Termination agreement in employment law - what do I need to know?

The coronavirus is still a daily companion throughout the world and no one knows how this situation will develop. Many industries are experiencing economic difficulties and many companies are currently trying to reduce their workforce. In addition to dismissal, a termination agreement, which is usually accompanied by a lucrative severance payment, is an option that many companies are considering.

In this news blog entry, we have drawn a brief conclusion on the termination agreement from an employment law perspective. You can find further information, in particular on our legal and tax advice on termination agreements and severance pay, on the following page:

Legal & tax advice on termination agreements

• A termination agreement is an agreement between the employer and employee under which the employment relationship is terminated without notice.
• A termination is unilateral and triggers legal consequences such as the notice periods. A termination agreement is an amicable termination of a contract.
• A termination agreement ends the employment relationship without notice. A settlement agreement regulates the modalities of the termination of the employment relationship after a notice of termination has been given.
• A termination agreement is intended to end the employment relationship by mutual agreement and on the best possible terms for both parties.
• There are numerous advantages and disadvantages for employers and employees. In particular, it is possible for both to circumvent the statutory notice periods. There can be a considerable disadvantage for employees with regard to unemployment benefit and/or Hartz IV benefits.
• The employer cannot enforce consent to the termination agreement
• The employer does not have to grant a cooling-off period for the conclusion of a termination agreement.
• If your employer offers you a termination agreement, you should seek legal advice and renegotiate it if necessary.
• The remaining vacation is not forfeited. If it cannot be taken by the end of the employment relationship, it must be paid out by the employer.
• After a termination agreement, you will receive a suspension period for your entitlement to unemployment benefit I. If the employment relationship ends before the end of the statutory notice period, your entitlement to unemployment benefit I will be suspended until this date.
• A severance payment is deducted from unemployment benefit I
• Recipients of Hartz IV must expect a reduction in the standard rate of 30 % for three months following a termination agreement if there is no exceptional case recognized by the Jobcenter that would have entitled them to terminate their contract. A severance payment is deducted from Hartz IV benefits.
• A termination agreement must be concluded in writing. It can be freely drafted in terms of content within the framework of the law.
• A termination agreement can only be successfully contested and thus eliminated under strict conditions.

You can find detailed information on the subject of termination agreements in our

FAQ section on the termination agreement