Severance pay

There is a persistent rumor among employees that, upon termination of an employment relationship, employers will make an Severance pay must pay. However, this is not the case in Germany. A Entitlement to severance pay arises automatically only in a few exceptional cases. Apart from these, financial compensation is purely Negotiation case.

A severance payment is one-time payment, with which the employer compensates his former employee for termination of the employment relationship and the resulting Loss of job compensated.

  • 6.1 ABC of AfA: Severance pay
  • 6.2 Drama at Wirecard – Why a works council is so important
  • 6.3 Restructuring in the wake of Corona – what can the works council do??

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No general entitlement to severance pay

A Entitlement to severance pay as already mentioned above, does not exist in the German legal system. However, special constellations are conceivable in which a claim to severance pay arises. This is the case, for example, with:

  • Severance arrangements in a works agreement
  • Severance payments after social plan/ reconciliation of interests
  • Severance pay according to § 1a KSchG
  • Severance payments by judicial settlement
  • severance pay after termination pursuant to §§ 9, 10 KSchG
  • Severance pay provisions in a termination agreement

Severance payments according to works agreement

The Works Council can be agreed with the employer in a company agreement Set out in writing in which cases of termination a severance payment is to be made. Such an agreement shall be entered into voluntarily by both parties and shall apply directly and mandatorily vis-à-vis the employees covered by the scope of the works agreement

The same applies to Severance pay provisions in collective bargaining agreements – provided that the collective bargaining agreement applies to the employment relationship of the terminated employee.

Severance arrangement according to social plan/reconciliation of interests

In the case of a Operational change according to § 111 S. 3 BetrVG can be a Reconciliation of interests or social plan provide severance pay for employees dismissed as a result of the change in operations. If the employer deviates from a reconciliation of interests without compelling reason by z.B. If the employer dismisses twice the number of employees than was specified in the reconciliation of interests, he is also obligated to pay severance pay to the dismissed employees.

severance pay according to § 1a KSchG

For a claim to severance pay after § 1a KSchG is a prerequisite

  1. the employer bases the termination on operational reasons,
  2. the employer also states this in the notice of termination,
  3. the employer simultaneously holds out the prospect of severance pay to the employee in accordance with § 1a KSchG in the event that the employee waives the right to take legal action against dismissal in accordance with § 4 KSchG, and
  4. the employee allows the period for filing a lawsuit pursuant to § 4 KSchG to lapse.

However, such severance payments based on § 1a KSchG (Protection against Dismissal Act) occur only very rarely, because the employer has to comply with the conditions set out in § 1a para. 2 KSchG, the severance payment rate of 0.5 months’ earnings per year of existence of the employment relationship is generally considered to be too high.

severance pay labor law guide

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Severance payment arrangement after court settlement

Even the filing of an action for protection against dismissal before the labor court does not automatically entitle the employee to severance pay.

Usually it runs before Labor courts however, such that the parties agree in the course of the proceedings to terminate the employment relationship with the payment of a severance payment. Such a Settlement is often the best solution for avoiding a lengthy legal dispute, which may involve several instances and can also be very stressful for employees.

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Severance pay after dissolution judgment

According to the legal conception, the employer cannot unilaterally "buy his way out" of his obligation to continue employment and the employee cannot unilaterally demand severance pay in lieu of his job.

If the court finds in the context of the Dismissal protection proceedings the invalidity of the termination is established, but if the basis of trust for a meaningful continuation of the employment relationship is no longer given, the court can dissolve the employment relationship at the request of the employee against severance payment according to § 9 KSchG. The severance payment to be determined compensates the employee for the loss of the job. At the same time, the severance payment sanctions the unjustified termination.
The amount of the severance payment is determined by the court and may be lower or higher depending on local practice. According to § 10 KSchG it will not exceed 12 monthly salaries.

Severance arrangement after termination agreement

Most often, a claim for severance pay is based on a termination agreement. A severance payment sweetens the job loss and for many, a termination of the employment relationship by mutual consent the termination often perceived as a stigma. However, one should never let oneself be pressured by the employer into signing such a termination agreement! If the employer is not willing to have the termination agreement reviewed by the employee’s attorney, it can be assumed in most cases that the agreement is disadvantageous for the employee. In this case, the employee must be very careful that this agreement is not interpreted as a voluntary termination of the employment relationship. Otherwise there is a threat of up to twelve weeks’ suspension of unemployment benefits.

Prospects of success in negotiations on severance pay

As in all negotiations, negotiating the amount of a severance payment depends on who has the better arguments. Points that speak for a high severance payment are z.B.:

  • the invalidity of the termination (z.B. unjustified social selection)
  • the highest possible protection of the status quo (z.B. long service with the company, high age)
  • a special protection against dismissal (e.B. works council member, pregnancy)
  • the employer’s wish to terminate the employment relationship as quickly as possible

If the Dismissal Protection Act is applicable, in the case of a termination for operational reasons, the main factor is whether the selection of the person dismissed was socially justified. If this is the case, the prospects of a high severance payment are rather poor. If, on the other hand, the selection was not socially justified or several of the above-mentioned points apply to the employee, severance pay may be can also be much higher than the severance payment specified in § 1a Para. 2 KSchG suggested half monthly earnings per year of existence of the employment relationship. In such cases, the employer often tries to "buy himself out" of the employment relationship by offering a high severance payment and to avoid troublesome legal disputes.

What is left over from the severance payment??

A severance payment is not remuneration, because it is not related to the terminated employment relationship but to the termination itself as compensation for dismissal. Therefore, no social security contributions are deducted from a severance payment, d.h. there will be no contributions to pension, health, nursing care and unemployment insurance deducted. However, severance pay is subject to the Taxation in accordance with the rules on wage tax deduction.

Is severance pay worthwhile?

Severance pay can be a curse or a blessing. On the one hand, the employee has the chance to reorient himself without great financial pressure and perhaps find his true professional fulfillment. On the other hand, there is a risk that without the lack of pressure, the employee will not immediately start looking for a new job and will not find a suitable job after a certain period of time.

Apart from this, the assessment of a possible Severance amount, the negotiation and settlement is a difficult undertaking that requires extensive experience with the subject matter. The specialist lawyers at AfA have the necessary experience and will be happy to help you with their knowledge.

Register as jobseeker

If you have received a notice of termination, it is important that you contact the Employment agency register as unemployed. This ensures that you receive benefits such as unemployment benefits and do not risk any reduction in benefits.

The Notification as a job seeker can be done on site at the employment agency or online via the site of the Federal Employment Agency at the following address:

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