The rapid development of Artificial Intelligence (AI) is fundamentally transforming the economy and the world of work. Automated processes, self-learning systems and data-driven decisions are leading to significant efficiency gains. At the same time, many employees are increasingly concerned: Is AI threatening job losses? And under what conditions are dismissals due to the use of AI legally permissible at all?

This article highlights the legal framework under employment law and explains what rights employees have when their job is “digitised”.

AI as grounds for dismissal?

In principle, companies are free to organise their operations as they see fit. This entrepreneurial right to organise is protected by Article 12 and Article 14 of the German Basic Law (GG). If a company introduces new AI systems that fully take over certain tasks, this may result in jobs being eliminated.

This becomes legally relevant in the context of an operationally justified dismissal under Section 1(2) of the Dismissal Protection Act (KSchG). A dismissal is socially justified if there are urgent operational requirements that prevent the employee from continuing to be employed. Such an operational reason may also be the introduction of new technologies if this permanently eliminates the need for employment.

The Federal Labour Court (BAG) has repeatedly clarified that entrepreneurial decisions—such as rationalisation measures—are subject to only limited judicial review (see BAG, judgment of 17 June 1999 – 2 AZR 141/99). However, the decisive factor is whether the job is in fact permanently eliminated and no alternative employment option exists.

Requirements for a valid AI-related dismissal

A dismissal “because of AI” is therefore not automatically valid. Employers must meet strict requirements:

• Urgent operational requirement
  The introduction of AI must lead to a specific and permanent elimination of the job. Pure cost savings are not sufficient if the work still needs to be done.

• No possibility of continued employment
  Before giving notice of dismissal, it must be examined whether continued employment in another vacant position is possible (Section 1(2) sentence 2 KSchG). This also includes reasonable retraining or further training.

• Social selection
  If several comparable employees are affected, a proper social selection must be carried out in accordance with Section 1(3) KSchG. The criteria are length of service, age, maintenance obligations and severe disability.

• Involvement of the works council
  If a works council exists, it must be consulted as a mandatory requirement under Section 102 of the Works Constitution Act (BetrVG). In the case of major restructuring, there may also be an operational change under Section 111 BetrVG, which requires a reconciliation of interests and a social plan.

Especially in connection with the introduction of AI, it is often overlooked that co-determination rights under Section 87(1) no. 6 BetrVG may also apply if technical devices are used to monitor performance or behaviour.

AI as a tool for personnel selection or dismissal decisions

In addition to job cuts through automation, another aspect is gaining importance: the use of AI systems to assess employee performance or to prepare dismissal decisions.

In this context, data protection requirements under the General Data Protection Regulation (GDPR) apply, in particular Article 22 GDPR. Under this provision, decisions based solely on automated processing that produce legal effects generally may not be made without human intervention.

A dismissal based solely on an algorithmic assessment is therefore likely to be highly vulnerable to legal challenge. In addition, transparency and information obligations towards employees must be observed (Articles 13 and 14 GDPR).

Opportunities and risks for employees

Technological progress cannot be stopped. However, studies by the Institute for Employment Research (IAB) show that digitalisation does not necessarily lead to massive job losses, but often changes job profiles (see IAB Short Report 13/2023).

For employees, this means: Not every introduction of AI justifies a dismissal. There are often options for qualification or reassignment. In addition, in establishments with more than ten employees, dismissals are generally subject to protection against dismissal under the KSchG.

It is important to act immediately after receiving a notice of dismissal. Under Section 4 KSchG, the deadline for filing a claim is only three weeks from receipt of the notice of dismissal. If this deadline is missed, the dismissal is deemed effective (Section 7 KSchG).

Conclusion

Dismissals due to AI are legally possible, but are subject to strict requirements. Employers cannot simply invoke “digitalisation” in general terms. A specific, permanent elimination of the job is required, along with a proper social selection and an examination of alternative employment options. In addition, co-determination and data protection issues are playing an increasingly important role.

Affected employees often have good prospects of having the validity of such a dismissal reviewed by a court. Given the short deadline for filing a claim, swift action is crucial.

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