The most important things at a glance:
- The termination agreement allows employers to dismiss an employee without adhering to the statutory notice periods.
- Termination agreements offer employers more flexibility in terminating employment relationships, but they also have risks.
- When negotiating termination agreements and associated severance payments, it is advisable to seek support from a specialist lawyer for labor law.
Note: The term „employee“ below includes all genders (m/f/d) and is used for improved readability..
What is a separation agreement?
The termination agreement ends the employment relationship by mutual consent between the employer and the employee. Thus, the termination agreement represents an alternative to dismissal.
Termination agreement or termination? Reasons for a termination agreement from an employer's perspective
Employers often wish to part ways with one of their employees. If termination is being considered, statutory notice periods must first be observed. In addition, the Protection Against Unfair Dismissal Act often applies, and with it, high demands are placed on the socially justified dismissal of an employee.
A termination agreement offers employers the advantage that notice periods generally do not apply, although the employee's failure to comply with the employer's notice period can result in a suspension or cessation of unemployment benefits. Therefore, by mutually signing the termination agreement, the termination date of the employment relationship can be freely chosen. Furthermore, no reasons for termination need to be given, as the termination is agreed upon by both parties. The works council also does not need to be consulted, as is the case in a termination situation. These are just a few of the reasons in favor of a termination agreement.
In summary, the design options for a termination agreement allow for significantly more scope, giving employers greater flexibility.
Advantages of a Severance Agreement for Employers at a Glance
- The termination date can be freely chosen. This means that no notice periods need to be observed.
- The existence of grounds for termination is not required. Therefore, no termination needs to be issued or a social justification for it examined.
- One Protection against dismissal proceedings is avoided before the labor courts
- In the context of the termination agreement, the grounds for protection against dismissal are not to be taken into account. This applies to general protection against dismissal as well as special protection against dismissal for specific employee groups (e.g., in cases of severe disability, works council activities, pregnancy).
- In contrast to dismissal, the works council does not have to be consulted and has no co-determination rights.
- With a termination agreement, legal certainty can be created and costs can be better calculated.
Risks and disadvantages for employers at a glance
- Often, the employee can only through a Severance pay or be persuaded to sign the termination agreement with other concessions
- Since the employer may potentially have a duty to inform, they run the risk of violating it and thus becoming liable for damages. This is the case, for example, when they persuade their employee to sign a termination agreement and conceal the possible disadvantages for the employee regarding the receipt of unemployment benefits (including when circumventing special dismissal protection or failing to observe employer notice periods).
- Employees often reconsider signing a termination agreement afterwards and conclude that signing was not the right decision. If the employee can demonstrate that they were deceived, pressured, or threatened when signing the agreement, they may be able to challenge it. The outcome of such proceedings in court practice is often uncertain, which can ultimately lead to significant costs for the employer in terms of back pay due to default of acceptance.
What content should an employer include in a termination agreement?
From an employer's perspective, regulations in the following areas are particularly recommended:
- Return/Handover of the Company Vehicle
- Return/Handover of a company mobile phone
- Return/Custody of any business records
- Return/handover of any keys in the employee's possession
- Obligation of Confidentiality Regarding Trade Secrets
Do employers have an obligation to pay severance pay?
Your employee has no legal claim to severance pay in a termination agreement. This means that severance pay is primarily a matter of negotiation. Nevertheless, paying severance has the advantage for employers that the effort and costs of a possible lawsuit for protection against dismissal can be avoided, which can be significantly more expensive in practice.
Can employers set the severance pay amount at their discretion?
The amount of the severance payment is also subject to negotiation. In practice, the amount is often based on the statutory severance payment stipulated for cases of termination for operational reasons under § 1a of the German Employment Protection Act (KSchG). That provision uses a multiplier of 0.5, which is then multiplied by the gross monthly salary (50 %) and the length of employment in years.
However, this value merely serves as a guideline for the severance pay within the scope of the termination agreement and can deviate up or down, so that a factor of 0.25 as well as 1.0 may also be applied. Depending on which significant points speak in favor of the employee or employer, the negotiating leeway for the amount of severance pay also changes.
Factors influencing the severance pay amount are:
- Employee's length of employment with the company
- Gross monthly salary
- Employer's solvency
- Effectiveness of a termination notice as an alternative to a termination agreement
As a rule of thumb, it can be said that the severance pay can be higher the more likely an employee's success in a termination protection proceeding would be.
Is the severance pay subject to social security contributions?
Wages paid for the duration of employment are subject to social security contributions. However, severance pay is a compensatory payment for the loss of employment, for the period after employment, and is therefore not subject to social security contributions.
Employer's duty to inform
In certain circumstances, employers may have an obligation to inform employees. This is particularly the case when the termination agreement originates from the employer.
and that signing can have serious consequences for the employee that they are obviously not aware of. The employer's duty to inform is particularly relevant concerning unemployment benefits and pension claims.
Can the employee contest the termination agreement?
A risk that can arise for the employer after the employee signs a termination agreement is a challenge based on fraudulent misrepresentation or unlawful duress. In such cases, the employee has the right to contest the agreement.
To prevent this, employers are strongly advised in any case not to pressure the employee regarding the signing of the termination agreement. Employer suggestions to sign the contract „now“ or immediately after the first presentation should therefore also be avoided. It is more sensible to give the employee the termination agreement to review at home.
Can employers protect themselves from further claims by employees?
Since unresolved claims such as wage payments, damages, or similar may still arise from the employment relationship, it is advisable to include a settlement clause in the termination agreement. This clause states that both the employee and the employer waive any existing claims – known or unknown – upon signing the termination agreement.
This avoids a situation where the employee later asserts claims against the employer that the employer may not have been aware of at the time the termination agreement was presented. However, for such a clause to be effective, both parties must waive any potential claims. A unilateral declaration by the employee alone is not effective.
It is also important here that the corresponding clause is not „hidden“ in the termination agreement. This is the case, for example, if the clause is placed under another heading without clear emphasis. This situation also arises if the clause is simply placed under the heading „Miscellaneous.“ Such „hidden clauses“ can be invalid.
Therefore, it is advisable that the inclusion of an execution clause be made under a separate heading.
You can find a detailed article on the termination agreement from an employee's perspective here: Termination agreement employee.
Do you need a lawyer?
Fundamentally, you can negotiate the terms of a separation agreement yourself. However, without the necessary legal practical experience, it is difficult to correctly assess the existing room for negotiation and to avoid mistakes. Furthermore, when it comes to one's own affairs, there is often a lack of the emotional distance that is so important for negotiation situations of this kind. As a law firm specializing in labor law with 5 Specialist lawyers for labor law We have decades of experience advising employers, senior employees, and executives and can represent your interests to the best of our ability. In doing so, we create solutions that are individually tailored to your situation.