Legal expenses insurance in the event of dismissal and a formal warning: How to protect your rights
07.10.2025
7
Minutes
Katrin Straub
Managing Director at nextsure
A written warning or dismissal can quickly threaten your livelihood. Your legal expenses insurance is a strong partner, but there are important rules to observe. Find out how to enforce your claim without putting your own insurance cover at risk.
The topic in brief and concise terms
Insurers can terminate legal expenses insurance after two claims within twelve months, making it harder to take out a new policy.
A typical waiting period of three months after the contract is signed applies to employment legal protection before benefits can be claimed.
In the first instance before labour courts, each party bears its own legal costs, regardless of the outcome of the proceedings.
The formal warning as the first warning shot: when insurance applies
An unjustified written warning can be the first step towards dismissal and should therefore not be ignored. The good news is that an employment legal expenses insurance policy usually covers the costs of legal review and any potential claim. The amount in dispute for a claim against a written warning usually corresponds to one gross monthly salary. With a salary of €3,000, an initial consultation with a lawyer alone can cost around €250. Without insurance cover, many employees delay this important first step for cost reasons. Your insurer's confirmation of cover gives you the reassurance to act immediately. This means the written warning is not only a problem, but also the first test case for your insurance cover.
Unfair dismissal claim: your right, but with financial risk
If you receive a dismissal notice, you only have three weeks to file an unfair dismissal claim. The costs involved are significant, and one peculiarity of German employment law hits employees hard. In the first instance before the labour court, each party bears its own legal costs, regardless of the outcome of the proceedings. A case spanning two instances can quickly cost €5,000 or more. Employment legal expenses insurance protects you from this financial risk. It covers the costs of your solicitor, the court and any expert witnesses up to the agreed level of cover. This means you can fight for your rights on an equal footing. Knowing about this protection is often crucial to the decision whether to take legal action against a dismissal at all.
Termination by the insurer: When the shield starts to crack
Insurance is not a one-way street; the provider can also terminate a contract. Legal expenses insurance may give you extraordinary notice of termination if it has settled two or more claims within twelve months. This termination must be issued no later than one month after the second claim settlement. Such a termination by the insurer has far-reaching consequences. When looking for a new provider, you must state who terminated the previous policy, which often leads to rejection. Practical tip: if a termination by the insurer is on the horizon, speak to your broker. Sometimes it is strategically wiser to terminate the contract yourself so as to get in ahead of a termination by the provider. Another option is a comprehensive consultation to potentially agree a higher excess.
The three-month hurdle: understanding waiting periods in employment legal protection
A common misconception is that legal expenses insurance takes effect immediately upon purchase. However, in employment legal protection, there is almost always a waiting period of three months. This means that the insured event – for example, receipt of the dismissal notice – must occur after this three-month period has expired. This rule protects the community of policyholders from people who only take out a policy when a dispute is already foreseeable. Taking out cover at the last minute is therefore not possible. Plan ahead so that you are covered in the event of a claim. For some other areas of law covered under liability and legal expenses insurance, the waiting period may be waived. The exact time limits are always set out in your policy conditions.
Expert tips for making the best use of your insurance cover
To get the most out of your policy, you should keep a few points in mind. Always report a potential insured event without delay and obtain cover confirmation before instructing a lawyer. This creates clarity from the outset about who will cover the costs. A reputable lawyer will also always assess the prospects of success, because the insurer may refuse to provide cover if a course of action appears vexatious or without any prospect of success. Many policies, such as a family legal expenses insurance policy, also offer an initial telephone consultation. This can often provide the first important recommendations on what to do. Note which benefits are typically included:
Costs for lawyers and courts
Witness fees and expert fees
The other side’s costs (if recoverable)
Mediation for an out-of-court settlement
These points form the foundation for effective legal action.
Cost risk without insurance: An example calculation
The figures illustrate the value of legal expenses insurance. Suppose a good policy costs you 25 euros per month, or 300 euros a year. You receive an unjustified dismissal and take the matter to court. With a gross salary of 3,500 euros, the amount in dispute for a claim for protection against dismissal is 10,500 euros (three monthly salaries). The lawyer’s fees for the first instance quickly amount to more than 2,000 euros, which you would have to bear yourself even if you win without insurance. Your investment of 300 euros therefore offsets a cost risk of more than 2,000 euros. Over a period of five years, you pay 1,500 euros in premiums, which is still clearly less than the cost of a single legal dispute. A forward-looking cover is therefore an economically sensible decision. Request an individual risk analysis now: Have your insurance situation reviewed free of charge and receive specific optimisation suggestions.
More useful links
The Federal Ministry of Labour and Social Affairs provides comprehensive information on protection against dismissal.
gesetze-im-internet.de provides the full text of the Protection Against Dismissal Act (KSchG).
The Federal Statistical Office publishes a statistical report on labour courts in Germany.
The Consumer Advice Centre provides information on the usefulness and benefits of legal expenses insurance.
The Federal Bar Association provides information about the work of its Labour Law Committee.
The Working Group on Labour Law in the German Bar Association offers specialist information and resources on labour law.
The Federal Employment Agency provides important information on dismissal, severance pay and release from work.
The Federal Labour Court publishes decisions and judgments in labour law cases.
FAQ
What is the difference between an ordinary and extraordinary cancellation by the insurer?
Ordinary termination takes effect at the end of the contract term with a notice period of usually three months, without the need to give a reason. Extraordinary termination is possible after a claim, typically after two claims in one year.
Does legal expenses insurance cover the costs of a termination agreement?
The costs for a solicitor’s review of a termination agreement are often not covered, as there is usually no legal breach by the employer. However, cover is possible if the termination agreement is offered as an alternative to a threatened dismissal.
What happens if I am terminated before my insurance waiting period has ended?
In this case, the insurance cover does not apply. You must bear the full costs of the legal dispute yourself. Taking out the insurance early is therefore crucial.
Does my private legal expenses insurance also cover employment law?
Employment law cover is often a separate component (occupational legal protection) that can be included in a private legal expenses insurance policy, but does not have to be. Check your policy carefully or choose a plan that explicitly includes this area.
Can I choose my lawyer freely?
Yes, as a rule, you have the right to choose your own lawyer. However, some insurers offer tariffs with workshop or law firm restrictions, which are cheaper but limit you to a partner network. Check this in your contract terms.
What does "prospect of success" mean in a coverage request?
The insurer checks whether your legal action has a realistic chance of success. If this is not the case, or if the action is deemed to be “frivolous”, the insurer may refuse to cover the costs. A tie-breaking decision or an expert report can help clarify such cases.
