Legal & tax advice on termination agreements

A termination agreement is an agreement between two contracting parties to terminate an existing contract by mutual consent without giving notice. In the area of employment law, such a termination agreement terminates the existing employment relationship on an agreed date without the employer or employee giving notice. Employers are increasingly resorting to this instrument, especially now during the coronavirus crisis.

An existing employment relationship can be terminated either by notice of termination or by a termination agreement. Notice of termination is given unilaterally by the employer or employee and triggers legal consequences such as the notice period upon receipt. Once the notice period has expired, the employment relationship is terminated.

In contrast, a termination agreement is an agreement between the employer and employee. They agree to terminate the employment relationship under certain conditions and on a certain date.

These different means of terminating the employment relationship therefore entail different legal consequences.

In the case of a termination agreement, the employment relationship is terminated by mutual agreement without notice. In the case of a settlement agreement, on the other hand, the employer has already given notice. This termination is accepted by the settlement agreement. Only the modalities for the framework conditions for the termination of the employment relationship are negotiated.

The termination agreement is intended to end the employment relationship on a specific date by mutual agreement with legal certainty. For employers in particular, this is intended to prevent lengthy and imponderable actions for unfair dismissal before the labor courts. For employees, the employment relationship should be terminated under the most acceptable conditions possible through the termination agreement.

A termination agreement offers both advantages and disadvantages for both contracting parties.

Advantages for employers:

There are several advantages for employers. For example, they can circumvent the existing laws on protection against dismissal and, within the framework of the termination agreement, also part with employees who they cannot dismiss due to existing protection against dismissal. Certain notice periods do not have to be observed either. The termination date can be freely agreed.

In addition, the employment relationship is terminated with legal certainty in the event of an effective termination agreement. As this is done by mutual agreement, the employee does not have to expect lengthy and incalculable actions for unfair dismissal.

If a works council exists, it does not have to be involved prior to the termination of the employment relationship, even in the case of a termination agreement.

In addition, the employer can accurately predict the employee's remaining time with the company and plan accordingly. Ultimately, the employee's motivation to work regularly remains higher than in the case of unilateral termination by the employer.

He can also agree a non-competition clause for a certain period of time with specialized employees in particular. This can prevent these employees from bringing their skills to the competition.

Disadvantages for employers:

Occasionally, however, the above-mentioned advantages also entail disadvantages. For example, the agreement of a non-competition clause can prevent the former employee from working for the competition. In return, however, the employer will regularly have to make corresponding compensation payments during the waiting period.

In principle, the conditions for terminating the employment relationship will be somewhat more costly for the employer than would be the case with a termination. After all, the employer must take the employee's concerns into account to some extent in order to persuade the employee to agree to the termination agreement. This will be reflected in particular in the payment of an agreed severance payment.

However, this disadvantage is also considerably mitigated by the legal certainty it provides and the exclusion of lengthy and incalculable actions for unfair dismissal.

A termination agreement offers both advantages and disadvantages for both contracting parties.

Advantages for employees:

The advantage for the employee is that he can negotiate the most favorable conditions possible for the termination of the employment relationship. In particular, they can achieve a lucrative severance payment and a positive reference. In addition, an amicable termination usually reads better in the reference than a dismissal. Support from external service providers as part of so-called outplacement measures is also possible.

In addition, the termination date may be postponed to a later date than in the event of termination.

For employees who wish to move to another employer anyway, the employment relationship can also be terminated before the end of the notice period by means of a termination agreement.

Disadvantages for employees:

There are disadvantages for employees, especially if they do not immediately switch to another employment relationship or are Hartz IV recipients.

Anyone who agrees to a termination agreement and becomes unemployed must generally accept disadvantages in terms of unemployment benefit I and/or Hartz IV. As a rule, unemployment benefit I is blocked for a period of 12 weeks. In the case of Hartz IV benefits, a sanction is usually imposed with a reduction of the standard rate by 30 % for a period of three months.

If a severance payment has been agreed, this will also be offset against unemployment benefit I and/or Hartz IV benefits.

No. The employer cannot enforce your consent.

In certain situations, however, it can make sense to enter into a termination agreement and negotiate lucrative terms.

Whether this is the case depends on many factors in each individual case. You should therefore consult an experienced lawyer to assess your individual situation and protect your rights in the best possible way.

This question is very difficult to answer. A termination agreement is invalid if it was concluded contrary to the principle of fair negotiation. Whether an appropriate reflection period is necessary for this seems doubtful, but not completely ruled out.

According to the case law of the Federal Labor Court, such a reflection period is not required, as the employee is free to sign or refuse to sign. A period of reflection not granted does not constitute a reason to effectively challenge the termination agreement.

However, the Federal Constitutional Court has not yet ruled on this issue. It is neither certain nor can it be ruled out that the court will come to the conclusion in certain constellations that a reflection period is necessary in order to take account of the requirement for fair proceedings. However, it is impossible to predict whether and when such a decision will be possible.

Therefore, according to the case law of the Federal Labor Court, you should always assume that you will be held to your word, even if you have not been granted a period of reflection.

Ultimately, the vulnerability of a termination agreement always depends on many complex factors in each individual case. In order to assess these factors competently, you should seek the support of an experienced lawyer.

If your employer approaches you and offers you a termination agreement, you have several options:

• You can accept the termination agreement and terminate the employment relationship at the time intended by the employer with the conditions set by the employer.
• You can reject the termination agreement. However, this may result in termination under certain circumstances.
• You can renegotiate and adapt the termination agreement to suit your needs.

It is impossible to say in general terms which strategy is best for you. It always depends on the specific situation and the individual personal circumstances of each case.

In principle, only those who renegotiate can achieve better conditions for themselves. By consulting a specialized legal advisor, your case can be expertly assessed and an ideal solution can be found for you.

Your vacation entitlement exists as long as the employment relationship exists. You cannot effectively waive this entitlement. However, after a termination agreement, the employment relationship ends at a certain point in time.

It is therefore advisable to regulate the handling of your remaining vacation in the termination agreement. It is also possible for you to waive this if this waiver is taken into account in an agreed severance payment.

If no regulations are agreed, you can still take your remaining leave as long as the employment relationship exists and this is possible. If you have not used up your remaining leave by the end of the employment relationship, you can have it paid out by your employer.

However, if you receive ALG I or Hartz IV after the termination date, this money will be offset against the benefits.

This seemingly simple question can best be answered with a yes and a no. In principle, however, you will not receive ALG I immediately after a termination agreement. You must first expect a period of rest and suspension.

If your employment relationship is terminated by the termination agreement on a date earlier than the notice period, your entitlement to unemployment benefit I will be suspended for the period from the termination until the date on which your employment relationship would have been terminated by notice. However, the suspension does not shorten your entitlement, it only arises at a later date.

In addition, you will then receive a suspension of up to twelve weeks from the employment agency. This suspension will shorten your entitlement to ALG I. Instead of 52 weeks, for example, you will only receive benefits for 40 weeks.

Here is a brief example of this time lapse:

On May 1, you and your employer agree to terminate your employment relationship by means of a termination agreement with effect from May 15. If your employer were to terminate your employment, the employment relationship would not end until the notice period had expired on May 31.

Your entitlement to unemployment benefit is therefore suspended from 15.05 to 31.05. You will then be blocked for twelve weeks. You will therefore not receive unemployment benefit I for the period from 01.06 to 23.08. Nevertheless, this period will be deducted from the duration of your entitlement. If you are entitled for one year (= 52 weeks), you will only receive 40 weeks. You will therefore only receive unemployment benefit for the period up to 31.05. of the following year.

Although you can apply for benefits from the Jobcenter (Hartz IV) for the period of the freeze, you will only be granted a standard rate reduced by 30 %.

According to a ruling by the Federal Social Court, such a block only does not apply in certain constellations. This is the case, for example, if:

• you would have lost your job anyway due to dismissal for operational reasons. In other words, with the termination agreement you have only pre-empted the dismissal and
• the existing notice period between signing and termination is observed and
• they receive a severance payment of at least half a month's earnings per year of employment.

Yes, the severance payment will be offset against your unemployment benefit I.

Anyone who receives Hartz IV and signs a termination agreement without being able to take up another job immediately must expect a sanction from the Jobcenter. Their standard rate will be reduced by % for three months.

Only in a few exceptional cases is there no such sanction. This is the case if the termination agreement merely preceded a termination that would have taken place anyway and the employment relationship nevertheless ends on the same date.

Even if there was a reason for termination recognized by the Jobcenter that would have entitled you to terminate your employment yourself, you will not be sanctioned.

This is the case, for example,

• if the care of their own children could no longer be guaranteed or
• in the case of working conditions that are hazardous to health or safety or
• permanent non-payment of wages or
• physical attacks or sexual harassment and bullying.

If a severance payment is agreed in the termination agreement, this will also be offset against your Hartz IV benefits as one-off income. This means that, particularly in the case of higher severance payments, you may no longer be entitled to benefits for a certain period of time and will also have to take out social insurance yourself for this period.

Recipients of Hartz IV benefits in particular should therefore think very carefully about whether to sign a termination agreement. In any case, it is advisable to consult an expert lawyer first. This can also be financed by a consultation voucher, which can be applied for at the local court.

An employment contract must be concluded in writing in accordance with Section 623 BGB. This means that it must be signed by both contracting parties. If this form is not observed, it is invalid.

The content of the termination agreement can be designed as freely as possible. Only the statutory limits must be observed. For example, mandatory claims of the employee cannot be excluded by the contract without further ado. For example, an employee can only waive their remaining vacation if this is taken into account accordingly as part of a severance payment. The same should apply to wage payments, or at least to the statutory minimum wage.

Withdrawal from a termination agreement is only possible if a right of withdrawal has been expressly agreed.

If such a right of revocation has not been agreed, the contract can only be contested, for example in accordance with § 123 BGB on the grounds of fraudulent misrepresentation or threat.

This comes into consideration if the employer has given the impression that he could also lawfully dismiss the employee or take other measures against him, such as warnings, although this was not the case. If the employee is pressured into signing under these conditions, they can contest the termination agreement.

The circumstances under which the termination agreement was concluded may also be relevant here as a breach of the requirement of fair negotiation.

For example, the Federal Labor Court ruled that such a violation can occur if the employer visits a sick employee who is under the influence of medication at home unannounced and immediately obtains a signature for a termination agreement on the spot.

However, the chances of success for a challenge are extremely low. It is therefore advisable to refuse to sign in any case and to seek advice from an expert lawyer immediately. They will be able to assess the situation and seek the most favorable solution for you.