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Do you have to sign a termination agreement at work? Find out what you need to understand

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It’s never simple to terminate an employee. Learn how to write a professional employee termination letter and hold a professional separation meeting.

It is a typical situation as it occurs in working life: Your boss asks you for a personal interview and offers you a termination agreement due to restructuring. If you do not respond to this, you can expect to be dismissed for operational reasons.

The other typical situation is that you want to change jobs and your new employer wants you to start with them as soon as possible. Then you can give your current boss the prospect of resignation and ask for a termination agreement.

This enables you to shorten your notice period by mutual agreement. Many employers are quite willing to do this.

What is a termination agreement?

If you don’t ask for a termination agreement yourself, but are offered one, one thing is very important: Don’t let yourself be put under pressure. After all, your employer wants something from you – and not the other way around.

If you do not agree to the termination agreement, your employer would have to terminate you. And for this he needs a reason that is also valid under the Dismissal Protection Act.

A termination agreement is an agreement between an employee and an employer to regulate the termination of the existing employment relationship. There are fundamental differences to a termination.

No notice period – The notice periods otherwise customary in labor law do not apply. As a result, an employment relationship can be terminated at very short notice through a termination agreement – theoretically even on the same day.

No protection against dismissal – the statutory protection against dismissal no longer applies. There are no social criteria checked like in the case of a compulsory dismissal and it does not matter what you have done for your employer so far. If you actually have special protection against dismissal because you are pregnant or severely disabled, the employer does not have to take this into account in a termination agreement.

No works council – The works council also does not have a say, as would be the case with normal dismissal. In doing so, the committee checks whether social aspects have been sufficiently taken into account.

For example, whether the employee can continue to be employed in another position in the company. In the case of a termination agreement, this check is not required.

So, it is up to you whether a termination agreement is concluded or not. When making your decision, you should take into account that you are giving up important rights as an employee by giving your consent.

That is why you should definitely clarify with the help of an expert in labor law whether an operational dismissal would be successful if you reject the termination agreement. If that is not the case, it is worth considering getting terminated and then taking legal action against it.


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Only then is a termination agreement effective

A termination agreement must meet certain formal requirements in order to be effective:

Written form – a termination agreement must be signed by both sides (§ 623 BGB). Instead of the employer, an employee of the HR department or an authorized signatory can also sign. Cancellation agreements by e-mail or fax are by no means legally effective. Even verbally, you cannot simply cancel your employment contract.

No surprise – if an employee is asked for an interview and is urged to immediately sign a termination agreement without a period of reflection, the letter is ineffective (BAG, judgment of January 16, 1992, Az. 2 AZR 412/91).

Legal prohibition – Termination due to a transfer of business is not legally permissible (Section 613a Paragraph 4 BGB). If an employer tries to circumvent this prohibition by means of a termination agreement, this can lead to ineffectiveness. If you are offered a termination agreement after a transfer of business, you should go to a specialized lawyer. Ideally, to a specialist lawyer for labor law who only represents employees.

How high should the severance payment be?

Often a severance payment is also regulated in a termination agreement, although you are not entitled to it. How high this payment is also depends on your personal negotiating skills.

The amount is based on the statutory regulation on severance pay in the event of operational dismissal (Section 1a (2) KSchG): half a gross monthly salary for each year that you worked in the company.

But you don’t have to stick to that. Often the employer will give you a specific amount in order to make the exit from the company palatable for you. Should you receive such an offer, do not make a hasty decision and take your time to consider whether you agree with the amount offered.

Since employers want to avoid litigation in many cases, they are often generous with the severance payment. You should use that.

ALSO READ: Severance payment in Germany: Where do you get the most money?

Termination contract and job reference

If your employer has a great interest in the termination agreement, he will also agree to issue you with a good job reference. Discuss specifically how you envision the assessment. Of course, you can also have an interim certificate issued first and only then sign the cancellation agreement. This way you can avoid nasty surprises.

Those are the pros and cons

Think carefully about whether you agree to a termination agreement. You should clearly see the advantages and disadvantages and ideally discuss your specific situation with an expert.

Advantages

  • If you want to change jobs and have a new offer, you are flexible through a termination agreement and you can avoid a possibly long notice period.
  • If the employment relationship is unbearable for you, a termination agreement can offer a short-term exit.
  • You are not entitled to severance pay, but you can negotiate one.
  • You can help determine the conditions under which you leave the company.
  • You can use a termination agreement to anticipate a behavior-related or extraordinary termination. Possible reasons for termination by the employer are not known.

Disadvantage

  • The regulations on dismissal protection against unsocial dismissals do not apply.
  • There is no hearing by the works council.
  • The special protection against dismissal for pregnant women or the severely disabled does not apply.
  • You risk a blocking period for unemployment benefit if you sign the termination agreement.
  • Pension entitlements in the company pension scheme can be omitted.

What that means for your unemployment benefit

If you are negotiating a termination agreement with your employer, remember that this can lead to a blocking period for unemployment benefits (Section 159 (1) No. 1 SGB III). After all, you didn’t have to sign and you caused your unemployment yourself – regardless of who initiated the cancellation.

However, if you sign a termination agreement with an important reason because it was unreasonable for you to wait for a dismissal from your employer, you will not be subject to a blocking period. An important reason for concluding a termination agreement is, for example, if you would otherwise have received a termination for operational reasons from the employer and you regulate a severance payment in the agreement.

It is important that this must be explicitly mentioned in the contract. A corresponding clause could read: “The conclusion of this termination agreement is done to avoid an operational dismissal.” However, it is always advisable to consult with the Employment Agency before signing whether the wording – usually given by the employer – is accepted becomes.

If you are on the safe side and want to avoid a blocking period, you do not sign a cancellation agreement and can be terminated in due time.

What effects does a severance payment have on the tax?

It can happen that you get a higher tax progression when you receive a severance payment. This means that the payment increases your annual gross earnings and you slide into the level of the next higher tax rate.

The legislature has recognized this problem and introduced the so-called “fifth rule”. Accordingly, a reduced tax rate applies to severance payments. Then it is calculated as if you had received one fifth of the severance payment over five years.

This reduces your annual taxable income. The lower your previous annual gross earnings, the more you benefit from this “fifth rule”. If your annual income is already over 52,882 euros as a single person (or over 105,764 euros as a married person), you are already paying the top tax rate anyway. The “fifth rule” is therefore no longer an advantage for you.

Important: The tax office will only check whether you can benefit from this regulation if you submit a corresponding application.

Your employer has a duty to provide information

If you agree to a termination agreement, your employer has far-reaching disclosure obligations. This also applies if you express the wish for a termination agreement. The duty to provide information is important because you as an employee can face unexpected disadvantages once the contract has been concluded.

This can be the case if you lose your employer-financed company pension or a supplementary pension in the public service as a result of the cancellation. For these types of provision, membership periods usually apply, which must be adhered to.

Otherwise, you have to expect deductions for your future payments. If your employer does not point out these risks to you, you can claim damages if necessary (BAG, judgment of October 17, 2000, Az. 3 AZR 605/99).

If you have concluded certain supply contracts as part of your employment contract – for example a company pension scheme – you should inform yourself about possible disadvantages with the insurer before concluding a termination contract and decide how to proceed with the contract. The problem often arises when employees have paid part of their salary into pension insurance (direct insurance) as part of the company pension scheme.


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Michelle Halterman
USA, China, South Africa and now Munich - Michelle has come a long way in the world. She is an outdoor person and loves to be in nature with friends and on her mountain bike. Or she meets up with friends for pasta, vino, cappaccino & Co.
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