Termination and settlement agreements

Termination agreement

Termination and settlement agreements are instruments for the amicable termination of an employment contract.

Under certain circumstances, employees and employers have an interest in terminating the employment relationship quickly and legally securely for the future with the help of a so-called termination agreement. Unlike termination, however, the dissolution is mutually agreed, i.e. by mutual consent. The prerequisite for this is the written declaration of the parties involved. A reason for termination of the employment contract does not have to be given, but is regularly done in practice.

It is important to note that such an agreement cannot be made unilaterally by a mere offer. In this context, the interest in concluding a contract may be great – especially on the employer’s side – and the employee may regularly feel taken by surprise or put under pressure. Often, termination agreements are linked to the existence of a reason for termination. When concluding the termination agreement, the employee’s private autonomous decision must therefore be particularly protected, since the employee, as a possible contractual partner, negotiates on an equal footing with the employee.

Settlement agreement

It regularly happens that another reason for termination and the termination agreement coincide. In this case, the employment contract is not terminated by the termination agreement, but by the preceding reason for termination. The termination agreement therefore regulates the details of a termination of the employment relationship that has already been decided in any case. Therefore, according to the BGB, this does not have to be concluded in writing.

Severance offer

In order to encourage the willingness to conclude a termination or settlement agreement, employers often voluntarily provide incentives such as a monetary severance payment. This one-time special payment for the termination of employment compensates for the loss of the job. Often, a claim for payment of severance pay may also arise. This may be regulated, for example, in a collective agreement applicable to the employee. The amount of such severance pay depends on the specific circumstances.

When should you conclude a termination agreement?

Therefore, the question often arises whether and when to sign a (present) termination agreement. Closely linked to this question are the advantages and disadvantages of a termination or liquidation agreement.

Advantages

In addition to the employee’s severance pay, the termination agreement can also avert a dismissal. For the employee, the conclusion can be useful in order to flexibly change jobs before the notice period. This may also include the conditions under which the employee leaves the company. The freedom of design is very broadly defined within the legal limits. Further individual provisions tailored to the specific circumstances may be advantages of a termination or settlement agreement.

Overview

• Avoidance of termination
• Compensation option
• Flexible termination of employment without notice period
• Co-design of the employee

Disadvantages

Disadvantages, on the other hand, may arise for factual and legal reasons. One disadvantage of the termination agreement, for example, is that the works council, as the employee’s protective body, does not have to be involved. The employee also waives the broad protection against dismissal provided by the German Dismissal Protection Act (KSchG). The planned receipt of unemployment benefits may result in blocking periods unless there are significant reasons for leaving the employment relationship.

Overview

• No comprehensive protection against dismissal
• No consultation of the works council
• Blocking periods when receiving unemployment benefits
• Offsetting of severance pay against unemployment benefits if the notice period is not observed

What to consider when entering into a settlement or termination agreement?

When concluding a termination or settlement agreement, essential content must become part of the agreement in order to avoid negative consequences for you as an employee or employer. The drafting of such agreements is regularly subject to time pressure.

Essential contents of a termination agreement are

• Termination date
• Exemption date
• Continuation of remuneration
• Vacation entitlements
• Job reference
• Duty to surrender
• Severance pay / special payments
• Secrecy

The termination agreement has already been concluded. Is it possible to get away from this again?

In principle, a contract must be executed by the employer and the employee. However, as with other contracts, termination or settlement agreements are based on a declaration of intent made. This can be attacked according to the general rules. In particular, the employee’s freedom of will can be protected by challenging a corresponding declaration. The employer is obligated to negotiate fairly, so that the situation of pressure and being taken by surprise can constitute grounds for challenge according to the specific circumstances if the employee’s free decision was massively influenced by the employer’s conduct. Therefore, it makes sense to also have a concluded termination or settlement agreement reviewed.

Summary

The termination or settlement agreement is an important termination instrument for employees and employers within the scope of contractual freedom. In this context, the advantages and disadvantages of concluding the contract must be weighed up in concrete terms and legally comprehensive and conclusive provisions must be made when drafting the contract. If the termination or settlement agreement has already been concluded, there are options available to help the employee obtain his rights or avert loss of rights.