Employment Law for SMEs: The 7 Most Common Mistakes Regarding Termination, Sick Leave, and Vacation

In short: The most costly mistakes in German labor law don’t stem from malice, but from a lack of knowledge. Failing to meet deadlines for terminations, improperly maintained medical records, and overlooked vacation entitlements can have serious consequences for small and medium-sized businesses—both in terms of labor law and financially. Here are the seven mistakes we see most often.

Error 1: Termination without the proper written form

In Germany, notices of termination must be given in writing—signed by hand and in the original. A notice of termination sent by email, WhatsApp, or given verbally is invalid, even if the employee expressly agrees to it. Anyone who makes this mistake risks having the termination overturned by the labor court.

Mistake 2: The Unfair Dismissal Protection Act Is Underestimated

The Unfair Dismissal Protection Act applies to companies with ten or more employees (full-time equivalents). A termination must be socially justified—that is, based on business reasons, personal reasons, or conduct—and must be properly documented. Anyone who fails to comply with this requirement will, in case of doubt, lose the lawsuit and be required to pay severance.

Mistake 3: Failure to Issue a Written Warning Before Termination for Cause

In cases of termination for cause, a prior written warning is generally required. Without it, the termination is vulnerable to legal challenge—even if the misconduct is clear-cut. Written warnings must be in writing, specify the specific conduct, and outline the consequences.

Mistake 4: Incorrect Handling of Sick Leave Notifications and Continued Pay

Employees who are sick are entitled to six weeks of continued pay per instance of illness. What many people overlook is that multiple short-term illnesses count as separate instances of illness if there was a six-month break between them. In addition, under the terms of the employment contract, the medical certificate may be dated back to the first day of illness.

Mistake 5: Forgetting to Pay Vacation Compensation Upon Termination

Any remaining vacation time that could not be taken by the termination date must be compensated—in cash. This also applies if the employee resigned voluntarily. Anyone who overlooks this risks facing retroactive claims.

Mistake 6: Pregnancy is not taken into account

Terminations of employment for pregnant employees or during parental leave are generally prohibited, except in very narrowly defined exceptions. Anyone who is unaware of this and terminates an employee’s employment can expect a lengthy legal process—and will, in most cases, lose the case.

Mistake 7: Exceeding the limits for mini-jobs without making adjustments

The mini-job limit has been raised to 556 euros per month. Anyone who employs a mini-jobber beyond this limit without changing their status risks facing back payments to social security. This happens surprisingly often when the number of hours or the hourly wage is adjusted without considering the big picture.