When employments are terminated in Germany, employees typically receive a severance payment. Even if there is not always a legal right to such a severance payment. The amount of severance pay to be paid by the employer in the event of termination depends on many factors – and is of course also the result of negotiations. However, there are three factors that can be used to estimate a range for the expected amount of the severance payment. It depends on the type and effectiveness of the termination, length of service, the last wage (including bonuses and other variable elements) and the “multiple”. That “multiple” can be between 0.5 and 1.5, in some cases even higher, and depends on your individual case. You should therefore check the employer’s first offer of severance pay very carefully. Especially if the termination is not justified, you should consider having a specialized employment lawyer negotiate your severance payment. However, you need to act within 3 weeks after receiving your termination to have a chance of severance pay.
What severance pay are you entitled to?
That depends! There is no statutory severance in Germany. That means that employees are only fully entitled to severance payments in the rare cases of a “social plan” with the works council (often agreed on in the case of mass layoffs) or under a collective bargaining agreement. These are exemptions. In most cases, the severance payment in the event of termination by the employer depends greatly on the individual circumstances, such as compliance with the procedural requirements, age and length of service of the employee as well as special protection against dismissal (“non-cancellation”, e.g. for works councils, severely disabled people, pregnant employees or parental leave).
However, there are a few “rules of thumb” for a first rough estimate of the amount of a severance payment upon termination of employment: A popular formula according to which the “standard severance payment” is calculated uses half a month’s salary per year of employment as basis. For example, an employee who has been employed for 10 years and last earned EUR 3,000 per month and pre-tax would receive a severance payment of EUR 15,000 (i.e. 0.5 * EUR 3,000 * 10 years). The three decisive variables are the factor of 0.5, the amount of the last monthly salary paid (gross) and the length of service in the company (in years).
Another “rule of thumb” differentiates more by age. The factor of 0.5 can also be 0.75 or 1.0, depending on age. In the example above, the 52-year-old employee would then receive a severance payment of €30,000 (i.e. 1.0 * €3,000 * 10 years).
In practice, it not only depends on the individual circumstances of the employee, but also on numerous other influencing factors. Depending on the labor court district and the size of the employer’s company, a rule factor of 1.0 (not 0.5) is used, regardless of age.
And depending on the circumstances of the individual case, the factor can also be 1.2 or higher in isolated cases. A specialized labor lawyer will know all the details.
You can carry out an initial rough check of the range of a severance payment here:
What factors determine the amount of a severance payment in the event of termination by the employer?
As alredy described in the rule of thumb (above), the three factors salary, length of service and “factor” determine the amount of the severance payment:
- Salary: The current salary at the time of termination is particularly important for the calculation of a severance payment. It depends on the monthly gross salary at the time of termination. In the case of one-off payments, overtime and other supplements, the “annual income divided by twelve” is usually used to arrive at the monthly gross wage
- Length of service: The existence of the employment relationship is decisive for the calculation of length of service. Maternity leave, part-time work and training periods are included in the length of service. On the other hand, periods in which you worked for a company as a temporary worker or freelancer are not taken into account. If you have taken a sabbatical, it depends on the agreements between employer and employee.
- Factor: The level of the factor (e.g. 0.5 according to the rule of thumb) depends not only on age, but also on the effectiveness of the termination and the strength of any protection against dismissal:
- Effectiveness of the termination: Of course, the question of the effectiveness of the termination is important for the factor. If this is obviously ineffective, a (consensual) termination can be achieved with a significantly higher severance payment. But even if the termination is effective and there is actually no entitlement to severance pay (e.g. according to a social plan or collective agreement), severance pay is often paid “voluntarily”. However, these are usually lower and are based on the rule of thumb presented above (with a factor of 0.5).
- Strength of the protection against dismissal: Even in the case of an ineffective dismissal, the strength of the protection against dismissal is important when negotiating an annulment. Among other things, legal hurdles such as special protection against dismissal (“non-cancellation”) for certain groups of employees have an increasing effect here. It also depends on whether the “formal” requirements for a termination (e.g. the correct works council hearing) are met before the notice of termination is given.
What else matters?
There are other circumstances that are irrelevant to the amount of the actual “severance payment”, but can still significantly improve the employee’s financial situation. This includes:
- Lost salary payments for the time of the job search: As a rule, there is a considerable drop in salary when you are looking for a job, despite unemployment benefits. However, these can often be “replaced” by the old employer. If an employee files an action for protection against dismissal and the court comes to the conclusion that the dismissal was invalid about six months after the termination date, the employer must pay the wages for the entire period during which the employee did not work as a result of the invalid dismissal. Legally speaking, the employer was in “default of acceptance” and must pay the employee who was dismissed without effect his salary – “no work, but money anyway”. In addition, a short dismissal protection procedure can affect the amount of the actual severance payment
- Bonuses, commissions, other one-off payments: Employees often forget the existence of bonuses, commissions and other one-off payments that have not yet been paid out. Of course, these should always be claimed in addition to the actual severance pay and not “settled” by the severance pay.
- Other wages: Unpaid overtime, pro rata vacation pay and Christmas bonus as well as other “open” wage payments should also be claimed in addition to the actual severance pay.
Notice received: Now what?
If you have been given notice of termination in Germany, it is first important that you act quickly: You may have to file an action for protection against unfair dismissal with the labor court within three weeks. You should carefully examine any offer from your employer and seek advice from an employment lawyer. Your lawyer can also best compare the amount of the offer with the “usual” severance pay in the event of termination by the employer.
A first opportunity to check your claims can be found here:
* A note about our wording. We do not always “gender” – E.g. when we are talking about employees. But we are trying to keep things simple. German labor law is complex enough. For the sake of clarity and legibility in our texts, we have therefore decided to omit most gender formulations.