German Employment Law vs. US At-Will | What Mittelstand Companies Must Unlearn

You have built your company on principles that work. Long employee tenure. Careful hiring. Process discipline. A Betriebsrat that keeps management honest and protects the business from short-term thinking. A 30-year culture where people stay, develop, and contribute.

Then you decide to hire your first American employee. And almost everything you know about being an employer stops applying.

This is not a translation problem. It is a system problem. German employment law and US at-will employment are built on opposing philosophies. One protects the employee through legal structure. The other protects flexibility through legal default. If you try to run your US operation with a German playbook, you will create risk where none needs to exist, and you will miss the operational advantages that brought you to America in the first place.

This guide is for German Mittelstand owners and executives planning their US expansion. It covers what the two systems actually require, where they collide, and the five assumptions you need to unlearn before your first American hire signs an offer letter.

The fundamental mindset shift

In Germany, the law assumes the employment relationship continues unless the employer can prove a valid reason to end it. In the US, the law assumes either party can end the relationship at any time, for almost any reason, with no notice required.

That single difference cascades into every other part of how you hire, manage, document, and exit American employees. It is not a small adjustment. It is a different operating system.

For Mittelstand companies, the instinct is to import German rigor as a safeguard. That instinct is correct in spirit, but wrong in execution. American employment law rewards specificity in the right places (offer letters, policies, documentation) and punishes specificity in the wrong places (promises of job security, fixed-term commitments, tenure-based protections).

You can read our full guide to expanding from Germany to the USA for the wider picture. This blog focuses specifically on the employment law collision.

“What I hear most often from German Mittelstand owners I meet here in Germany is that they want to do right by their future US team, and they assume that means importing the systems they trust at home,” says Jack Pieters, Senior US Expansion Advisor at Foothold America, based in Germany. “The honest conversation we have is that the US system rewards a different set of signals: clarity, speed, and consistent documentation. When Mittelstand companies make that shift, they keep their values intact and gain the flexibility the US market actually rewards.“

German employment law in 90 seconds

You already know this. But the contrast matters, so here is the structure as a US lawyer would describe it to an American executive.

The German Civil Code (BGB) and the Protection Against Dismissal Act (Kündigungsschutzgesetz, KSchG) form the backbone of the system. Once an employee has completed six months of service in a company with more than 10 employees, dismissal protection applies. Termination then requires one of three legally defined grounds: personal, conduct-related, or operational reasons.

Statutory notice periods under §622 BGB scale with tenure. Four weeks for new employees, rising to seven months for those with 20 or more years of service. The Works Constitution Act (Betriebsverfassungsgesetz) gives works councils consultation and co-determination rights over major personnel decisions. Severance is not statutorily guaranteed, but the customary calculation of half a month’s salary per year of service is widely applied through Section 1a KSchG and severance negotiations.

The result is a system that protects employment as a long-term relationship. Hiring is a serious commitment. Termination is a documented, justified, often negotiated process.

US at-will employment in 90 seconds

At-will employment is the default in 49 of the 50 US states. Only Montana operates under a different rule, requiring cause for termination after the probationary period (typically six months under the Wrongful Discharge from Employment Act).

Under at-will, either the employer or the employee can end the employment relationship at any time, for any lawful reason, or for no reason at all, with no notice required. There is no statutory severance. There is no general right to a written warning. There is no equivalent of the KSchG.

What at-will does not mean is “fire anyone for anything.” Federal anti-discrimination law applies. So do whistleblower protections, retaliation rules, and a growing list of state and city protections. We cover the limits in detail in our at-will employment guide for international employers.

The mindset gap is what catches Mittelstand executives off guard. American employees do not expect job security in the German sense. They expect performance accountability, market-rate compensation, and the freedom to leave. That trade-off is built into the culture.

The two systems side by side

The differences are not just legal. They are operational. The German system asks employers to plan termination over months. The US system asks employers to plan documentation over the entire employment relationship, so that any termination is defensible from day one.

The five things German Mittelstand companies must unlearn

1. Unlearn: long notice periods are how you protect the business

In Germany, the long notice period is part of the social contract. It gives both sides time to plan, transition, and protect operations. Many Mittelstand owners assume that importing this principle into US contracts is a sign of seriousness and quality.

It is not. In the US, building 30, 60, or 90-day notice obligations into your employment agreements creates contractual exposure that overrides at-will protection. If your employment agreement says you will give 60 days’ notice, and you terminate immediately, you have just created a breach of contract claim against yourself.

What to do instead. Keep your offer letters explicitly at-will. Use clear language that no representation of continued employment is made. If you want flexibility for senior hires, use a separation agreement or notice provision only where strategically necessary, and have it drafted by US counsel.

2. Unlearn: you need a documented “reason” to terminate

In Germany, you cannot terminate a protected employee without one of three legally defined grounds. Mittelstand executives often assume the same applies in the US, only with looser standards. They build elaborate performance improvement plans, formal warnings, and documentation chains because they believe they need to “build a case.”

In the US, you can terminate at-will employment without a stated reason. The exception is when the termination would violate an anti-discrimination, retaliation, or whistleblower protection. The legal risk in the US is rarely that you terminated. It is who you terminated and what was happening at the time.

What to do instead. Do not over-explain terminations. Brief, professional separation language is safer than a detailed justification that an employee’s lawyer can later attack. Document performance issues consistently across all employees, not just the one you want to exit. The EEOC treats inconsistent treatment as a key indicator of discrimination.

3. Unlearn: works council and consultation rights

Germany’s Betriebsrat is one of the most distinctive features of the Mittelstand. Co-determination rights, consultation requirements, and the deeply integrated role of employee representatives are not just legal obligations. They are part of the company’s culture.

There is no US equivalent. American employees can unionize under the National Labor Relations Act, but private sector union membership sat at 5.9 percent in 2025 per the US Bureau of Labor Statistics. Most US employees have no collective representation at all, and US law does not require employers to consult employees on operational changes, layoffs (outside the WARN Act for large layoffs), or restructuring.

What to do instead. Build internal communication channels that match American expectations: regular all-hands, manager one-to-ones, transparent compensation philosophy, and clear escalation paths. American employees expect direct access to leadership, not representation through a council. Importing a Betriebsrat structure to your US operation is neither required nor effective.

4. Unlearn: severance is automatic or expected

In Germany, severance is not statutorily guaranteed, but the customary 0.5 months per year of service is so widely applied that most German employers treat it as a baseline. Mittelstand executives often assume the same expectation exists in the US.

It does not. There is no federal statutory severance in the US. Severance is negotiated, usually in exchange for a signed release of claims. Most US employees do not receive severance unless their company has a published policy or unless severance is offered as part of a separation agreement.

What to do instead. Develop a clear severance philosophy before you hire. Decide in advance what you offer at what tenure, and tie severance payments to a release of claims. The release is the actual point of severance in the US. It is risk insurance, not a parting gift. We cover this in our legal termination guide.

5. Unlearn: the contract is the source of truth

In Germany, the written employment contract carries enormous weight. Specific duties, working hours, salary, holiday entitlement, notice periods, non-competes, and bonus arrangements are all spelled out and legally binding.

In the US, the offer letter is intentionally lighter. The reason is at-will protection. The more your offer letter looks like a contract with promises of continued employment or fixed terms, the more legal exposure you create. The strongest US offer letters are short, clear, explicitly at-will, and silent on tenure.

What to do instead. Use a US-compliant offer letter template, not a translated German Arbeitsvertrag. Document policies separately in an employee handbook with at-will disclaimers. The handbook is where detail lives. The offer letter is where the relationship is defined, briefly.

A practitioner view from inside the work

“German Mittelstand clients arrive with assumptions about how termination, notice, and severance work in the US, and almost all of those assumptions create risk if applied directly,” explains Angelique Soulet-Bangurah, PHR, Head of EOR Services and Talent Acquisition Lead at Foothold America. “The biggest single mistake we see is German parent companies importing their Arbeitsvertrag structure into US offer letters. It feels safe, but it actually undermines the at-will protection the US system is built around. We rebuild that documentation from the ground up so the company keeps its German values without inheriting US legal exposure.”

That rebuild is where most Mittelstand companies need outside expertise. The instinct to be careful is right. The application is what changes.

Where at-will employment has real limits

This is the part many German executives miss. At-will is the default, but it sits inside a substantial body of federal and state law that protects employees in specific ways. Underestimating these protections is just as dangerous as overestimating at-will flexibility.

Federal protections include Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, and the Family and Medical Leave Act. These are enforced primarily through the EEOC and the US Department of Labor. State laws layer additional protections on top, sometimes far stronger than federal baselines, particularly in California, New York, Illinois, Washington, and Massachusetts.

The practical effect is that you cannot terminate an employee for reasons that touch a protected category, even if you do not state the reason. The pattern of evidence around the termination matters more than the words you use. This is why documentation, consistent policy application, and proper exit procedures are non-negotiable in US operations.

Why this is actually good news for Mittelstand companies

If you are a German owner reading this and feeling that the US system sounds risky and unstructured, I want to reframe it. At-will employment is one of the reasons US expansion is faster, cheaper, and more flexible than expansion within the EU.

You can hire your first US employee in days, not months. You can scale up for a contract win and scale down if a project ends. You can correct hiring mistakes early without 18 months of legal process. You can experiment with new product lines, new states, and new go-to-market models without the contractual lock-in that European employment systems impose.

For Mittelstand companies whose competitive advantage is operational discipline and quality, at-will is an enabler, not a threat. It lets you build a US operation that matches your global standards while maintaining the agility the American market rewards. We see this consistently across our German client base. The companies that adapt fastest to the US system grow fastest.

You can compare the operating models we use to support this in our guides on EOR vs PEO vs GEO and understanding PEO+ for international companies.

How Foothold America supports German companies entering the US

We have spent over a decade helping international companies, including a substantial Mittelstand client base, set up and run their US operations. The employment piece is where most of the daily complexity sits, which is why our service model is built around it.

For companies hiring before they have a US entity, our Employer of Record (EOR) service makes Foothold America the legal employer of your US team. We handle compliant offer letters, payroll, benefits, tax, and termination process. You direct the work, we carry the employment compliance.

For companies that already have a US entity, our PEO+ Cross-Border Support service provides full HR, payroll, benefits, and compliance on top of your US legal structure, designed specifically for international employers.

We also handle US entity setup, virtual office solutions, and Exclusive Talent Acquisition for German companies hiring their first or next American employee. The full picture is covered in our US market entry strategies guide.

If you are a German owner or executive at the planning stage of a US expansion, the most valuable conversation we can have is the one before you sign your first US offer letter. That is where the cost of unlearning is lowest.

Important note

This blog provides general information on US employment law for German companies expanding to the United States. It is not legal advice. US employment law varies by federal, state, and local jurisdiction, and individual situations require qualified US employment counsel. Foothold America works with international companies on the practical implementation of compliant US employment relationships. For specific legal questions, please consult a licensed US employment attorney.

Want to talk it through? Book a call with Jack Pieters, our Senior US Expansion Advisor based in Germany. Or, if you fancy doing it over coffee, he is always up for that too. Jack speaks fluent German and Dutch, and is happy to meet you in person if you are nearby.