Employees and employers in Germany can terminate an employment relationship without notice by signing a termination agreement. If termination talks are driven by the employer, a severance payment will often be part of such a termination agreement. But be careful: A termination agreement can have adverse consequences, e.g., lead to a blocking period for unemployment benefits. Find out about the 5 most important items taht needs to be considered in a termination agreement in the following article:
Termination agreement – what is this all about?
A termination agreement is a voluntary agreement between the employee and the employer that is intended to end the employment relationship. Of course, your employer cannot force you to sign a termination agreement. However, if you do not agree to the termination agreement, your employer will often give you written notice. For a valid notice, he needs a reason that will stand up in front of a labor court. Since in the termination agreement you will typically waive important employee rights (e.g. notice period, protection against dismissal, participation of a possible works council), the termination agreement is a much simpler variant for the employer than termination. He is therefore willing to “pay extra” for this variant. The amount of the severance payment can therefore be higher in the case of a termination agreement than in the case of termination – if you negotiate wisely and always consider termination with a labor court process as the “next best” alternative for the employer.
What are the advantages and disadvantages of a termination agreement?
That depends. First, what you compare against (termination or continued employment), whether you already have a new job in prospect, second, how attached you are to your old job, then: how able and willing you and your lawyer are to negotiate a settlement (and whether you have legal protection insurance). Here are some examples for the (dis)advantages of a termination agreement:
Possible advantages of a termination agreement
- If you already have a new job offer, a termination agreement gives you flexibility and allows you to avoid notice periods.
- If the employment relationship is unpleasant for you, a termination agreement can offer a short-term and financially attractive exit.
- You are not entitled to a severance package, but you can negotiate one. Often, a nice one.
- You have a say in the conditions under which you leave the company and the communication around it.
- With a termination agreement, you may be able to prevent behavior-related or extraordinary termination. Possible reasons for termination by the employer are not disclosed.
- If your employer is very interested in the termination agreement, he will almost always agree to write you a great reference.
Possible disadvantages of a termination agreement
- Waiver of regulations on protection against dismissal against unsocial dismissals, no hearing by the works council.
- No protection against dismissal for pregnant women or severely disabled people
- Probable blocking period for unemployment benefit (termination agreement can lead to a blocking period for unemployment benefit, § 159 SGB III)
- Possible influence on company pension schemes
What 3 things should you consider before signing a termination agreement?
Before entering into a termination agreement, you should:
- Always read the draft carefully and check that the content is complete
- If a severance payment is proposed, examine the amount of the severance payment (or have it examined)
- Before you sign a termination agreement, you should always ask for a few days to think it over – never sign immediately! You should also consult an employment law expert, especially to better assess the possible downsides to you outlined aboveWe have described these three points in more detail below:
1. What content should a termination agreement have?
A termination agreement must first meet a number of formal requirements in order for it to be effective. It must be completed in writing and signed by authorized signatories on the employer’s side. Basically, termination agreements by email or fax are currently not legally effective. You cannot simply terminate your employment contract verbally either. An employer must also not take his employees by surprise by asking them to talk to them and urging them to sign a termination agreement immediately without thinking twice. In certain cases, a termination agreement can also violate statutory prohibitions.
1.1 What should a termination agreement definitely cover?
A termination agreement should contain the following content:
- Date when the employment relationship is to be terminated.
- Amount and payment of a severance payment (see below)
- Time off: Many contracts state that the employee is released from work until the termination date
- Compensation for vacation: The contract often states how many vacation days you are still entitled to. If your employer grants you the leave of absence, taking vacation days into account, you should think carefully about whether this “pays off” for you.
- Compensation for overtime: If you still have overtime credit in your working time account, then this is an important issue for the termination agreement
- Issuance of testimonials: A testimonial regulation is usually made in the termination agreement. This clause is typical: “The employer undertakes to issue the employee with a benevolent reference.” This is not clear enough, because it can also be a “only satisfactory” reference
- Miscellaneous: In most cases, there are still regulations on secrecy and the return of keys and work equipment in the contract.
1.2 What does a sample termination agreement look like?
Here is a sample you can compare to your employer’s offer:
Important note: German language skills will help here. A lot. If you use our sample contract “termination agreement” as a guide, you should make sure that you are completely clear about the meaning of the German sample text in every detail. Please bear in mind that by deciding on the text of the contract you will bring about legal consequences, which may not be the right ones for you in your case. Bottom line: If not everything is clear, seek legal advice.
2. What is a minimum severance payment?
Employers who want to part with their employees with a termination agreement are often willing to pay a severance payment. How high this is is a matter of negotiation. When it comes to the amount, employers often want to orientate themselves on the statutory regulations for severance pay in the event of a termination for operational reasons (details can be found here). But you should not be satisfied with that. Since employers often want to avoid litigation, they are often generous when it comes to severance pay. You should use that.
You can carry out an initial rough check of the range of a severance payment here:
3. What you should always do before signing a termination agreement?
Before you sign a termination agreement, you should always ask for a few days to think it over. Never sign immediately! You should also discuss with an employment law expert whether the amount of the severance payment is appropriate. A specialist lawyer for employment law can not only advise you on the amount of the severance payment but also clarify whether you have to reckon with a blocking period if you sign the termination agreement and do not yet have a new job.
Further information on what to consider in the event of a termination offer can be found here:
- Finanztip on the subject of “termination agreements” (German)
- chamber of commerce with samples and more information (German)
- Blog article on holiday entitlement in the event of suspension and termination
* 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.