The Risk of Bogus Self-Employment and Section 23 Protection against Dismissal Act (KSchG)

October 2026 – Authors: Attorney Till Heinrich, Attorney Volker Mauch

If a company employs freelancers as “independent contractors” alongside permanent employees, and these freelancers are in fact classified as pseudo-self-employed, this can lead to problems for the employer on several levels.

If freelancers who are formally contracted as independent contractors or subcontractors are in fact deployed in the same manner as employees, they are considered employees within the meaning of Section 611a of the German Civil Code (BGB). This not only has significant implications under social security law but also means that they must be included in the calculation of the threshold under Section 23 of the German Employment Protection Act (KSchG).

When determining the number of employees under § 23(1) KSchG, the general definition of an “employee” under labor law as set forth in § 611a BGB applies (Kiel – Erfurter Kommentar zum Arbeitsrecht, KSchG § 23). Freelancers are generally not to be included due to the lack of personal dependence. Similarly, persons in employee-like relationships are not counted, as they are precisely not integrated into the company’s organizational structure.

The decisive criterion is personal dependence: If the freelancer is integrated into the company’s organizational structure and is subject to a comprehensive right to issue instructions regarding the time, duration, location, and manner of performance, this constitutes an employment relationship rather than a freelance arrangement. In this regard, the Federal Labor Court (BAG) focuses on the objective substance of the business relationship, not on the contractual designation (see Federal Labor Court, judgment of August 11, 2015, 9 AZR 98/14). If the contractual agreement and the actual performance do not correspond, the latter is decisive. Pseudo-self-employed individuals, in whom the characteristics of personal dependence predominate, must therefore be classified as employees within the meaning of § 23(1) of the German Protection against Dismissal Act (KSchG).

The resulting risk for employers is significant in practice: The employment of freelancers carries not only the risk of social security obligations but also the risk of exceeding the threshold specified in § 23 KSchG and thus triggering protection against dismissal for the entire company (see Ritter – BeckFormB Law Firm, Form. J. II. 1, paras. 1–17).

Any termination issued thereafter must then be socially justified (Section 1 of the German Employment Protection Act (KSchG)). Unfair dismissal protection also applies to those employees who were already employed by the business before the pseudo-self-employed individuals joined—the threshold applies to the total workforce (Moll, Schubert, Schmitt – Linck/Preis, KSchG § 23, paras. 57–62).

The employer should carefully verify whether the freelancers engaged are in fact self-employed. Indicators of dependent employment include, in particular, a fixed monthly salary, vacation policies, continued pay during sick leave, integration into the company’s organizational structure, and the obligation to follow instructions regarding the time, place, and nature of the work. If the service contractually owed is so vague that it is only specified through further instructions or integration into the business, this constitutes a strong indication of dependent employment. The employer also bears a secondary burden of proof in proceedings for protection against wrongful termination: If the employee claims that more than ten employees are employed, the employer must, pursuant to § 138(2) ZPO, substantiate which circumstances contradict this claim and disclose the exact personnel structure.

An employee invoking protection against dismissal must demonstrate and prove the applicability of the KSchG as a fact establishing the claim (Moll, Schubert, Schmitt – Linck/Preis, KSchG § 23, paras. 109–113; Kiel – Erfurt Commentary on Labor Law, KSchG § 23, paras. 13, 14). However, the Federal Labor Court does not impose unreasonably strict requirements. The employee generally satisfies his primary burden of proof by conclusively presenting the number of employees in the business as it appears based on external circumstances—if necessary, by providing a specific description of the individuals, including those designated as freelancers. The employee should present supporting evidence such as being subject to the employer’s instructions, integration into the workplace, and the absence of entrepreneurial risk (Federal Labor Court, judgment of August 11, 2015, 9 AZR 98/14). If the employee is unable to do so due to a lack of personal knowledge, a mere assertion that the employer employs more than ten employees is sufficient (Kiel, see above). The employer must then respond with substantiated arguments. The burden of proof lies with the employer if the employer fails to meet its secondary burden of presentation.

The employment of pseudo-self-employed freelancers can trigger protection against dismissal for the entire business if this results in exceeding the 10-person threshold set forth in § 23(1), sentence 3, KSchG. Employers should carefully examine the actual employment relationships of their freelancers for signs of personal dependence and anticipate a secondary burden of proof in cases involving protection against dismissal. Employees, in turn, may invoke the inclusion of pseudo-self-employed freelancers to establish protection against termination, but must present substantiated evidence of the relevant indicators to do so.