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Mass layoffs who counts?

Managing directors and interns are considered employees according to  17 of the German Protection Against Dismissal Act (KSchG)
(European Court of Justice, decision dated July 9, 2015 C 229/14)

In the case pending before the Labor Court Verden, the parties disagree about operationally-related terminations. Including the plaintiff, the employer employed 18 workers, a managing director and an intern. Due to economic losses the company terminated all positions of employment for compelling operational reasons and also closed all operations. The employer did not submit a mass layoff notification to the German Federal Employment Agency ( 17 para. 1 no. 1 of the Protection Against Dismissal Act KSchG) duty of disclosure in companies with more than twenty employees. In the court proceedings of protection against dismissal, the plaintiff claimed the employer was obliged to announce mass layoffs and, since the employer indisputably did not comply with that obligation, the termination was ineffective. The plaintiff claimed that the employer's managing director and a hired intern must also be taken into account to determine the threshold value. Labor Court Verden forwarded the case to the European Court of Justice (ECJ,  267 AEUV) with the question what types of workers are employees in the legal sense of  17 para. 1, no. 1 of the KSchG.

The ECJ ruled that managing directors and interns can be considered to be employees according to  17 of the KSchG. The meaning of "employee" should be interpreted in conformity with European law with regard to the Mass Layoff Directive (Directive 98/59/EC).

A decisive factor for the qualification as an employee is whether a person objectively provided services for another person under their instructions and supervision during a certain time period and received remuneration for it. Whether a managing director is in an employment relationship dependent on receiving instructions is to be decided case by case based on the actual circumstances. The decisive factors are the terms of the appointment, the possibility of dismissal, the ownership of company shares, the nature of the delegated tasks and the level of instruction and supervision from a board. This means that external managing directors as in the decided case are regularly classified as employees in the meaning of the Mass Layoff Directive.

This includes all individuals who work at a practical level to acquire or deepen their knowledge or to complete some sort of professional training. These are generally interns.

Practical Recommendations:
This decision has to be taken into account immediately for all restructuring measures involving mass layoffs. Controversial are such cases with an employee number that was previously slightly lower than the threshold level for a mass layoff. Caution has always been required since  17 para. 1 of the KSchG uses the term "in general" as a criteria. A safety buffer had also been incorporated in the past for employee numbers that were just below the threshold. This buffer is now even thinner. When in doubt, use the following guideline: Submit a mass layoff notification in order to avoid all terminations from being ineffective.

Dr Jan Tibor Lelley, LL.M.
Attorney and certified
specialist for labour law
Dr Jan Tibor Lelley, LL.M.

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