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Admissibility of termination for operational reasons if work is outsourced

The Federal Labor Court has confirmed that the entrepreneurial freedom protected by Articles 12, 14 and 2 (1) of the German Constitution (Grundgesetz, "GG") also includes the right to determine whether certain work should continue to be carried out within the company itself or be outsourced to third-party companies - this also applies to the transfer of tasks between group companies.


The parties dispute the validity of an ordinary termination for operational reasons.

The plaintiff employee had been working for the defendant since 2018, most recently in sales as so-called Vice President & Country Manager Germany. The defendant is the German subsidiary of the London-based parent company M Inc. which offers industry solutions in the field of AI technology. In addition to the plaintiff, the defendant employed six other sales directors in the sales department. The Plaintiff was the link between the responsible sales manager, the Area Vice President, and at least five of the six Sales Directors. The Area Vice President was most recently Ms. M, who is employed by M Ltd. and performs her duties from Austria.

M Inc. uses a matrix organization, the departments are managed by the so-called matrix managers outside Germany. The managing director of the defendant decided on May 11, 2020 that in the future all sales directors of the defendant should report directly to the area Vice President, which is why the position of the Country Manager Germany would be eliminated with effect from July 1, 2020, the duties of which would now be performed by M Ltd. and there essentially by Ms. M.

The plaintiff filed an action against the termination of employment by the defendant for operational reasons in a letter dated May 11, 2020, effective June 30, 2020. He claims that the termination is socially unjustified, that there is no operational reason, and that the decision of the defendant to terminate his contract was solely aimed at the termination of his contractual relationship. There were no factual reasons for the alleged relocation to M Ltd., the need for employment had not ceased, only the employer was changed.

The Labor Court and the Munich Regional Labor Court dismissed the action.

Reasons for decision

The plaintiff's appeal was not successful. The Federal Labor Court confirmed its previous case law on the outsourcing of work.

In principle, an employer is not obliged to continue to fill or employ jobs and workers that are no longer required. It is part of the entrepreneurial freedom protected by Articles 12, 14 and 2 (1) of the German Basic Law to determine by means of an entrepreneurial decision whether certain work should continue to be carried out within the company itself or should be outsourced to third-party companies, whereby this also applies to the transfer of tasks between group companies. In principle, it does not matter whether costs can be saved as a result. An employer is not prevented, up to the limit of arbitrariness, from also making organizational decisions that are not economically absolutely necessary. However, an employer's decision is not binding without restriction for proceedings for protection against dismissal: such a decision may not merely be used as a pretext to force employees out of the company, even though the need for employment and the possibility of employment continue to exist and only the contents of the employment contract and the statutory provisions for protection against dismissal are considered to be too onerous. There is also always an examination, referred to by the BAG as an "abuse control", as to whether the employer's decision is obviously unobjective, unreasonable or arbitrary. If an employee wishes to invoke arbitrariness in the proceedings, he or she must present and, if necessary, prove the circumstances from which it is supposed to follow that the decided organizational measure is obviously unobjective, unreasonable or arbitrary. Only then must the labor courts assess on the basis of an overall view whether the limit of protected entrepreneurial freedom has been exceeded. The employee had not presented any facts in this regard in the dispute.

Notes for practice

The decision summarizes the previous case law of the Federal Labor Court and confirms that an employer may make entrepreneurial organizational decisions on the basis of which a job can be eliminated and a termination for operational reasons can be pronounced.

An employer is well advised to carefully prepare the entrepreneurial decision before issuing the notice of termination and, if possible, to put it in writing for proof. He should carefully consider the effects of the change on existing jobs. In the event of a dispute before the labor court, the employer must also be able to demonstrate that the implementation of the employer's decision will result in the loss of (all) of the employee's activities and that the employee cannot continue to be employed, not even under changed conditions, otherwise a dismissal with notice of termination would have to be pronounced as a mitigating measure. This requires precise knowledge of what all the employees concerned do.

The examination of the effectiveness of a termination is not concluded with the decision made by the employer. In the case of a termination for operational reasons, the employer must also regularly carry out a social selection and further examine whether there are other employment opportunities in the company. In the dispute that was decided, the employee did not submit any arguments in this regard, so that such points did not have to be examined.

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