Employment Termination Agreements Germany

Employment Termination Agreements Germany

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Employment termination agreements can arise when employers face operational challenges in keeping their business going. It may seem that such an agreement may be advantageous to both parties; however, sometimes, appearances can be deceptive. Employers may seek to speak to employees about the possibility of an employee termination agreement in a private meeting, but the employee needs to be careful.

Working with a certified employment law attorney will ensure that any such agreement is analysed thoroughly. Our lawyers expertly draft, negotiate and review employment termination agreements. At Schlun & Elseven Rechtsanwälte, our employment specialists advise employers and employees on all matters relating to employment termination agreements.

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Employment Termination Agreements: Legal Advice

The employment termination agreement is an agreement between the employer and employee by which the employment relationship is terminated, and the conditions attached to this termination are determined. Although concessions are often made to the employee, you should ensure that the termination agreement protects your interests.

Please note that you are not legally obliged to sign an employment termination agreement. So do not let yourself be put under pressure. In contrast to regular termination, the employment termination agreement requires your consent to be valid.

When it comes to employment termination agreements, there are risks involved for employees. Some arrangements that appear to be suitable at first may affect aspects and clauses that are not near as valuable as they first appear.

Furthermore, the first offer when it comes to such an employment termination agreement may not fulfil the individual’s requirements when brought under closer scrutiny. This scenario arises especially when the party in question is not advised on (or informed about) the relevant provisions under German employment law. Therefore, it is advisable not to agree to sign such a document from the off and instead approach the matter calmly and seek outside expert advice when possible.

The German Unfair Dismissal Act protects employees and prevents their rights from being easily put to the side. This should be borne in mind by the employee in such a situation. Giving up employment may be a costly manoeuvre in the circumstances.

Of course, fair dismissal is also provided for and can occur for operational reasons or in cases where the employee’s conduct has warranted a dismissal.

In cases where the termination of employment is sought after, notice periods can also play a role that ranges in the number of months based on how long the individual has worked with the company. An employment termination agreement may seek to reduce or ignore statutory notice periods, and thus agreeing to such without further examination may run such a risk.

Employment termination agreements can also include clauses that allow the employer not to reference future employers. Such agreements can sometimes prevent the employee from accessing unemployment benefits. Therefore, the generous agreement negotiated may not be as generous once these elements have been factored into the matter.

Remember that signing such a contract is evidence of your agreement to what is included, even if you have not read it clearly or understood every aspect as clearly as you need. For this reason, availing of the services of an experienced legal professional in such a scenario is strongly advisable.

Negotiating Employment Termination Agreements

When negotiating an employment termination agreement, it is crucial to know the exact requirements. It is not advisable to sign up for the first agreement placed in front of you. Instead, it would be best to decide what aspects are of value to you in such an agreement.

Here are some general aspects our employment lawyers will seek to include in such an employment termination agreement. However, it must be stated that individual situations would require different solutions and emphasis. What is vital in one agreement will not be in another etc.

  • A suitable financial settlement: as stated above, signing such an employment termination agreement can reduce access to the receipt of unemployment benefits. This prevention may be in place for up to three months, changing how the deal appears. What at first may have seemed generous may not be in such a light. Therefore, it is vital to ensure that the financial agreement is of a suitable figure, bearing in mind all the potential consequences.
  • Guaranteed job reference: Some agreements can excuse the employer from providing a job reference to the employee. Such a move can damage the employee in their search for their next job. However, should you seek future employment in this field, having a reference available can be crucial, especially from a respected employer. Ensuring that the employer does not escape the need to provide a reference is one of our key goals in such negotiations.
  • Access to unemployment benefits: In cases where an employment termination agreement is being negotiated, our lawyers will look to prevent any blocking of access to unemployment benefits. Access to such benefits may be advantageous to you, especially when it requires time to figure out your next step.

These are just some elements we will generally look for in an employment termination agreement. However, other factors will depend on the circumstances of the case.

Advising Employees in Employment Termination Agreement Cases

From an employer’s perspective, there are, of course, advantages to such an employment termination agreement. For one, it can lead to a more straightforward dismissal of an employee without concerning themselves, with the potential for cases of unfair dismissal.

Such a dismissal may be for operational purposes and an excellent cost-saving exercise for the company. Such an agreement may also negate the need to follow the statutory minimum requirements for notice periods. Thus, for the employer, there are several advantages to an employment termination agreement.

From an employee’s perspective, it is not as straightforward. There may be some advantages in your personal situation; for example; the agreement is reached when you have another job lined up to replace your current employment. Maybe you have prepared in advance for the dismissal and successfully found work elsewhere. The employment termination agreement may allow you to start that new job sooner than planned.

It may also benefit in a case where the agreement is acceptable, and you do not want to work in an environment knowing that the employer has sought to dismiss you. Continuing to work in such a situation can be difficult for many employees.

However, it is vital to ensure that you consult with an employment law specialist in such a case. The situation may cause stress and anxiety and leave you in a difficult position at work, but consulting with our employment law team will ensure that you are aware of what is involved and help you get a fair settlement.

Having an experienced employment law professional in your corner can help you get the best advice on approaching such a situation.

In some circumstances, it is better not to sign the agreement or negotiate straightaway; staying in the state of employment may force the employer’s hand. Potentially, this can lead to a better deal in the future or prolonged employment at regular remuneration levels. Both outcomes may be better than signing the agreement without further negotiation. In addition, should they still seek you to sign an employment termination agreement, it may place you in a stronger position when negotiating.

In negotiations, showing that you have a specialised employment lawyer in support can also encourage employers to be more generous from the outset. Our experienced professionals have been involved in many such situations in the past and will be by your side in securing the best possible agreement. We have seen how the first offer made in practice is usually not the final one on offer and that movements and improvements can be made.

Having the necessary knowledge and negotiation skills available to you means you have a more substantial hand when working out the finer points of the employment termination agreement.

Severance Payments and Unemployment Benefit Post-Agreement: Advice

The employer and employee should agree on an appropriate severance payment in the employment termination agreement. An employment termination agreement can negatively affect an employee’s possible entitlement to unemployment benefits.

Although the employee is not entitled to severance pay, they can usually claim it. The parties must try to find a fair balance here. It is important to note that a severance payment does not involve any social security information. Consequently, no pension, health or nursing care contributions are deducted.

The size of the severance payment is usually determined by the number of years the employee has been employed by the employer and the agreed salary. Therefore, if you have worked for the company for a long time and earned well, you can expect a higher severance payment.

The severance pay may not deviate significantly from the legal requirements; thus, it may not be substantially higher than half a monthly salary for each year of work.

However, good negotiating skills are also required in this case, as the amount of the severance pay is regularly the result of negotiations. Therefore, seeking advice before the talks is advisable to enter the negotiations with realistic expectations and a strong position. Our lawyers are available to offer you an assessment and inform you about what you need to pay attention to during the negotiations.

We are also happy to take over the negotiations with your employer directly.

As an employee, you should be aware of the impact of the employment termination agreement on future unemployment benefits. An employment termination agreement can lead to a blocking period for unemployment benefits (§ 159 para.1 No.1 SGB III). Such a block arises because the Employment Agency regularly argues that you could have refused the contract and thus created the reason for your unemployment. You must also deal with this accusation if the initiative for the termination agreement came from the employer. The authorities can impose a blocking period of up to 12 weeks for unemployment benefits.

Since it is often difficult to find a new job immediately, it is essential not to block access to these benefits by signing a contract too quickly.

To ensure that no blocking period is imposed on you, there must be an important reason for the employment termination agreement, which must be recorded in the contract.

However, it should be noted that the employer must have already threatened to terminate the employment contract if the employment termination agreement is not signed. Whether or not this would have been a lawful dismissal is irrelevant for the blocking period (BSG, judgement of 2 May 2012, ref. B 11 AL 6/11 R).

An important reason can also be given if you choose between a cancellation agreement and a personal termination. For example, employers often offer such a choice to an employee with a long illness.

It should also be noted that the employment termination agreement must allow the employment relationship to end when applied in the event of ordinary termination. The employer must therefore observe the notice period.

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Practice Group: German Employment Law

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German Employment Law

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Dr. Thomas Bichat

Certified Specialist Lawyer in Employment Law

Jens Schmidt

Certified Specialist Lawyer in Employment Law