Severance Pay under a Social Plan: How Much Are You Entitled To?

What Is a Social Plan?

When a company restructures, closes a plant, or cuts jobs on a large scale, German works constitution law calls this a business change (Betriebsänderung). There’s a dedicated instrument for dealing with its consequences: the social plan (Sozialplan).

A social plan is a works agreement between the employer and works council, setting out the compensation or mitigation of the economic disadvantages employees suffer because of the business change (§ 112 BetrVG). The basis is § 111 BetrVG: in companies with generally more than 20 employees eligible to vote, the employer must inform the works council about planned business changes with significant disadvantages and consult with it. Business changes include, among other things, restricting or shutting down the business or major parts of it, relocation, mergers, and fundamental changes to the organisation.

Important: A social plan requires a works council to be in place. Companies without one have no social plan, so individual routes remain, such as an unfair dismissal claim.

Reconciliation of Interests vs. Social Plan

In a business change, the employer and works council negotiate two things that shouldn’t be confused:

• Reconciliation of interests (Interessenausgleich): It covers the whether, when, and how of the business change. It cannot be forced through: the employer must attempt to reach agreement with the works council (via the conciliation committee if necessary), but can’t be forced to agree to any particular content.
• Social plan: It covers the financial compensation for the disadvantages. Unlike the reconciliation of interests, it can be enforced via the conciliation committee (§ 112 (4) BetrVG). If no agreement is reached, the conciliation committee sets the social plan bindingly.

As an employee, this distinction matters: the social plan is the instrument your severance payment comes from.

How Is Severance under a Social Plan Calculated?

There is no statutory formula. The employer and works council (or the conciliation committee) set one out in the social plan. In practice, two models are common:

• Factor model: gross monthly salary × years of service × factor (often between 0.25 and 1.5). Example: €4,000 × 10 years × 0.75 = €30,000.
• Divisor/points model: (age × years of service × gross monthly salary) divided by a fixed divisor. This model weights age more heavily.

Extra amounts are often added, for example for maintenance obligations (children), severe disability, or older age. At the same time, many social plans include maximum amounts (caps) and minimum base amounts. The conciliation committee must weigh both the employees’ disadvantages and the economic viability for the company (§ 112 (5) BetrVG). How much your severance amounts to therefore depends on your specific social plan, so it’s worth having the exact figures checked.

How Much Are You Entitled To?

Unlike the typical severance pay after dismissal, where there’s usually no statutory right to a payment, the situation is better under a social plan: a social plan is a works agreement and therefore has direct, binding effect. If your company has a social plan and you fall within its scope, you have a direct, enforceable claim to the severance it sets out.

But to be precise: the question “how much are you entitled to” isn’t answered by a law with a fixed sum, but by the formula in your specific social plan. There’s no general, universally applicable right to a set amount: your claim is exactly as high as your company’s social plan provides. So the first step is always to get hold of the social plan and plug in your own figures.

Social Plan, Unfair Dismissal Claims, and Your Own Negotiation

A common misconception: “I have a social plan, so I’m not allowed to sue.” The opposite is true. Severance under a social plan generally exists regardless of whether you file an unfair dismissal claim: it’s an enforced minimum benefit and doesn’t lapse just because you push back.

An unfair dismissal claim can often secure something extra in a court settlement, especially if the dismissal is challengeable (flawed social selection, formal errors, works council consultation). But keep two things in mind:

• The 3-week deadline for an unfair dismissal claim (§ 4 KSchG) runs independently of the social plan: if you miss it, the dismissal is deemed effective.
• Voluntary extra benefits beyond the social plan (such as “sprinter” or “turbo” premiums for leaving quickly) are often made conditional by the employer on waiving your right to sue. Whether that’s worthwhile is a calculation to make case by case.

Disadvantage Compensation under § 113 BetrVG

There’s a second, often overlooked lever: disadvantage compensation under § 113 BetrVG. It applies when the employer carries out the business change

• without even attempting a reconciliation of interests with the works council, or
• by departing from an agreed reconciliation of interests without compelling reason.

In that case, the employees dismissed as a result can claim severance as disadvantage compensation. Its scope follows § 10 KSchG: up to 12 months’ pay, or up to 15 or 18 months’ pay for older employees with long service. The claim is pursued before the labour court.

Disadvantage compensation can exist alongside social plan benefits, though some arrangements provide for an offset. Because it’s closely tied to the dismissal itself, you should act within the 3-week deadline for an unfair dismissal claim as a precaution and have your case reviewed.

Team Abfindung is a litigation funder working with lawyers specialising in employment law. We assess what you’re entitled to from your social plan, a claim, and disadvantage compensation, fund your case, and carry the risk, purely success-based, with no upfront cost.