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Severance Pay in Germany

Contrary to a widespread assumption, employees have no legal claim to severance pay in Germany upon termination of their employment relationship. However, there are exceptions where employees can claim payment of such a severance payment. Corresponding compensation regulations that justify such claims can be found in social compensation plans, collective bargaining agreements, management contracts and even in employment contracts. In addition, the parties to an employment contract may voluntarily enter into a contractual agreement on a severance payment upon termination of the employment relationship under a termination or settlement agreement.

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What severance pay are you entitled to?

Find out by contacting the German employment law team at Schlun & Elseven Rechtsanwälte today.

Entitlement to severance pay under the Dismissal Protection Act

Ultimately, within the framework of § 1a German Dismissal Protection Act, a claim for severance pay may arise under the following conditions:

  • The employer makes a dismissal for operational reasons,
  • The employer expressly points out in the letter of termination that the termination is based on urgent operational requirements and that the employee can claim a severance payment in accordance with §1a KSchG after expiry of the three-week period for an action for protection against dismissal,
  • The employee does not file an action for protection against dismissal until the expiry of the three-week period for filing an action.

In this case, the employee will “automatically” receive a severance payment entitlement in the amount of half a month’s salary per year of employment, whereby working periods of more than 6 months will be rounded up to a full year. An example of this is where a person has worked for a period of four years and seven months – this will be rounded up to five years.


Severance Payment after Filing of an Action for Unfair Dismissal

An action for unfair dismissal does not automatically give dismissed employees the right to compensation, since it is directed at the court’s finding that the dismissal did not terminate the employment relationship. However, the dismissal protection lawsuit is strongly geared towards an amicable settlement of the dispute. In 2014, for example, about half of all actions for unfair dismissal were terminated by a settlement. The better the prospects of success for the employee in a dismissal protection lawsuit are, the more willing the employer will be to pay a settlement “voluntarily” in order to avoid the financial risk of losing the lawsuit. This is because, especially if the proceedings are protracted, the risk is that if the employee wins the lawsuit, the employer will have to pay back the wages for the time during which the employee did not work because of the dismissal.

Theoretically – but rarely in practice – it is also possible that the employer may be ordered to pay a severance payment under §§ 910 KSchG. This is the case in the following conditions:

  • if, in the opinion of the court, the termination was invalid, and
  • if the employee cannot reasonably be expected to continue the employment relationship (e.g. in the case of derogatory statements by the employer during the proceedings).

These steps shows that the prospect of receiving a severance payment in a dismissal protection case is good.


Severance Pay in Germany and Unemployment Benefit

Generally, severance pay in Germany should no have a negative effect on the employee’s entitlement to unemployment benefits. However, in some circumstances where the employee stops working a “blocking period” can come into place. For this to happen, the employee needs to have caused the unemployment intentionally. Reasons for the employee causing the unemployment include gross negligence or through negative conduct that is contrary to the employment contract. Such conduct or negligence should then be the cause for the termination of the employment relationship (§ 159, Subsection 1, Sentence 2, No. 1, SGB III). In these cases, the usual blocking period is up to twelve weeks. However, in cases of hardship this blocking period can be reduced to six weeks.

Not every time the employee terminates the employment contract does the blocking period occur such as when the employee resigns or come to the conclusion of an employment termination agreement the case of resignation by the employee or the conclusion of a termination or settlement agreement. Furthermore, if operational reasons are behind the termination, whereby the employee’s employment is terminated not due to their (in)activity, the blocking period for unemployment benefit is not activated.

If you require further advice on this issue, or on severance pay in Germany generally, please contact our team directly.


Amount of the Severance Pay in Germany

The amount of the severance pay proposed by the Labour Court depends primarily on the prospects of success of the claim, as well as the employee’s length of service and earnings. The amount of the severance payment proposed usually varies between half a gross monthly salary and full monthly salary per year of employment. In individual cases, however, a higher severance payment may be negotiated under certain circumstances.

The payment of a severance payment does not, in principle, have a negative impact on the entitlement to unemployment benefit. However, something else may apply if the severance payment was agreed in a termination or liquidation agreement. In this case, there may be a blocking period due to the cessation of work.

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