Employees as well as employers in Germany have the option to terminate an employment relationship without notice by signing a termination agreement. It is common for a severance payment to be included in the termination offer, especially when the employer initiates termination talks. However, it is important to be cautious as a termination agreement can have significant consequences, such as a potential impact on unemployment benefits.
In the following article, you will find information about the five most important factors to consider when reviewing a termination agreement:
Understanding the concept: A termination agreement is a voluntary agreement between an employee and an employer to terminate the employment relationship. It is crucial to note that an employer cannot force an employee to sign such an agreement. If an employee does not agree to the termination offer, the employer may opt to issue a written notice, which would require a valid reason that would withstand scrutiny in a labor court.
Important considerations regarding termination agreements: Termination agreements typically involve a waiver of essential employee rights, including the notice period, protection against dismissal, and potential involvement of a works council. From an employer’s perspective, a termination agreement provides a simpler means of terminating an employee, which is why they may be willing to offer a higher severance payment compared to a termination without an agreement. It is essential for employees to negotiate wisely and consider a potential labor court process as the alternative if they are aiming for the best possible outcome. You can find a rough estimation of your potential severance payment through a high-level check here on our Website.
Job termination agreement: Advantages and disadvantages of such an agreement?
It varies depending on different factors. Firstly, it depends on what you are comparing it to (termination or continued employment). Secondly, if you already have another job opportunity lined up. Thirdly, it depends on your level of attachment to your current job. Lastly, it depends on your willingness and ability, along with your lawyer, to negotiate a settlement (including whether you have legal protection insurance). Here are a few examples to highlight the (dis)advantages of a termination agreement:
Advantages of a termination agreement
- If you are already presented with a new job opportunity, accepting a termination offer provides flexibility by allowing you to avoid notice periods.
- If the working environment is uncomfortable for you, a termination agreement can provide a financially attractive and prompt exit strategy.
- Although not guaranteed, you have the opportunity to negotiate a severance package, often resulting in favorable terms.
- You have a say in defining the terms and conditions of your departure from the company, including how it will be communicated.
- By accepting the agreement, you may be able to prevent potential behavior-related or extraordinary termination cases, as the reasons for your departure are not disclosed.
Disadvantages of a termination agreement
- Surrendering protection against unfair dismissals, without requiring a consultation with the works council.
- Insufficient protection against dismissal for pregnant women or individuals with severe disabilities.
- Potential impact on eligibility for unemployment benefits, as a termination agreement may result in a blocking period as per § 159 SGB III.
- Potential effects on company pension schemes.
What factors should you take into account prior to endorsing a termination agreement?
- It is crucial to thoroughly review the draft and ensure that all the content is carefully scrutinized and complete.
- When your employer offers a severance payment, it is important to carefully evaluate the amount of the payment (or seek advice from your lawyer to assess this).
- Prior to signing a job termination agreement, it is highly advisable to request sufficient time to consider the terms – never rush into signing immediately! Consulting an employment law expert is highly recommended, especially to gain a better understanding of the potential disadvantages outlined above. We have provided further elaboration on these three points below:
What elements should be included in the content of a termination agreement?
In order for a termination agreement to be legally valid, it must satisfy several formal prerequisites. It must be documented in writing and duly signed by authorized representatives on the employer’s behalf. Presently, termination agreements transmitted via email or fax are not considered legally binding. It is not permissible to terminate an employment contract solely through verbal communication. Furthermore, employers should not catch their employees off guard by pressuring them into immediate signing the agreement without allowing sufficient time for consideration. Additionally, certain statutory prohibitions may be violated by some termination agreements.
What are the essential aspects of a termination agreement?
- Specified date for the termination of the employment relationship
- Clear provisions regarding the amount and method of payment for a severance package (refer to details below)
- Time off: Often, contracts indicate that the employee is excused from work until the termination date
- Compensation for accrued vacation days: The agreement may outline the remaining number of vacation days the employee is entitled to. If the employer allows the employee to take time off, considering the remaining vacation days, careful consideration is needed to determine if it is advantageous for the employee.
- Compensation for unpaid overtime: If there is still a balance of unpaid overtime in the employee’s working time account, this is an important aspect to be addressed in the termination agreement.
- Provision of employment references: The termination agreement typically includes a clause regarding the issuance of a reference letter. However, it is important to interpret this clause carefully, as it may simply guarantee a standard or satisfactory reference, rather than an outstanding one.
- Miscellaneous provisions: The contract often includes clauses relating to confidentiality obligations, the return of keys and work equipment, and other miscellaneous matters.
