Employment Law2026-10-22

Dismissal in a Small Business: What You Still Have to Get Right When the Unfair Dismissal Act Does Not Apply

With ten employees or fewer, the Unfair Dismissal Act (Kündigungsschutzgesetz) does not apply. That does not leave you with a free hand as an employer: good faith, the ban on discrimination, special protection for certain employees, the written-form requirement and the notice period all still apply.

You run a business with a handful of employees and you want to part ways with one of them. The usual assumption is: “With fewer than ten people, I can dismiss whoever I like, however I like.” That is only half true. It is correct that the Unfair Dismissal Act (Kündigungsschutzgesetz, KSchG) does not apply in a small business. The dismissal does not have to be socially justified, and you do not need a reason that will stand up before the labour court. But everything else still applies: form, notice period, receipt, special protection for certain employees, and the limit that good faith places on every dismissal.

In short

If you normally employ ten people or fewer, the Unfair Dismissal Act does not apply (§ 23(1) KSchG). You do not have to give reasons for the dismissal, and you do not have to carry out the statutory social selection among your staff. The dismissal is nonetheless invalid if it offends good faith (§ 242 BGB), if it discriminates (§ 134 BGB in conjunction with § 7 AGG), if the employee enjoys special protection against dismissal — for example during pregnancy, parental leave or because of a severe disability — or if the written-form requirement or the notice period has not been observed. An employer who checks these five points before giving notice dismisses on a sound legal footing even in a small business.

The legal position

The threshold. Under § 23(1) sentence 3 KSchG, dismissal protection does not apply to employees whose employment began after 31 December 2003 if the business normally employs ten people or fewer. Apprentices are not counted. Part-time staff count on a pro rata basis under § 23(1) sentence 4 KSchG: those working up to 20 hours a week count as 0.5, those working up to 30 hours as 0.75, and those working more count in full. Six full-time staff, four half-time staff and two casual workers on twelve hours each therefore come to 6 + 2 + 1 = 9, so the business remains a small business. “Normally” refers to the usual level of staffing, not the headcount on the date of the dismissal. A temporary vacancy or a seasonal peak does not change the classification. If you still employ people who started with you before 2004, the old threshold of more than five employees applies to them; the same business may then be a small business for some of your staff but not for others.

Good faith. The Federal Constitutional Court upheld the small-business exemption in 1998, but only subject to one qualification: even in a small business, Article 12 of the Basic Law (Grundgesetz) protects employees against a dismissal that is arbitrary or based on improper motives (BVerfG, decision of 27 January 1998, 1 BvL 15/87, bundesverfassungsgericht.de). From this, the Federal Labour Court has derived a “minimum degree of social consideration”: if you dismiss one of several comparable employees and the person dismissed is plainly far more in need of protection than the others, that is an initial indication of a breach of § 242 BGB. You may counter this with operational or personal reasons, and your freedom to run your business as you see fit carries considerable weight here (BAG, judgment of 21 February 2001, 2 AZR 15/00, lexetius.com). You do not owe a social selection of the kind required under § 1(3) KSchG. But you should be able to say why it is this particular employee.

Discrimination and retaliation. A dismissal on grounds of age, ethnic origin, sex, religion, disability or sexual identity breaches § 7 AGG and is void under § 134 BGB; on top of that, the employee may claim compensation under § 15 AGG. Equally invalid is a dismissal that punishes an employee for having exercised their rights — for example by requesting leave or bringing a claim for wages (§ 612a BGB). Being a small business is no help here.

Special protection against dismissal. This applies regardless of the size of the business. You may not dismiss a pregnant woman, or a mother up to four months after giving birth, under § 17(1) MuSchG; this also applies where you are not told about the pregnancy until within two weeks after the dismissal reaches the employee. During parental leave, and from the point at which it is registered — at the earliest eight weeks before it begins — § 18(1) BEEG applies. Employees with a severe disability who have been with you for longer than six months may be dismissed only with the prior consent of the Inclusion Office (Integrationsamt) (§ 168, § 173(1) no. 1 SGB IX). In all three cases, a public authority decides whether the dismissal is exceptionally permissible. A dismissal without that consent is invalid, no matter how good the reason. Apprentices, after the probationary period, may only be dismissed for good cause (§ 22(2) BBiG).

Written form. The dismissal must be in writing under § 623 BGB; electronic form is excluded. That means paper and a handwritten signature. Email, fax, messaging apps or a scanned signature are not enough. If the dismissal is signed not by the owner or managing director but, say, by an authorised officer (Prokurist) or a tax adviser, it must be accompanied by an original power of attorney; otherwise the employee may reject the dismissal under § 174 BGB.

Notice periods

Unless you have agreed otherwise, the basic period under § 622(1) BGB applies: four weeks to the 15th or to the end of a calendar month. As the employment continues, the notice period for your dismissal lengthens under § 622(2) BGB to one month after two years, two months after five, three months after eight years and so on, up to seven months after twenty years, in each case to the end of the month. These extended periods apply in a small business too. During the probationary period, which may last no longer than six months, the period is two weeks (§ 622(3) BGB).

Two special points make it worth checking the employment contract. First: if you employ no more than twenty people, you may agree individually under § 622(5) no. 2 BGB on a four-week period with no fixed end dates; the dismissal then takes effect on any day. Second: the notice period for your dismissal may never be shorter than the one that applies to the employee’s own notice (§ 622(6) BGB). A collective agreement may regulate all of this differently (§ 622(4) BGB).

The period only starts to run once the dismissal has been received. Under § 130(1) BGB, a dismissal is received when it enters the employee’s sphere of control in such a way that they can be expected to take notice of it. A letter put through the employee’s letterbox is treated as received on the same day if it is delivered at the usual time for post; someone who posts it in the evening must reckon with receipt only on the following day. If that causes you to miss the 15th or the end of the month, the end of the employment shifts by half a month or a full month. So: hand the letter over at the workplace against a written acknowledgment of receipt or, if the employee is not there, have it delivered by a messenger who notes the time and the letterbox. A registered letter with acknowledgment of receipt (Einschreiben mit Rückschein) is the worst option: if the employee does not collect it, nothing has been received.

And one more deadline works in your favour: the three-week time limit for bringing a claim under § 4 KSchG applies in a small business too, by virtue of § 23(1) sentences 2 and 3 KSchG. If the employee does not bring an unfair dismissal claim (Kündigungsschutzklage) within three weeks of receipt, the dismissal is deemed valid from the outset under § 7 KSchG, even if it could otherwise have been challenged.

How to proceed

Check the headcount. Count under § 23 KSchG, applying the part-time factors and leaving out apprentices. Check whether any staff joined before 2004.
Ask about special protection. Is there any known pregnancy, parental leave, care leave or severe disability? If so, go to the authority first, not straight to the dismissal.
Record the reason. Not in the letter, but in your own file: why this employee, and why now. That is your answer if good faith or the AGG comes into play.
Calculate the notice period. Based on the employment contract, any collective agreement and § 622 BGB. Plan around the date of receipt, not the date on the letter.
Draft the letter. Short, with no reasons given, with a clear termination date and the addition that, in the alternative, notice is given to the next possible date. Signed by hand, in the original.
Secure receipt. Hand it over with a witness present, or use a messenger with a written record. Keep a copy of the signed letter on file.
Wait three weeks. If no claim comes, the matter is closed. If one does, get in touch with me and send the statement of claim; the conciliation hearing (Güteverhandlung) usually follows within a few weeks.

An example

A trades business employs the owner, seven journeymen full-time, two office staff working 20 hours a week each, and one apprentice. The owner does not count, nor does the apprentice, and the office staff count as 0.5 each: a total of 8. The business is a small business. The owner wants to let go of a journeyman who has been there for four years, because orders are falling off. He chooses the youngest, who has no maintenance obligations, and he can justify this by reference to the structure of the business’s orders. The notice period is one month to the end of the month under § 622(2) no. 1 BGB. The letter is handed over at the workplace on 28 October, and the journeyman signs for receipt. The employment ends on 30 November. If the journeyman brings no claim by 18 November, the dismissal cannot be challenged. Had the owner instead dismissed the office worker who had told him of her pregnancy four weeks earlier, the dismissal would have been invalid under § 17 MuSchG — with no deadline for putting it right.

Common mistakes

Counting wrongly. Counting apprentices, counting part-time staff in full, or overlooking staff who joined before 2004. An employer who arrives at ten but is actually at eleven suddenly finds themselves dismissing within the scope of the Unfair Dismissal Act.
Dismissing by email or WhatsApp. The dismissal is void under § 623 BGB, the notice period does not run, and the wages keep running.
Writing the reason into the letter. In a small business you owe no reasons. Whatever you put in will later be read against you.
Being unable to prove receipt. Without a witness or a messenger, it comes down to one person’s word against another’s in court, and the termination date slips back.
Singling out the most vulnerable person for no reason. That is precisely the situation in which § 242 BGB bites. A comprehensible operational reason removes the objection.
Ignoring notice of a pregnancy after the dismissal. If the employee gets in touch within two weeks of receipt, the dismissal is invalid retroactively.

Frequently asked questions

Does a mini-job employee count?

Yes. For § 23 KSchG what matters is whether the person is an employee, not how much they earn. A marginally employed person working up to 20 hours a week counts as 0.5, and up to 30 hours a week as 0.75.

Do I have to give the employee a hearing before dismissing them?

No. The law does not require you to hear the employee. If there is a works council (Betriebsrat) in your business, you must consult it before every dismissal under § 102 BetrVG, otherwise the dismissal is invalid; but in businesses with fewer than five employees there is no works council.

Can I give summary dismissal in a small business?

Yes, on the same conditions as anywhere else: there must be good cause under § 626(1) BGB, and the dismissal must be given within two weeks of your learning of the facts (§ 626(2) BGB). It is usually safer to give ordinary notice in the alternative at the same time.

Do I have to pay a severance payment?

No. There is no statutory right to a severance payment in a small business, and the severance rule in § 1a KSchG also presupposes that the Unfair Dismissal Act applies. A severance payment is a matter for negotiation — for example, to avoid a claim.

What will an unfair dismissal claim cost me if I win it?

Before the labour court, at first instance each side bears its own lawyer’s costs, even the side that wins (§ 12a(1) ArbGG). The court fees are modest. That is why it is worth preparing the dismissal beforehand so that it never comes to a claim in the first place.

Your next step

In a small business it is not the reason that decides whether a dismissal is valid, but the care you take: counting correctly, checking for special protection, observing form and notice period, and securing receipt. Those are four points that can be sorted out in a single morning before the letter goes out. I will check the headcount for you, calculate the notice period, draft the dismissal and arrange for its receipt — anywhere in Germany, by video or by telephone. You can read how I represent businesses in employment law on my practice-area page. Tell me who you want to dismiss and how many people you employ; then I will tell you which notice period applies and what you need to watch out for.

This article provides general information and does not replace individual legal advice. Every case turns on its own facts.

This article provides general information and is no substitute for legal advice in an individual case. Last updated: 2026-10-22.

Christian Czirnich, Rechtsanwalt (attorney at law), Kirchseeon near Munich

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