When the machine takes over the job: Is AI a valid reason for dismissal?

Corporate restructuring through artificial intelligence and its limits under labor law

Artificial intelligence is fundamentally changing work processes. Tasks previously performed by employees can increasingly be automated or fully digitized. This inevitably raises the question for employers of whether the use of AI can justify dismissals. The short answer is: Yes, in principle, it is possible. The long answer is: only under clear legal conditions and with significant legal requirements for justification.

Legal starting point in dismissal protection law

Within the scope of the German Protection Against Unfair Dismissal Act (KSchG), a dismissal is only valid if it is socially justified. Section 1, paragraph 2, sentence 1 of the KSchG is decisive. According to this provision, social justification exists if urgent operational requirements preclude the continued employment of the employee.

Such a business reason can also exist if the employer restructures its organization and has certain tasks performed by AI systems in the future. The use of new technologies generally falls under entrepreneurial freedom of decision. Labor courts do not examine whether this decision is economically sensible or technically optimal. Even misjudgments must be accepted as long as the decision is not obviously unreasonable, irrational, or arbitrary.

Employer's burden of proof

However, the crucial factor is not the abstract decision to adopt AI, but its concrete implementation. The employer must provide a comprehensible explanation of which tasks will be eliminated in the future and why the specific job in question will become permanently redundant. General references to digitalization, automation, or efficiency improvements are insufficient for this purpose.

What is needed, rather, is a concrete demonstration of how the use of AI affects work organization. Only if it is established that the need for employment has actually ceased and no other employment opportunity exists can a dismissal for operational reasons be legally valid.

AI rarely replaces entire jobs.

In practice, the use of AI leads to changes in job profiles far more often than to the complete elimination of jobs. This is precisely where a key legal issue lies. If only the content of the work changes, the question arises whether it is reasonable to expect the employer to provide further training or retraining for the employee.

Whether something is reasonable is always a case-by-case question. Key factors include qualifications, the duration of the retraining, costs, and prospects of success. It is generally unreasonable to expect an employee to undertake a completely new academic education to avoid dismissal. However, it can easily be considered reasonable to provide employees with further training in the use of AI-supported systems if they can continue to perform value-adding monitoring or evaluation tasks.

Only if continued employment is not possible even after retraining and the overall need for personnel decreases, can a dismissal for operational reasons be considered. In this case, social criteria for selection and the lack of vacant positions must also be taken into account.

Judicial review of corporate AI decisions

Labor courts have only limited powers to review business decisions. They do not replace the employer's decision with their own assessment. Nevertheless, dismissals are subject to a substantive plausibility review.

Problems can arise when dismissals are based on AI systems whose operation is opaque or prone to error. If the employer cannot explain how the AI arrived at its decision-making basis, or if personnel decisions are based on unreliable systems, this can call into question the social justification of the dismissal.

Role of the European AI Regulation

The European AI Regulation (Regulation (EU) 2024/1689) has been in effect since August 2024. While it does not directly regulate the right to terminate contracts, it sets binding requirements for the use of AI systems. Operators are obligated to use AI transparently, comprehensibly, and in compliance with regulations.

If an employer bases a dismissal for operational reasons on an AI system that violates these regulations, this can have indirect consequences under labor law. A dismissal based on unlawful or improperly documented use of AI is contestable. Employers should therefore carefully document the systems they use, their functions, and their integration into decision-making processes.

Conclusion: AI can justify dismissals, but not across the board.

The use of artificial intelligence can constitute grounds for dismissal due to operational requirements. However, it does not exempt employers from the strict requirements of dismissal protection law. The decisive factor is not the technology itself, but its specific impact on the workplace.

Employers must be able to demonstrate that jobs are indeed permanently eliminated, that continued employment or retraining is unreasonable, and that all other requirements for a dismissal due to operational reasons have been met. Employees should have dismissals justified by AI carefully reviewed, as not every automation justifies job loss.