Dismissal for Personal Reasons: Rights & Severance Pay

What is a dismissal for personal reasons?

A dismissal for personal reasons is an ordinary dismissal (ordentliche Kündigung) that your employer bases on grounds relating to you personally (§ 1 Abs. 2 KSchG). This covers cases where you can no longer provide the contractually owed work, or only to a limited extent, on a permanent basis: due to a long or frequent illness, because you lost your driving licence as a professional driver, because your work permit is expiring, or because your capacity to work has permanently declined significantly.

The decisive point: you are not accused of any misconduct. No fault is required, and it is not about punishing you either. Dismissal for personal reasons is one of three types of dismissal recognised by the Dismissal Protection Act (Kündigungsschutzgesetz): alongside it there is dismissal for conduct (an accusation of controllable misconduct) and dismissal for operational reasons (betriebsbedingte Kündigung), where the role ceases to exist for business reasons (more on this under dismissal for operational reasons and severance pay). Getting the classification right matters, because each type of dismissal has its own requirements, and employers often blur the categories, which makes the dismissal open to challenge.

The strict requirements covered on this page only apply, though, if the Dismissal Protection Act applies at all. That is the case if your employment has lasted longer than 6 months and the business generally employs more than 10 employees. In smaller businesses, your employer does not have to pass the test described below, but you are not entirely without protection there either. You can read what applies instead under dismissal protection in small businesses. Special rules also apply for special protection against dismissal, for example during pregnancy or parental leave.

The good news upfront: dismissals for personal reasons are among the most error-prone dismissals of all. Your employer must pass a four-stage test developed by Federal Labour Court case law, and in practice many dismissals fail at least one stage. That is exactly your opportunity: to keep your job, or to negotiate an ending on significantly better terms.

The four stages: when is a dismissal for personal reasons valid?

If the Dismissal Protection Act applies, a dismissal for personal reasons is only socially justified if it passes the four-stage test established in the Federal Labour Court’s settled case law. If your employer fails even one stage, the dismissal is generally invalid.

1) Negative prognosis

At the time of the dismissal, there must be a justified prognosis that you will continue to be unable, or only partly able, to provide the work owed. What counts is the outlook for the future: past absences or limitations alone are not enough, they are merely an indication. With illness, for example, this means that if recovery can be expected within a foreseeable time, the negative prognosis is missing and the dismissal becomes shaky. The burden of proof initially lies with your employer, who must base the prognosis on objective facts.

2) Significant impact on operational interests

The expected absences or limitations must have a significant impact on your employer’s operational or economic interests. Typical arguments include disruption to operations (such as constant reorganisation or strain on colleagues) or significant financial burdens (such as exceptionally high continued pay costs over several years). Here too, your employer must set this out concretely, blanket claims are not enough.

3) No milder alternative (proportionality)

Dismissal must be the last resort. If a reasonable alternative exists that would avoid the impact, your employer must use it. The main options are:

• a role suited to your condition, meaning a position that accommodates your health limitations,
• a transfer to another vacant position, if necessary under changed terms (known as a change notice, Änderungskündigung),
• reasonable retraining or further training that would allow you to continue working.

In practice, this stage is one of the strongest points of attack: many employers do not even examine alternatives, or cannot prove that none existed.

4) Balancing of interests

Finally, the court weighs up both sides’ interests in the individual case: how long you have worked there, your age, maintenance obligations, and the cause of the limitation (such as a workplace accident), against the weight of the operational burden. If you have worked for many years without complaint, you often have strong arguments here. Only if the balance favours your employer is the dismissal socially justified.

Regardless of the four stages: if a works council (Betriebsrat) exists, it must be consulted before any dismissal (§ 102 BetrVG). A dismissal without consultation is invalid, and errors in the consultation process can also overturn the dismissal.

Check your negotiating position: Use our severance calculator to see within 2 minutes what severance pay might realistically apply as a guide in your case.

Dismissal due to illness: the most important sub-type

In practice, dismissal due to illness is by far the most common type of dismissal for personal reasons. Contrary to a common misconception, your employer can dismiss you during incapacity to work, and even because of the illness itself, being signed off sick does not protect you from dismissal. The hurdles are especially high, though, and case law distinguishes several categories: frequent short-term illnesses, a long-lasting illness, permanent incapacity to work, and illness-related reduced performance. Each category has its own requirements for prognosis and impact. You can find all the details, categories, and defence strategies in our in-depth article on dismissal due to illness.

BEM: the stumbling block for employers

A central role is played by company reintegration management (betriebliches Eingliederungsmanagement, BEM) under § 167 Abs. 2 SGB IX: if you were unable to work for more than 6 weeks in total within 12 months, your employer must offer you a BEM process. This procedure jointly explores how to overcome your incapacity to work, prevent it recurring, and preserve your job.

Under case law, a missing BEM does not automatically invalidate the dismissal. But it significantly increases your employer’s burden of proof: they then must comprehensively show that even a BEM process would not have revealed a milder alternative (such as a role suited to your condition). That often fails in court. So check first: was a BEM properly offered and carried out for you? If not, this is often one of the strongest levers against the dismissal, and therefore also in negotiating severance pay.

Long-term sick and now dismissed: Calculate in 2 minutes what severance pay might realistically be a guide in your case.

Other typical cases of dismissal for personal reasons

Besides illness, there are other situations in which employers issue a dismissal for personal reasons. Here too, the four-stage test always applies, and here too many dismissals fail on proportionality:

• Loss of driving licence: for professional drivers, couriers, or field staff whose role requires driving, losing their licence can be a valid personal ground for dismissal. But your employer must check whether a bridging solution is possible, such as a temporary transfer to a different role, unpaid leave, or simply waiting it out if the suspension is short. What matters is the length of the suspension and the concrete employment options within the business.
• Lacking a work permit: if a residence permit including a work permit expires with no extension in sight, continued employment can become legally impossible. Again, the prognosis is decisive: if an extension is just a matter of time, dismissal is often disproportionate.
• A longer prison sentence: if an employee has to serve a multi-year custodial sentence, this can justify a dismissal for personal reasons, since they cannot permanently provide their work. With short sentences or open prison regimes, the balancing often turns out differently. The details depend heavily on the individual case.
• Permanently reduced performance: significantly and permanently below-average performance can be relevant for personal reasons if it is due to declining capability (not a lack of willingness, which would be a matter for dismissal for conduct). The evidentiary requirements are high: your employer must set out the underperformance concretely, a mere "too slow" is not enough.

What all these cases have in common: your employer bears the burden of setting out and proving the facts on which the dismissal is based. Wherever prognoses, reasonableness, or alternatives are in play, the outcome depends heavily on the individual case, and that very uncertainty is your capital in negotiations.

No warning notice required: the difference from dismissal for conduct

One point surprises many affected employees: before a dismissal for personal reasons, your employer generally does not have to issue a warning notice. This is the key difference from dismissal for conduct. A warning notice serves as a warning function, meant to prompt you to change controllable misconduct. With personal grounds, this warning falls flat, since illness, losing your driving licence, or an expiring work permit cannot be fixed through good intentions.

This means two things for you. First, you generally cannot claim a procedural defect from the lack of a warning notice in a dismissal for personal reasons. Second, and more importantly: check carefully what your employer is actually basing the dismissal on. If they are really accusing you of conduct (such as reporting sick late or lacking effort), the stricter rules for dismissal for conduct apply, and there a prior warning notice is generally required. This distinction is a common weak point: if your employer picks the wrong category or mixes up the grounds, the dismissal is often open to challenge.

Other protective mechanisms take the place of the warning notice in a dismissal for personal reasons: the negative prognosis, the search for a milder alternative, and, in cases of illness, the BEM process. So your employer does not have to warn you, but must examine and prove considerably more before being allowed to dismiss you.

The 3-week deadline to sue: your most important deadline

No matter how flawed the dismissal is: you can generally only challenge it within 3 weeks of receiving the written dismissal (§ 4 KSchG). Your unfair dismissal claim must reach the labour court within this period. If the deadline passes, the dismissal is generally deemed valid from the outset under § 7 KSchG, even if the negative prognosis was missing, the BEM was never carried out, or the works council was not consulted.

The deadline starts when you receive the dismissal, not the date on the letter. Our deadline calculator for unfair dismissal claims shows you exactly how many days you have left. And watch the second clock running in parallel: the notice period (Kündigungsfrist), until whose end your salary continues. Both deadlines depend on the same day of receipt, so note it down as precisely as possible.

Important to know: filing an unfair dismissal claim does not mean you want to return to the business at all costs. In practice, it is mainly the vehicle for negotiating the terms of ending the employment: severance pay, end date, reference, release from duties (Freistellung), and payment in lieu of holiday (Urlaubsabgeltung). Without filing the claim in time, you lose this lever entirely.

The clock is already running: Find out now in 2 minutes what severance pay might be on the table as a guide in your case.

Severance pay after dismissal for personal reasons: your chances

There is generally no automatic statutory entitlement to severance pay after dismissal for dismissals for personal reasons either. Even so, many proceedings end with severance pay, and the reason lies in how error-prone this type of dismissal is: negative prognosis, significant impact, milder alternative, BEM, works council consultation, the dismissal can fail at any of these points. If your employer loses the case, they must keep employing you and generally back-pay the wages lost in the meantime. Employers often buy off this risk through a settlement: the employment ends by mutual agreement, and severance pay is paid in return.

As a guide to the amount, the rule of thumb is: 0.5 gross monthly salaries per year of employment. This is not a statutory entitlement but a negotiating anchor, based partly on § 1a KSchG. The weaker the dismissal, the more is often achievable, the stronger it is, the more likely the result falls below this. You can read what specifically influences the amount under severance pay: amount.

Worked example: Sabine challenges her dismissal due to illness

Example: Sabine, 12 years with the company, €3,800 gross per month. After two longer illnesses, she receives a dismissal for personal reasons due to illness. She was never offered a BEM process, and her employer never checked for a role suited to her condition. Sabine files her unfair dismissal claim in time. At the preliminary hearing, it becomes clear that the dismissal is barely sustainable given the missing BEM and the unchecked alternatives. Result of the settlement: the employment ends at the expiry of the ordinary notice period (5 months to the end of the month, given 12 years of service), and severance pay is paid based on the rule of thumb.

These figures are an example, not a promise, but they show the mechanics: salary until the regular notice period ends, plus negotiated severance pay. You can see how the outcome changes with length of service under severance pay after 10 years, for example. And remember the tax side: the one-fifth rule (Fünftelregelung) may apply to severance payments, more on this under severance pay and tax.

A word on the termination agreement (Aufhebungsvertrag): some employers offer a mutually agreed ending directly instead of a dismissal. This can make sense, but carries pitfalls, especially regarding unemployment benefit. Do not sign anything before the terms and the social security consequences have been checked, more on this under termination agreement and severance pay.

How much could be possible in your case: Work it out in 2 minutes with our severance calculator.

Benefit suspension for unemployment benefit: usually none with dismissal for personal reasons

A common worry after a dismissal: will you receive unemployment benefit at all, or is a benefit suspension period at risk? With dismissal for personal reasons, the situation is comparatively favourable. A benefit suspension period for giving up employment requires, under § 159 Abs. 1 S. 2 Nr. 1 SGB III, among other things, that you ended the employment yourself or caused the dismissal through conduct that breached your contract. That is exactly what is missing with personal grounds: illness or declining capability is not a breach of contract. A dismissal for personal reasons therefore generally does not trigger a benefit suspension period.

Two caveats belong to an honest answer, though. First, the employment agency always examines the individual case: if an accusation of conduct actually lies behind the personal-reasons label (such as a self-caused loss of licence through drink-driving), the assessment can turn out differently. Second, a termination agreement has its own rules: ending your employment by mutual agreement without good cause risks a suspension period of generally 12 weeks. You can find all the details, exceptions, and options under benefit suspension for unemployment benefit.

Regardless of the suspension question: under § 38 SGB III, register as a jobseeker at least 3 months before your employment ends, or within 3 days of learning the end date if the notice is shorter. This applies even if you are challenging the dismissal in court. You can read how severance pay affects unemployment benefit under severance pay and unemployment benefit.

What you should do now

If you have received a dismissal for personal reasons, getting the order right matters. You can find the full step-by-step guide under received a dismissal: what to do? Here is the short version for your case:

1. Don’t sign anything. No termination agreement, no acknowledgement of receipt with added clauses, no waiver of the right to sue (Klageverzicht). Signatures made under pressure are hard to undo.
2. Note the date of receipt. The 3-week deadline to sue and the notice period both start running from when you receive the written dismissal. Keep the letter and envelope.
3. Gather documents. Your employment contract, payslips, and if illness is involved: evidence of absences and, above all, anything relating to the BEM process (was it offered, when, with what outcome?). Also note whether there are vacant positions or alternatives in the business that your employer should have checked.
4. Register as a jobseeker. Within the deadlines of § 38 SGB III, so you don’t lose out on unemployment benefit.
5. Have the dismissal checked. Whether the prognosis, proportionality, BEM, and works council consultation hold up can usually be assessed quickly. This shapes your strategy: keeping your job, or negotiating an ending on good terms.
6. Keep the 3-week deadline. The unfair dismissal claim must reach the labour court within 3 weeks of receipt. No claim means no leverage in negotiations.

How can we help you?

Have you received a dismissal for personal reasons and want to know whether it holds up, and what severance pay might realistically be achievable? That is exactly what we are here for: we review your case together with lawyers specialising in employment law, from the prognosis through the BEM process to the works council consultation, and negotiate the best possible outcome for you.

We carry the risk: purely success-based, at no upfront cost. Start with an initial assessment using our severance calculator, it only takes 2 minutes.