Severance Pay in Germany: Employment Law Provisions

Severance Pay in Germany: Employment Law Provisions

Contrary to a widespread assumption, employees have no legal claim to severance pay in Germany upon the termination of their employment relationship. However, there are exceptions where employees can claim a severance payment.

Corresponding compensation regulations that justify such claims can be found in social compensation plans, collective bargaining agreements, management contracts, and 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.

Schlun & Elseven Rechtsanwälte offers employees and employers comprehensive legal advice and representation in all labour law matters, including severance payments and employment termination. Our certified German employment and labour law specialist lawyers will gladly examine your severance payment case.

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Entitlement to Severance Pay under the German 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 per § 1a KSchG after the 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 a motion.

In this case, the employee will “automatically” receive a severance payment entitlement of half a month’s salary per year of employment. 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 dispute settlement. 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” 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 under §§ 910 KSchG. Such cases involve 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 show that the prospect of receiving a severance payment in a dismissal protection case is good.

Amount of the Severance Pay in Germany

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

The payment of a severance payment does not, in principle, have a negative impact on the entitlement to unemployment benefits. However, something else may apply if the severance payment was agreed upon 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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Practice Group: German Employment Law

Practice Group:
German Employment Law

Dr. Thomas Bichat

Certified Specialist Lawyer in Employment Law

Jens Schmidt

Certified Specialist Lawyer in Employment Law

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