Background
The global economy is currently in a deep crisis. Many companies are facing two major problems: a collapse in orders and a lack of financing for orders and investments. These issues threaten to escalate into a massive employment crisis. Many companies are trying to preemptively reduce their workforce by offering termination agreements to employees.
The Termination Agreement
What is it?
A termination agreement refers to the mutual dissolution of an employment relationship without the need for a formal dismissal by either the employer or the employee. Employers often propose such agreements when a dismissal for operational reasons is otherwise imminent. The higher up the hierarchy, the less likely it is that employment relationships are terminated through dismissal. Instead, to avoid costly labor court proceedings, they are ended by mutual agreement through a termination agreement, which usually includes severance pay. Signing such agreements can have far-reaching consequences, such as a waiting period before receiving unemployment benefits. This means you may not be entitled to unemployment benefits for 12 weeks. Therefore, you should not sign a termination agreement without first seeking detailed advice from your works council or IG Metall.
Does a termination agreement have to be in writing?
Yes. According to § 623 of the German Civil Code (BGB), termination agreements, like dismissals, must be made in writing. If the written form is not observed, the agreement is invalid and has no legal effect.
What does it contain & who determines the content?
The content of a termination agreement is generally negotiable between the employer and the employee. Typically, the following points are included:
- Termination date and reason for termination
- Amount and due date of severance pay
- Outstanding payments (commissions, bonuses, vacation pay, Christmas bonus)
- Agreements regarding remaining vacation
- Employee confidentiality obligations
- Company pension scheme arrangements
- Return of company property
- Reference letter
Do I have to sign a termination agreement on the spot?
No. Do not let yourself be pressured. Take your time to calmly review the agreement. The employer cannot demand that you sign it immediately. Best of all: talk to your works council before the meeting with your employer!
Am I entitled to severance pay?
No. You are not legally entitled to severance pay. However, it is common for severance pay to be included in termination agreements. The amount depends on various factors such as length of employment, age, marital status, loss of company pension, etc. As a guideline, severance should not be less than half a month's salary per year of employment.
Do I have to pay tax on my severance pay?
Yes. Since January 1, 2006, severance pay is taxable from the first euro. A tax reduction is only possible through the "one-fifth rule," which spreads the tax burden over five years (§ 34 para. 1, 2 EStG).
Will the employment agency impose a waiting period?
The employment agency may impose a waiting period for unemployment benefits. Exception: According to case law, no waiting period is imposed if the employer would have otherwise definitely terminated the employment for operational or health reasons. You can also contact the Federal Employment Agency to inquire about the potential consequences of a termination agreement.
What are the consequences of a waiting period?
- No unemployment benefits (ALG) are paid during the waiting period.
- No health insurance contributions are paid by the agency during the waiting period.
- The waiting period is deducted from the maximum duration of ALG I benefits. This means the time is lost and not added at the end.
Can I revoke a termination agreement?
Once signed, a termination agreement is very difficult to revoke. Therefore, employees should carefully consider whether the agreement is beneficial before signing. A challenge due to unlawful threat under § 123 BGB will only succeed if the employer, for example, threatened with an otherwise unlawful immediate or ordinary dismissal. Such a challenge must be made within one year of signing the agreement.
A few final tips
- Never sign a termination agreement immediately—even if your supervisor insists or brings in a lawyer to dispel your concerns. Instead, insist on a reflection period.
- If offered a termination agreement: Contact your works council or IG Metall immediately and have the potential consequences—some of which may not be immediately obvious—professionally reviewed. Our experience shows that employees in higher income brackets often make the most mistakes. Take advantage of your union membership: You are entitled to free legal advice!
- Be cautious with phrases like “I waive all further claims from the employment relationship” or “all claims are settled.” Do not sign such clauses unless you are certain that all your entitlements have been fulfilled. This includes salary payments, delivery of employment documents, and reference letters.
- If you decide to sign, make sure the agreement specifies how many vacation days you are still entitled to and when you will take them. This avoids unnecessary disputes.
- Ensure that any outstanding payments such as vacation or Christmas bonuses and premiums are listed in the agreement with exact amounts, and request a qualified reference for your work. You are entitled to it!
We have more information on the following topics:
- Short-time work
- Dismissal
- Employment protection
- Company insolvency
Ask your works council or your local IG Metall office for the relevant flyers.
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