The Dismissal Protection Act (KSchG) and Company Size

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

For the application of the Dismissal Protection Act, the threshold value specified in § 23 (1) KSchG is initially decisive. It generally applies to companies with more than ten regularly employed workers. All workers who are in an employment relationship with the employer must be included in the calculation of this threshold value.

Since Sections 1 and 23 of the KSchG are not defined under EU law, the national definition of “employee” under Section 611a (1) of the German Civil Code (BGB) applies. Employees are considered “employed” within the meaning of Section 23 (1), third sentence of the KSchG if they are integrated into the company’s organizational structure, perform the work required of them there, and receive their instructions from that entity. Mere occasional attendance at meetings and presentations does not in itself constitute affiliation with a business. Employees in vocational training are expressly excluded. The decisive factor in this regard is that the primary purpose of the activity is training, continuing education, or retraining, not the performance of work; this also applies to internships or traineeships within the meaning of Section 26 of the Vocational Training Act (BBiG).

Part-time employees are counted in accordance with § 23 (1), sentence 4, of the German Employment Protection Act (KSchG) based on their agreed-upon regular working hours: employees working a maximum of 20 hours per week are counted using a factor of 0.5; those working no more than 30 hours per week are counted using a factor of 0.75; and those working more than 30 hours per week are counted using a factor of 1. Overtime hours are not included. The threshold value is thus already exceeded at a calculated number of 10.25 employees. Family members are included only if they have an employment relationship; home workers and those working under a contract for services, on the other hand, do not fall under the definition of “employee” under the KSchG. An extension of the definition of “employee” to include external managing directors of a GmbH is possible only in exceptional cases and, in particular, within corporate group structures.

Employees with foreign employment contracts, as well as employees with German employment contracts who have been temporarily posted abroad, must also be taken into account. Temporary agency workers are counted as part of the staffing agency’s workforce. If the requirements of § 10 of the Temporary Employment Act (AÜG) are met, they are also included in the workforce of the client company. For the calculation under § 23 (1), sentence 3 of the KSchG, a regular need for personnel is sufficient. Therefore, the random number of employees at the time of termination is not decisive. Periods with exceptionally high or low business volume are not taken into account, nor is a change in temporary agency workers.

The size of the business under § 23 (1) KSchG must generally be determined at the business unit level and not solely at the corporate level. The decisive factor is therefore whether the office, store, and warehouse each constitute independent establishments or together form a single, unified establishment of the company. What matters here is not that the divisions serve different operational purposes—such as administration in the office, sales in the store, and logistics in the warehouse—but whether they are subject to a single management structure.

A single business unit may serve several different operational purposes (see Pfeiffer, in Gallner/Mestwerdt/Nägele-Berkner, Kündigungsschutzrecht, § 23 KSchG, paras. 10–12; Richter, in MHdB ArbR, § 24 Betrieb und Unternehmen, paras. 11–13).

The key factor in distinguishing between them is, in particular, where the core of the employer’s functions in personnel and social matters is exercised. If hiring, dismissals, transfers, essential working conditions, and fundamental organizational decisions for the office, store, and warehouse are primarily made centrally by management or a unified human resources department, this generally indicates a single business. The employees of all three areas must then be counted together when assessing the threshold value under § 23(1), sentence 3, KSchG (see Moll/Schubert/Schmitt, in Linck/Preis, § 23 KSchG, paras. 9–15; Bayreuther, in KBN, § 23 KSchG, paras. 10–13; Eylert/Böglmüller, in Boecken/Düwell/Diller/Hanau, Gesamtes Arbeitsrecht, § 23 KSchG, paras. 8–13, 16; Volkening, in BeckOK ArbR, § 23 KSchG, paras. 4–12).

A physical separation – for example, when the office, the store, and the warehouse are located at different sites – does not in and of itself lead to the conclusion that there are multiple establishments. Nor is it sufficient that individual divisions have their own names or division managers. Rather, multiple independent establishments exist only if each division has its own institutionalized management structure that actually performs the essential employer functions in personnel and social matters independently. A warehouse manager who merely organizes daily operations therefore generally does not constitute an independent business unit if management continues to make decisions regarding hiring, terminations, and essential working conditions (see Pfeiffer, in Gallner/Mestwerdt/Nägele-Berkner, Kündigungsschutzrecht, § 23 KSchG, paras. 13–17; Richter, in MHdB ArbR, § 24 “Business and Enterprise,” paras. 5–10).

Conclusion: For the purposes of determining the size of the business under Section 23 of the KSchG, what matters is not how many employees work in the office, store, or warehouse, but whether these areas are under a single management structure. If there is a single management structure, the employees from all areas are counted together; separate consideration is possible only in cases where management structures are truly independent.