration through bonus, long-term incentive or stock programs. At the same time, they regularly operate in highly specialized labor markets.
Anyone who loses a management position in their mid-fifties often cannot find comparable employment within a few months.
In these cases, severance pay does not adequately compensate for the loss of the job.
What the reference to the risk carrier regulation actually means
The formulation of the coalition committee deserves particular attention, according to which the new regulation should be designed “analogously to the risk carrier regulation in the financial sector”.
What is meant is Section 25a Paragraph 5a KWG.
This regulation treats certain risk takers of major credit institutions as senior employees within the meaning of Section 14 Paragraph 2 KSchG for the employer’s application for dissolution. The consequence is serious: In the dismissal protection process, the employer can apply for the judicial termination of the employment relationship against payment of severance pay, without having to provide a specific reason for termination.
Even if the labor court finds that the termination was socially unjustified and therefore unlawful, the employment relationship ends with severance pay.
If this model were to be transferred to all so-called high earners, the dismissal protection process would fundamentally change. The employer would formally lose the process, but would still achieve termination of the employment relationship.
The protection of the existing property would thus be effectively replaced by a claim for severance pay.
Open questions regarding existing employment relationships
One question that the decision has so far left unanswered is particularly important:
Should the new regulation also apply to existing employment relationships?
The wording does not answer this.
However, the model chosen speaks more in favor of it. Section 25a (5a) KWG came into force in 2019 without transitional regulations for existing employment relationships.
If the legislature adopts this model, long-term managers would also have to expect their legal position to immediately deteriorate as of January 1, 2027.
This would raise significant questions about the protection of legitimate expectations.
Significant constitutional concerns
There is no draft law yet. Nevertheless, there are already significant constitutional questions.
According to the case law of the Federal Constitutional Court, Article 12 Paragraph 1 of the Basic Law protects not only the free choice of profession, but also the existence of the job as the basis for professional existence (BVerfG, decision of January 27, 1998 – 1 BvL 15/87).
The legislature does have a lot of leeway when it comes to structuring protection against dismissal.
However, it seems doubtful whether the level of income alone can be a viable differentiation criterion for largely eliminating grandfathering.
In addition, there are possible questions regarding the general principle of equality from Article 3 Paragraph 1 of the Basic Law and – when recording existing employment relationships – the constitutional protection of legitimate expectations.
The Dismissal Protection Act already has exceptions
What is often overlooked in the current discussion is that the Dismissal Protection Act already differentiates.
According to Section 23 KSchG, small businesses are largely exempt from general protection against dismissal. As board members, managing directors and board members are generally not subject to the Dismissal Protection Act. For senior employees, Section 14 Paragraph 2 of the KSchG already provides employers with easier options to have the employment relationship terminated against payment of severance pay.
Anyone who wants to create further exceptions must convincingly demonstrate why these existing differentiations are not sufficient.
It is not yet applicable law
Only the draft bill will show how the announced reform should be designed in concrete terms.
However, it can already be seen today that the planned new regulation goes far beyond simply modernizing dismissal protection law. It fundamentally changes the nature of protection against dismissal for an entire group of employees.
Germany needs a competitive labor market
However, competitiveness does not arise from giving up legal protection based solely on the level of income. It arises from less bureaucracy, faster approval procedures, affordable energy, digitalization and a reliable economic policy framework.
Should the legislature actually take the path announced today, not only a labor law but probably also a fundamental constitutional debate will follow.
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