Termination agreement: Valuable information for employees

If your employer offers you a termination agreement, you should never immediately, without any time for reflection or under pressure. Even if you as an employee wish to sign a termination agreement yourself, e.g. because of a quick job change, you should inform the termination of the employment relationship and the provisions of the termination agreement check carefully and be sure to inform yourself about the legal situation. Employment law attorney in Hamburg I will be happy to review your termination agreement at any time – please contact me directly Contact to me.

In this article, employees will find valuable information on the legal basis of a termination agreement. We primarily answer the following questions:

• What is a termination agreement and how does it come about?
• What does a termination agreement contain and what are its legal effects?
• What can the severance payment be in a termination agreement?
• When is a termination agreement legally invalid?
• Can the termination agreement be revoked or contested unilaterally after it has been concluded?
• And above all: What are the social law consequences of a termination agreement?

The last point, in particular—along with the amount of potential severance pay—should be of interest to employees. Get informed and legally protect yourself before signing a termination agreement. This article is a valuable guide for employees, helping you familiarize yourself with the subject matter. This article considers the case law of labor and social courts while also providing a well-founded overview.

What is a termination agreement?

A termination agreement is a contractual agreement between employer and employee that terminates the employment relationship by mutual consent. It contains numerous provisions relating to the employment relationship—most notably, the provision that the employment relationship will end after a certain period of time or upon signature. 

Since this is a contract, both the employee and the employer must agree to it. Without the consent and signature of both parties, a termination agreement cannot be concluded. Furthermore, the contract must be in accordance with § 623 German Civil Code be expressly concluded in writing and indicate that the employee and employer wish to terminate the employment relationship.

A contract via email, fax or messenger is not sufficient.

What are the disadvantages of a termination agreement?

Even if the employee and employer terminate the employment relationship by mutual agreement through a termination agreement, the conclusion of a termination agreement is not without Disadvantages. The advantages of a quick termination of the employment relationship are often perceived as positive.

However, especially when the desire to terminate the employment relationship and the proposal for a termination agreement come from the employer, employees should carefully weigh up the advantages and disadvantages of a termination agreement.

However, employees should always consult their employer before signing the termination agreement. seek legal advice.

Disadvantages of a termination agreement

• Anyone who hasn't found a new job after their employment relationship has ended is generally dependent on unemployment benefits. If the employment relationship is terminated through a termination agreement, a waiting period may be imposed by the Federal Employment Agency.
• With the termination agreement, the employee waives his general protection against dismissalEven if the employer were to "threaten" termination, they would have to have a reason for termination, and this reason would have to be upheld in the event of unfair dismissal proceedings before the labor court. Employees should not allow themselves to be intimidated by this.
• In particular, employees who are subject to special protection against dismissal, such as pregnant employees, severely disabled employees, works council members or special company representatives (data protection officers, etc.), should carefully consider whether they want to lose this protection against dismissal through the termination agreement.
• If there is a works council, this not heardHowever, in the event of dismissal, the works council must be consulted.

Am I entitled to severance pay if I sign a termination agreement?

Employees often assume that they are legally entitled to severance pay if they sign a termination agreement. This widespread myth is legally incorrect. However, in companies with a works council, the employer may be obligated under collective and individual law to pay severance pay to employees due to a social plan – for example, following job cuts.

As with a Termination also applies when concluding a termination agreement no legal right to severance pay. However, the employee and employer can agree on a severance payment when negotiating the terms of a termination agreement. The severance payment is intended to serve as compensation for the loss of the job, making the termination agreement more attractive to the employee. As an employee, would you simply terminate your employment relationship without receiving appropriate compensation?

Very few employees would do this unless they have behaved seriously inappropriately during their employment relationship. This is because a termination agreement is potentially detrimental to employees. For example, there is a significant risk that the Federal Employment Agency will impose a waiting period for receiving unemployment benefits if you terminate your employment relationship through a termination agreement.

The aim of a severance payment is usually to "buy" the employee's job and the associated protection against dismissal. Therefore, termination agreements usually contain the wording that the severance payment is "according to the §§ 9, Section 10 Consumer Protection ActThis indicates that it is a genuine severance payment "for the loss of employment."

Creation and due date of severance pay in the case of a termination agreement

According to the contractual arrangements, the right to severance pay usually arises upon the conclusion of the termination agreement. If the termination agreement lacks a corresponding wording, you should ensure that this point is clearly regulated in the contract.

The same applies to the due date of the severance payment. This refers to the point in time at which the employee can claim payment of the severance payment, as opposed to the accrual date. This means that while the entitlement to the severance payment arises upon signing the termination agreement, employees cannot claim the severance payment immediately. The due date is usually set at the end of the employment relationship.

Amount of severance pay

While it goes without saying, the employee and employer must, of course, agree on the amount of severance pay. The amount is usually the core issue in the preliminary negotiations, which is why we dedicate a separate section to this important component of the termination agreement.

The amount of severance pay in a termination agreement is not legally stipulated. It is a matter of negotiation between the employee and employer. As with a termination, the following rule applies:

The aim of employers is always a legally secure, speedy termination without a lengthy (and therefore potentially expensive) legal dispute.

In court, labor courts often consider the so-called "standard severance payment" when the risk situation is balanced. This is a calculation basis for the severance payment, which is based on the length of service and a factor. Depending on the labor court, various factors are used to determine the standard severance payment.

Hamburg Labor Court: Here the standard severance payment of 0.5 gross monthly salaries per year of employment set.

Lübeck Labor Court: Here the standard severance payment is only 0.25 gross monthly salaries per year of employment.

However, the situation in court is not comparable to the conclusion of a termination agreement. Nevertheless, the standard severance payment provides employers with guidance as to what severance payment is appropriate in each individual case. Yet employers do not adhere so strictly to the standard severance payment when negotiating a termination agreement. They want a quick termination and need to create an incentive for employees to enter into a termination agreement despite potential disadvantages under social security law.

Higher severance pay in the termination agreement than in the social plan

If the employer wants or has to reduce jobs on a large scale and the company has a Works council the employer and the works council can enter into a so-called Social plan This is intended to mitigate the economic consequences of staff reductions and job losses for employees. The benefits available in the social plan include, among other things, severance pay arrangements. Beyond these severance payments stipulated in the social plan, it is also possible from the employer's perspective to grant or promise severance payments that exceed the amount specified in the social plan. The motive here may be to give employees an incentive to terminate the employment relationship – legally secure for the employer – through a termination agreement.

For example, it is permissible to grant a so-called "turbo bonus" to employees who agree to voluntarily leave their employment by a certain date. This does not constitute a violation of the principle of equal treatment under labor law. Higher benefits to employees who have not previously agreed to leave their employment on the basis of the severance payment provided for in the social plan are also not objectionable (BAG, judgment of 18.09.2001 – 3 AZR 656/00).

Is the severance payment inheritable?

In principle, severance pay is inheritable, although this depends on the specific legal circumstances. If the entitlement to severance pay arose before the employee's death, then the severance pay is inheritable. Therefore, termination agreements generally stipulate that the entitlement to severance pay arose upon the conclusion of the termination agreement. Only the due date of the severance payment is postponed until the legal termination of the employment relationship.

For the sake of clarity, it is always advisable to explicitly mention the inheritance in the termination agreement.

What can a termination agreement regulate besides severance pay?

The content of a termination agreement varies from case to case. However, the hallmark of all termination agreements is the termination of the employment relationship at a specific point in time. This point in time can be freely determined by both parties to the termination agreement. The termination agreement can – but does not have to – coincide with the termination date if the statutory or contractual notice period is observed. However, if the employer and employee have not agreed on anything, then in case of doubt, the employment relationship ends. immediately.

In principle, a retroactive termination of the employment contract by means of a termination agreement is not permissible, as the Federal Labor Court has already ruled (Federal Labor Court, judgment of December 17, 2009 – 6 AZR 242/09).

Typically, termination agreements do not simply contain provisions regarding the termination of the employment relationship and severance pay. Rather, they are usually a comprehensive agreement that establishes the mutual rights and obligations on a new contractual basis. Thus, termination agreements can contain, for example, the following provisions:

• Obligation to continue paying remuneration until termination of the employment relationship
• Creditability of interim earnings
• Claims to bonuses, profit sharing or royalties
• Exemption from work
• Sprinter regulation/turbo bonuses
• Holiday regulations
• Right to continued use of company vehicle and company smartphone
• Return of employer property
• Continued validity of trade and business secrets
• Regulations on employment references
• Outplacement
• Repayment of employer loans
• Dealing with company pension schemes
• Handling job bikes

A termination agreement can also be concluded subject to a condition, provided that this does not undermine general or specific protection against dismissal.

Compensation provisions in termination agreements

It is also common practice in termination agreements to agree on a Compensation schemeThis finalizes the mutual claims arising from the employment relationship, unless they are stipulated in the termination agreement. Upon signing the termination agreement, including the settlement receipt, the mutual claims are then governed solely by the termination agreement (and the law).

How can I save taxes on severance pay?

The good news about severance pay is that there is a tax-related possibility to save income tax on severance pay, namely through the so-called Fifths ruleThe less good news, however, is that the severance payment is subject to income tax and is not tax-exempt.

The timing of severance pay can make a huge difference from a tax perspective. If you leave the timing of your severance payment to chance, you can easily lose the equivalent of a mid-range car. We therefore recommend that you seek detailed advice on this matter based on your individual situation.

However, the severance payment is privileged when it comes to social security contributions, as it is not considered part of the salary and no contributions are payable.

When is a termination agreement invalid?

If the employee and employer have concluded a termination agreement, this does not mean in practice that this unrestricted There may be cases in which the termination agreement concluded ineffective is. 

If the provisions of the termination agreement violate mandatory legal provisions (§ 134 German Civil Code), for example, if it violates mandatory provisions of the Dismissal Protection Act, the termination agreement may be invalid. This would be the case, for example, if it is agreed that the employment relationship will automatically end if the employee is absent for a certain number of days per year due to illness.

Legal prohibition and immorality of the termination agreement

The termination agreement may also be invalid if it is invalidated due to a breach of a legal prohibition or against the good morals (§ 138 German Civil Code) is invalid. Immorality always exists when the termination agreement violates the sense of decency of all fair and just thinkers. 

This is to be affirmed, for example, if a gross disproportion between performance (termination) and consideration (e.g., severance pay). This gross disproportion must indicate a reprehensible attitude on the part of the beneficiary – usually the employer – of the termination agreement.

Ineffectiveness of individual provisions

Furthermore, individual provisions in termination agreements may also be invalid. Ancillary provisions are subject to review under the General Terms and Conditions because they are standard terms and conditions. For example, the waiver of (mandatory) claims in the termination agreement may be invalid.

Finally, ineffectiveness may also arise from the fact that termination agreements constitute direct or indirect discrimination under the General Equal Treatment Act.

Can you contest a termination agreement?

Once the employer and employee have signed a termination agreement, it is between the two parties binding. It is then usually very difficult to withdraw from the contract. If the termination agreement is not invalid, a so-called challenge By contesting a contract, a party attempts to subsequently eliminate the legal consequences of the contract. Contesting a contract is only possible if one of the statutory grounds for contesting a contract applies.

Important grounds for contesting a decision are:

• the error in content: here the person explaining is mistaken about the meaning of the explanation
• the error of declaration: here one is mistaken about the submission of a legal declaration (the intended and the declared differ)
• the error of quality: one is mistaken about characteristics of the person or thing that are considered essential in commercial practice. The essential characteristic can only be affirmed if it is permanently inherent in the person or thing.
• the fraudulent deception: despite positive knowledge, the declarant exploits the misleading information about relevant facts of the other contracting party and accepts that the other party could be influenced by this.
  • Example: The employer explains to the employee that concluding a termination agreement will not result in any disadvantages for the employee under social security law. In fact, the employment agency initially imposes a twelve-week waiting period on the employee. Or: The employer deceives the employee about a business closure, which is not actually intended, but merely a sale of the business.
• the unlawful threatA threat is the prospect of a future evil, over whose occurrence the other party claims to have influence. The threat is unlawful if
  • the employee is threatened with unlawful conduct or
  • the purpose of the threat is prohibited or immoral or
  • the means used or the intended purpose are permissible in themselves, but their combination offends against the sense of decency of all fair and just thinkers.

Period for contesting and declaration of contestation

If such a ground for contestation exists, the contesting employee must inform the employer in written form declare that he or she intends to contest the termination agreement (declaration of contestation). This must be done within a certain period of time.

This period of challenge is in the case of errors in declaration, content and quality a year and begins upon knowledge of the error. In the case of a challenge based on unlawful threat, the period begins when the coercive situation ceases; in the case of a challenge based on fraudulent deception, the period begins when the employee entitled to challenge discovers the deception.

Threat of termination in the termination agreement

The employer's threat of termination in order to induce the employee to conclude a termination agreement may be unlawful. This is to be assumed if a reasonable employer should not have seriously considered such a termination (BAG, judgment of December 5, 2002 – 2 AZR 478/01).

The question of when an employer may seriously consider termination has also been sufficiently clarified by the courts. The employer is not required to provide a razor-sharp legal assessment. If, after weighing all the circumstances of the individual case, the employer concludes that the termination is highly unlikely to withstand scrutiny in the unfair dismissal proceedings, they may not raise the prospect of termination during negotiations on a termination agreement.

The decisive factor is the objectively possible level of knowledge of the employer after necessary reconnaissance measures.

Can a termination agreement be revoked?

In rare cases The termination agreement gives the employee the opportunity to revoke the termination agreement within a certain period of time. The revocation periods agreed therein are usually very short Employees are well advised to ensure that their employer receives their notice of revocation. This has been a point of contention in cases we have handled in the past.

A statutory right of withdrawal, on the other hand, is generally ruled out. This is because a right of withdrawal generally only applies if contracts are concluded in an unusual and atypical environment for the legal transaction. Termination agreements, on the other hand, are usually concluded in the personnel office or on the premises of the managing director. For this reason, the right of withdrawal does not apply to door-to-door sales.

The Federal Labor Court has rejected a right of revocation even in cases where a termination agreement was concluded outside the employer's premises. This applies even if the agreement was concluded in the employee's home (Federal Labor Court, judgment of 7 February 2019 – 6 AZR 75/18).

Also a resignation A termination agreement is conceivable. On the one hand, employees and employers can agree on a contractual right of withdrawal – similar to the revocation of a termination agreement. A statutory right of withdrawal is possible if, for example, the employer fails to fulfill the obligations arising from the termination agreement. In particular, if the employer fails to pay the agreed severance payment.

Will I be blocked by the employment agency if I sign a termination agreement?

One disadvantage of a termination agreement is the potential waiting period for receiving unemployment benefits. If you sign a termination agreement as an employee, you have active contributed to the termination of your employment relationship and are therefore responsible for the termination of the employment relationship jointly responsible.

If you apply for unemployment benefits after the termination of your employment relationship through a termination agreement, the Employment Agency can impose a waiting period of up to 12 weeks This waiting period means that you will not receive unemployment benefits during this time, and this waiting period is not added to the end of the benefit period. The waiting period therefore shortens the maximum duration of unemployment benefits.

Blocking time avoidable

A waiting period can be avoided if there is a valid reason for concluding the termination agreement. Such a reason exists if continuing the employment relationship is unreasonable for you, also considering the interests of the insured community. This can occur, for example, in the following cases:

• discriminatory behavior of the employer
• bullying
• Bossing
• sexual harassment in the workplace
• Employer insolvency
• the employer has seriously persons- or dismissal for operational reasons announced and this would be lawful (e.g. due to restructuring or staff reductions); in addition, the statutory notice period must be observed.
• If you, as an employee, are entitled to terminate your employment without notice for good cause, the conclusion of the termination agreement cannot be detrimental to you under social security law.

Blocking period for staff reductions and termination agreements

A reduction in staff numbers within a company does not automatically constitute a valid reason for concluding a termination agreement. Such a reason must be denied, even in the case of a large-scale reduction in staff numbers, if the loss of the job is not inevitable.

Participation in Volunteer programs to younger employees, which allow them to leave the company at short notice in return for severance pay and, if applicable, a turbo bonus/sprinter bonus, fundamentally exclude an important reason.

In principle, the assessment of whether there is good cause depends on the impending termination by the employer. This must be communicated to the employee

• have been definitely threatened,
• be based on operational reasons and
• the employment relationship may not end before the expiry of the regular notice period.

In addition, the Federal Employment Agency has established guidelines regarding the amount of severance pay. If the severance pay is between 0.25 and 0.5 gross monthly salaries per year of employment, the legality of the threatened termination by the employer is assumed. If the severance pay is lower or higher, it must be established that the threatened termination by the employer is justified. socially justified And that the employee might not have received any severance pay without a termination agreement. Only then will the agency consider a good cause to exist.

It is always crucial that the employee’s behavior independent reason is decisive for the termination of the employment relationship.

Personal reasons for leaving work

Also personal reasons within the employee's sphere of influence can constitute a valid reason that precludes a waiting period upon conclusion of a termination agreement. Due to the potentially adverse consequences, we recommend that employees always obtain insurance from the relevant employment agency before signing a termination agreement.

Personal reasons for giving up work by concluding a termination agreement may exist in particular if the employee health restrictions that prevent the continuation of the employment relationship. In this case, it is irrelevant whether the employer has a personal reason for termination. The only relevant factor is likely to be that the employee cannot reasonably be expected to continue performing the work due to their health, because it would cause them excessive distress or worsen their health.

Also a great distance to the place of work can provide the employee with a valid reason for terminating the employment relationship, so that a waiting period does not apply. Before concluding a termination agreement, however, the employee is required to first attempt to obtain a transfer within the company or a change of location. When answering the question as to which distances to the place of work constitute a valid reason, reference must be made to the provisions of the Section 140 para. 4 SGB III According to this, commuting times for a working time of six hours are to be calculated two and a half hours daily reasonable; below this the limit is two hours.

Other cases of an important personal reason are:

• Establishment of a marital partnership
• Closer living together in the case of a marriage-like partnership (not, however: reason)
• Care of a close relative after Section 3 paragraph 1 of the Nursing Care Act
• Rules of faith or decisions of conscience
• Systematic overburdening with the tasks to be completed

Your contact persons for termination and severance pay

Lawyers Raphael Lugowski and Hamza Gülbas represent clients nationwide – with a focus on severance pay, protection against dismissal and termination agreements.

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Conclusion

• Employees should inform themselves and seek legal advice before signing a termination agreement.
• In addition to provisions regarding the termination of the employment relationship, a termination agreement can also contain other provisions, such as those regarding vacation time, references, or compensation. Before signing a termination agreement, employees should therefore always carefully review the terms of the agreement, as a signed termination agreement is binding.
• A termination agreement is associated with possible disadvantages for the employee, including Waiver of protection against dismissal, the risk of a waiting period for unemployment benefits and a lack of consultation with the works council.
• There is no legal entitlement to severance pay. The amount of severance pay is negotiable and often depends on length of service.
• Termination agreements may be invalid if they violate legal regulations or are immoral.
• A termination agreement can be contested, e.g. in the event of an error in content, fraudulent deception or unlawful threat.
• As a rule, there is no statutory right of withdrawal unless it has been contractually agreed.

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