Severance pay -
when and how much?

Action for unfair dismissal, severance pay or termination agreement?

In the following, we will show you what is important when it comes to severance pay in the event of dismissal and a termination agreement. There are certain things you should bear in mind in order not to reduce your chances of receiving a severance payment. In particular, the right approach In the event of termination or a termination agreement plays an important role. A dismissal is an extraordinarily stressful situation for those affected. Whether you have been employed by the company for many years or have just started a new job, being made redundant brings existential fears and many questions. Above all, our clients ask questions in this situation:

Will I receive a severance payment?

The purpose of the settlement

Severance pay is intended to achieve an amicable termination of the employment relationship. In this way, employees are compensated for the loss of their job. Accordingly, it is worth negotiating a severance payment in the event of dismissal or a termination agreement.

Dismissal protection action & severance pay: how long does it take?

Many employees unnecessarily refrain from asserting their rights because they are under the misconception that this will result in years of litigation. However, this is not the rule in employment law. Statistically speaking, the vast majority of cases are settled out of court within a few weeks or within a few weeks of a lawsuit being filed as part of a conciliation hearing. Hardly any other area of law offers such rapid legal protection as employment law. Very good knowledge of the legal situation and strategic considerations are crucial for a good result. We have the experience and determination to achieve the best result for you. As lawyers, we know what is important and where pitfalls lurk. Our experience is your decisive advantage. Don't know how to deal with a dismissal? Readour article "How to deal with termination?" here.

What are the three ways of compensation?

The legislator recognizes three main grounds for termination: dismissal for operational reasons, dismissal for personal reasons and dismissal for conduct-related reasons. As the names suggest, all three reasons for termination have different causes, which is why the severance pay process is different. In addition to the reason for termination, other factors such as salary and length of service are also taken into account when calculating the severance payment. Last but not least, how much a company is interested in getting the dismissed employee out of the company in a reliable and legally secure manner can also play a role in the amount of severance pay.

For every termination of employment, however, it is not just a question of what a company can or wants to do, it is also a question of comparative values and how severance payments are generally negotiated. This is where the negotiating skills of your lawyers come into play, because it depends on whether you have to settle for an average or even lower severance payment than normal or whether you can collect your well-earned severance payment with the help of professional negotiation skills and thus leave the company with a different feeling.

What are the requirements for a legally valid termination?

For employees, being made redundant means a deep cut in their professional life. The social and financial consequences can be severe, especially if there is no new job in sight. The legislator has therefore created very high requirements for a dismissal to be declared legally effective.

Notice of termination: This must be observed

Section 623 of the German Civil Code (BGB) requires that every notice of termination must be in writing. This means that the notice of termination must be signed by hand by the employer or a person authorized to represent the employer. A verbal notice of termination is therefore invalid. Termination by e-mail or WhatsApp is also invalid.

Ordinary dismissal, i.e. dismissal in compliance with the statutory notice periods, is possible, but most ordinary dismissals are ineffective, as the very high requirements of a large number of laws and requirements developed by case law are often not met. It can be terminated for operational reasons, for example due to a change in the company, or for personal or behavioral reasons.

Extraordinary termination is colloquially referred to as termination without notice. It may only take place if the important reasons are so serious that the employer cannot reasonably be expected to continue the employment relationship. In this case, the requirements are significantly higher than for ordinary termination. Interests must be weighed up.

Only the management or a person authorized by it, such as the personnel management, is entitled to give notice. If other persons are authorized to give notice due to company regulations, this must be handled in accordance with §§ 164 ff. BGB must be applied. Other persons, for example direct superiors, who are authorized to issue instructions in day-to-day work, are not authorized to terminate an employment relationship without express authorization to represent.

If the Dismissal Protection Act applies due to the size of the company, a certain procedure must also be observed. For example, dismissal for conduct-related reasons is only permitted in exceptional cases if no prior warning has been issued. Warnings serve to draw the employee's attention to a breach of duty, to reprimand them and to hold out the prospect of consequences under employment law. They also include a request to behave in accordance with the contract in the future. In most cases, the warning contains a threat of dismissal, which is issued if the behavior is repeated.

A warning must therefore be issued promptly after the misconduct. Only then does the employee have the opportunity to change their behavior in good time. However, it also depends on the severity of the breach as to whether a warning must be issued or whether the employee can be dismissed immediately. Behavioral reasons that must be warned at least once include, among others

However, a further warning is generally only a reason to carry out the threat of termination if it was issued due to the same misconduct.

A warning is not required for very serious breaches. Depending on the severity of the breach of duty, the employer cannot be expected to issue a warning before giving notice. The following breaches of duty, for example, come into consideration here:

Within a waiting period of six months, you can be dismissed without prior warning and under generally easier conditions, as there does not have to be a reason for termination. If you have received a warning letter, it may make sense to request that it be removed. We will be happy to check for you whether there are justified grounds for the warning. The same applies here as for dismissal; the high requirements must be met. We will advise you in detail, for example on whether a counterstatement would be useful or whether a complaint should be lodged with the works council.

Legal action can also be taken against a warning letter. This may be the case, for example, if the accusation was serious enough. However, this procedure involves a certain risk, namely that the labor court may find that the warning was issued justifiably. We will inform you about this risk in your personal case and weigh up which course of action makes more sense for you in the long term.

Termination agreement: negotiating severance pay

A termination agreement terminates the employment relationship by mutual agreement on the terms negotiated in each case. It is usually offered by the employee together with a severance payment if longer notice periods would have to be observed or if the employee would have special protection against dismissal at this time, e.g. due to work as a works council member, a severe disability or during parental leave. The termination agreement must be in writing; verbal agreements are not legally valid.

When negotiating the severance payment, it should be noted that the amount promised may affect the payment of unemployment benefit, as a suspension period may be imposed. We will be happy to clarify with you in a detailed consultation when this is the case and what the individual advantages and disadvantages of a termination agreement with severance pay might be.

Severance pay for redundancy: Your chances

Dismissal for operational reasons occurs if the reasons for this are not due to the person or behavior of the employee, but result from an operational requirement. The most common reasons for dismissal for operational reasons include

If the employee has protection against dismissal, he or she is also entitled to severance pay. The statutory protection against dismissal is regulated in Section 23 KSchG and is based on the size of the company and the start of the employment relationship in the company. In addition, special regulations apply to particularly vulnerable persons such as pregnant women, severely disabled persons or works council members. Accordingly, it can be difficult to give notice of termination for operational reasons to this group of people. Severance pay paid by the company is intended to serve as compensation and to bridge the gap until a new job is found. However, it is not only the size of the company that is decisive for the application of the Dismissal Protection Act, but also the length of service of the employee who is to be dismissed. In order for the Dismissal Protection Act to apply, the employee must have been with the company for at least six months. Only after this waiting period, which is based on Section 1 (1) KSchG, has expired does the employer benefit from protection against dismissal and can negotiate a severance payment.

Action for unfair dismissal or severance pay?

Since 01.01.2004, the entitlement to severance pay has been regulated by law. Accordingly, employees are entitled to severance pay if their employment relationship is terminated for operational reasons. However, the prerequisite for severance pay is that the employee has not filed an action for protection against dismissal within the statutory three-week period, but has allowed this period to elapse. A subsequent action for protection against dismissal after the 3 weeks, for example due to reinstatement of the previous status, is also an obstacle to the payment of severance pay.

Furthermore, the employer must state in the notice of termination that operational reasons could not be prevented and that the severance payment will be paid in the event that an action for protection against dismissal is waived.

The legal basis for this claim and the requirements can be found in Section 1a KSchG in conjunction with Section 10 KSchG. § Section 1 KSchG is also applicable to dismissals for operational reasons. The provisions apply if non-acceptance of the dismissal with notice of change or a complete rejection of the offer of change results in the employment relationship being terminated as a result.

Employer: Risking an action for unfair dismissal?

It is therefore up to the employer to decide whether to "reward" a waiver of legal action by paying a severance payment. However, even if the employer issues this settlement declaration in writing, there is still no entitlement to a minimum settlement amount. It is and remains a matter for negotiation between the individual and their lawyers.

Our tip
Social plan benefits are not covered by this regulation. They may not be made dependent on whether employees agree to waive an action for unfair dismissal.

It is also important for employees to know that the statutory entitlement to severance pay does not arise if the usual notice period lapses due to termination without notice or if the employee dies before the notice period expires. The entitlement does not pass to heirs. However, an individual contractual provision can put the employee in a better position, for example by ensuring that the severance payment is paid out to relatives after all.

However, as redundancies for operational reasons are also made in view of a company's insolvency, the insolvency as such could pose a risk to the payment of the severance payment. If the insolvency estate does not cover the severance payment, the employee may be left empty-handed despite the notice period. Comprehensive legal advice and an assessment of the overall situation will help you to make the right decision.

Social plan and severance pay: double payment for employees

Sometimes several employees are affected by redundancies at the same time. In such cases - especially in the event of insolvency - redundancy plans are drawn up. A points system for marital status, age and length of service is used to determine how the funds available for the social plan are distributed.

These payments from the social plan are to be made separately. The Federal Labor Court does not see any fundamental competition for claims here. For employers, however, this can mean that severance payments have to be paid twice. They will therefore try to limit the amount to be paid to an employee by means of an individual contractual provision. Collective agreements may also exist. Before signing such an individual agreement, you should always seek legal advice in order to avoid possible disadvantages.

Amount of severance pay: principle and negotiating skills

If you as an employee agree to accept the employer's offer of severance pay, you are entitled to the statutory amount. This amounts to half a month's gross earnings per year that you have been with the company. The gross monthly salary is also precisely defined by the legislator, namely in Section 10 (3) KSchG.

However, the employer is not obliged to state this severance payment amount, which is based on the statutory regulation, in his offer. He can also propose other models on his own initiative. In this case, however, it is then necessary for the employer to state in the notice of termination what severance payment he wishes to make. The employer may not later go below this amount.

However, these severance payments are minimum amounts that apply in the event of insolvency, for example. If the financial situation of a company allows for higher sums to be paid, this should definitely be negotiated. Although you should not expect utopian amounts, an additional amount for redundancy can often be negotiated with the appropriate negotiating skills, tactical experience and specialist knowledge.

Severance pay and unemployment benefit: observe the notice period

According to the latest legislation, severance pay as such can no longer be taken into account when drawing unemployment benefit. However, an exception applies if the severance payment is intended to override the statutory notice period. Even if the severance payment is higher than 0.5 gross monthly salaries per year of employment, there could be a risk that unemployment benefit will be blocked. We will examine the individual requirements arising from your personal case so that you can make the right decisions and avoid a blocking period.

Dismissal for personal reasons: Severance pay instead of dismissal protection action

Not only operational reasons, but also personal reasons can lead to the termination of the employment relationship. This is the case, for example, if it is foreseeable that the employee will no longer be able to perform the work owed due to illness, lack of or inadequate qualifications or other personal reasons.

The decision to dismiss for personal reasons does not depend on fault on the part of the employee. A lack of stress resistance - as a cause of errors - or frequent sick days cannot necessarily be remedied by the employee. However, this can become unreasonable for employers, particularly in smaller companies, for example if no other job can be made available that is commensurate with the employee's performance or if absenteeism disrupts the company.

A warning based on personal reasons therefore does not have to be issued and makes no sense. Since the reason for termination is personal but not based on changeable behavior, it would fail to achieve its purpose. However, certain conditions must be met in order to give notice of termination. In summary, these are

economic unreasonableness of the employer to continue the employment relationship

If it can be reasonably assumed that the illness, for example, will continue far into the future, dismissal may be considered. However, if there is a prognosis that the employee will return to work after a cure or a reintegration phase, even over a longer period of time, there is no reason for dismissal.

In this case, it may be advisable to bring about a judicial clarification through an action for protection against dismissal. Expert opinions on the probable duration of the illness could lead to the continuation of the employment relationship. The company's proof that it is unable to provide a job that is suited to the employee's capabilities will also be the subject of a dismissal protection lawsuit.

The - repeated - absence of an employee can result in a high financial burden for the employer. The work that needs to be done cannot always be seamlessly covered by colleagues. And if they do, the additional workload often depresses internal morale in the medium term. In smaller companies, an uninterrupted six-week period of illness - or many individual sick notes - can therefore be a reason for dismissal for personal reasons if no appropriate reintegration management can be implemented.

However, a strict balancing of interests applies here. It always depends on the circumstances of the individual case whether the dismissal is effective or can be successfully challenged through an action for unfair dismissal. Factors such as age, family (maintenance obligation) and length of service play a significant role here. The principle applies that the dismissal of an employee for personal reasons must be the last resort. This is also stipulated in SGB IX, in the provisions on rehabilitation and participation of people with disabilities. We will be happy to check for you whether these provisions apply in your case.

If you as an employee have little interest in keeping your job, you can negotiate - in or out of court - the payment of a severance payment. In return, the action for protection against dismissal is waived. However, there is no legal entitlement to severance pay, as there is in special cases of dismissal for operational reasons. However, further professional - and private - steps should be clarified in detail before accepting a severance payment, such as whether it makes sense to apply for a pension, whether a reduced earning capacity pension may be an option or whether disadvantages can be expected as a result of the severance payment in the event of unemployment registration.

Severance pay received after dismissal protection action: dismissal for conduct-related reasons

If you have received not only a warning but also a dismissal due to actual, alleged misconduct, you should not necessarily accept it. You have the option of filing an action for protection against dismissal within 3 weeks of receiving the dismissal notice. This applies in particular if you have been dismissed without notice.

In many cases, the reasons given are by no means sufficient, and it is often possible to obtain a conversion to ordinary dismissal before the labor court. It is also necessary to check whether you were previously given an effective warning. Employers are often not - or no longer - in a position to provide evidence of conduct-related reasons, so the process may well end in your favor. This is particularly important with regard to unemployment benefit. In most cases, a justified dismissal without notice would lead to a suspension of benefits. By filing an action for unfair dismissal, you not only gain a postponement, but often cash.

In addition to the lack of a prior warning, other reasons could lead to the dismissal protection action being successful, for example if the works council was not properly consulted on the dismissal without notice. There are also many pitfalls lurking here.

However, it is also important that all options are reviewed and evaluated with regard to any severance pay that may be achieved. It sometimes happens that employees are to be dismissed from the company without there being a relevant reason from an employment law perspective. In such a case, it is worth considering whether it makes more sense to negotiate a severance payment than to fight your way back into the company. After all, employees who have been dismissed allegedly for conduct-related reasons can hardly be expected to return to work. You can find out in a detailed consultation under what conditions a severance payment can be obtained, how a dismissal without notice can be converted into a dismissal with notice and what you need to bear in mind when notifying the employment office.

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