Employment Termination Agreements: The Risks Involved
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 actually protects your interests. 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 agreements that appear to be suitable at first may involve 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 requirements of the individual at all when brought under closer scrutiny. This is especially when the party in question is not advised on (or informed about) German employment law. Therefore, it is advisable to not simply 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’s Act provides strong protection to 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, then 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. In some cases, such agreements can 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 may need to. This is why availing of the services of an experienced and highly qualified legal professional in such a scenario is advisable.
Are there any Advantages to an Employment Termination Agreement?
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, of course, be for operational purposes and a good 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 whereby, for example, the agreement is reached when you have another job lined up to replace the current employment. Maybe you have prepared in advance for the dismissal and been successful in finding 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 do consult with an employment law specialist in such a case. The situation may be a cause for 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 will help you get a fair settlement.
Employment Termination Agreement: What Should be Included?
When negotiating an employment termination agreement, it is crucial to know the exact requirements sought after. 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 that our employment lawyers will seek to have in such an employment termination agreement. However, it must be once again 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 benefit. This prevention may be in place for up to three months, changing how the agreement 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 be damaging to 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 such cases where an employment termination agreement is being negotiated, our lawyers will look to prevent any blocking of access to unemployment benefit. Having access to such benefit may be advantageous to you, especially when it requires time to figure out your next step.
These are just some of the elements we will generally look for in an employment termination agreement. However, other factors will depend on the circumstances of the case itself.
Agreed Severance Pay
In the employment termination agreement, the employer and employee should agree on an appropriate severance payment. This is particularly important because an employment termination agreement can negatively affect an employee’s possible entitlement to unemployment benefit. Although the employee is not entitled to severance pay, he or she 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 and nursing care contributions are deducted.
The amount 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 been working for the company for a long time and earn well, you can expect a higher severance payment. However, good negotiating skills are also required in this case, as the amount of the severance pay is regularly the result of negotiations. Therefore, it is advisable to seek advice before the negotiations to enter the negotiations with realistic expectations and a strong position. Our lawyers will be happy 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.
Blocking Period for Unemployment Benefit
As an employee, you should be aware of the impact of the employment termination agreement on future 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.
A termination agreement can lead to a blocking period for unemployment benefit (§ 159 para.1 No.1 SGB III). This is because the Employment Agency regularly argues that you could have refused the contract and thus created the reason for your unemployment yourself. You must also deal with this accusation if the initiative for the termination agreement came from the employer. A blocking period of up to 12 weeks can be imposed for unemployment benefit.
To ensure that no blocking period is imposed on you, there must be an important reason for the employment termination agreement, and this must be recorded in the contract. This is the case, for example, if the employer would have given notice of termination for operational reasons anyway, and a severance pay package was agreed. 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 in 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 period of notice must therefore be observed. Finally, the amount of the severance pay may not deviate significantly from the legal requirements. This means that it may not be significantly higher than half a monthly salary for each year of work.
Employment Termination Agreement: Advantages of Legal Representation
Having an experienced employment law professional in your corner can help ensure that 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 agreement 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 that you have a stronger hand when working out the finer points of the employment termination agreement.
However, we will emphasise that we will be working in tandem with you in such matters when it comes to strategy. We aim to fulfil our clients’ requirements in such negotiations, and therefore you will be kept informed, consulted with and have the final say throughout the duration of the process.