Termination of the employment contract in Germany = severance pay("Abfindung")?

In Germany you often hear the statement that it is not a bad thing if your employment contract is terminated because you are entitled to a severance payment ("Abfindung") from your employer. But is that really the case in Germany?

The clear answer to this is no. In Germany, there is generally no automatic entitlement to severance pay when an employment contract is terminated. Severance pay is voluntary compensation from the employer for the loss of a job. There is no blanket obligation to do so under German employment law.

However, severance pay can be paid in certain situations, but this is the exception rather than the rule:

1. termination agreement: if the employer and employee conclude a termination agreement, a severance payment can be negotiated. This is because, in contrast to a termination (declared unilaterally by one party), a termination agreement is a contract in which both contracting parties declare their intention to terminate the employment relationship by mutual agreement.

In the case of a termination agreement, it is important to know that the employee himself has contributed to his unemployment by declaring his intention to terminate the employment relationship. This can have an effect on the entitlement to unemployment benefit (Social Security Code III / Sozialgesetzbuch III (SGB III) ) (e.g. through a suspension period).

2. dismissal protection action: If an employee takes legal action against a dismissal and the labour court decides that the dismissal is invalid, a severance payment may be made in some cases, especially if an agreement is reached. However, this depends very much on the individual case. However, the employer's offer of severance pay automatically expires when an action for protection against dismissal is filed. As part of the prior conciliation hearing, the court can suggest a settlement, for example to pay a severance payment in return for termination of the employment relationship.

3. dismissals for operational reasons (betriebsbedingte Kündigung): Severance pay may be available in certain cases of dismissals for operational reasons. (However, high demands must be placed on the requirement of “urgent operational requirements” mentioned in the law). However, the employer must have expressly stated in the notice of dismissal that the dismissal is based on urgent operational requirements and that the employee can claim severance pay after the expiry of the deadline for filing an action for protection against dismissal. This shows that the employer has the right to choose whether to offer a severance payment with the dismissal for operational reasons in the event of a “waiver of action”. The provision of Section 1a of the Dismissal Protection Act (Kündigungsschutzgesetz/ KSchG) therefore does not establish an absolute minimum entitlement to a severance payment.

Important: However, as soon as the dismissed employee files an action for protection against dismissal, any entitlement to severance pay expires, see Section 1a of the Dismissal Protection Act (KSchG).

4. Collective agreements: In some industries or companies, collective agreements may contain provisions on the payment of severance pay.

5. in the case of employment relationships of less than 6 months, i.e. in the classic probationary period, during which both contracting parties can terminate the employment relationship at any time with 14 calendar days' notice from receipt of the notice of termination without giving reasons, Section 622 (3) of the German Civil Code (Bürgerliches Gesetzbuch - BGB). There is only an exception for employees with protection against dismissal, such as pregnant women.

6. severance pay in dismissal protection proceedings through a termination judgment: If the labour court determines in dismissal protection proceedings that the dismissal issued by the employer is invalid, the employment relationship would subsequently continue. In most cases, however, it is no longer possible to work together in a spirit of trust and without emotional strain at this point. According to Section 9 KschG, it is possible to terminate the employment relationship by judgment in return for payment of a severance payment. The amount of the severance payment is then determined by the court at its reasonable discretion.

The amount of the severance payment is freely negotiable. The employee's length of service, his regular salary, the possible outcome of an action for unfair dismissal and, of course, his negotiating skills must be taken into account. As a rough guide, half a month's gross salary is taken as a basis for each full year of employment.

Conclusion:

It is by no means the case that every termination agreement automatically entails the payment of a severance payment. The payment of a severance payment is not an obligation. It is solely a matter of negotiation whether the employer pays a severance payment or not. In the event of dismissal, it is advisable to seek legal advice in good time in order to clarify your individual options and entitlements. An action for protection against dismissal must be filed within 3 weeks, otherwise the dismissal will be deemed effective. The deadline starts with the receipt of the notice of termination. If the deadline for submission is missed, the notice of termination received is deemed to be lawful.

I publish interesting questions about German employment law judgements on this blog regularly. If you need special advice tailored upon your individual case, don't hesitate to get in contact with me.

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