Termination agreement received in Germany: what to review

A termination agreement ends the employment relationship by mutual agreement. After signature, there is generally no automatic right to withdraw merely because the employee later considers the result unfavourable.

Do not sign without reviewing the complete agreement

Even where the employer sets a short acceptance period, the agreement should not be signed before its legal and economic consequences have been examined.

The first draft does not necessarily represent the best achievable result. The available negotiating position depends on the underlying employment contract, possible dismissal protection, outstanding claims and the employer’s legal and commercial alternatives.

Compare the agreement with the position without signing

The proposed package should be compared with the rights and obligations that would apply if no agreement were concluded.

Relevant questions may include:

• whether the employer could lawfully terminate the employment relationship
• which notice period would apply
• whether general or special dismissal protection exists
• whether remuneration, bonuses or commission remain outstanding
• whether continued employment is a realistic alternative
• which litigation and negotiation risks exist for both parties

Review the termination date

The agreed termination date affects the duration of salary payments, notice periods, social-security coverage and the possible start of new employment.

An early termination date may also influence unemployment benefits. The date should therefore not be considered separately from severance and the other financial provisions.

Evaluate the severance payment in context

German law does not provide an automatic severance payment in every termination situation.

The proposed amount should be assessed in relation to:

• length of service
• remuneration
• dismissal protection
• litigation risks
• notice periods
• outstanding financial claims
• the intended termination date
• the claims and rights being waived

Examine garden leave and holiday provisions

The agreement should state clearly whether garden leave is revocable or irrevocable and whether salary will continue to be paid without restriction.

It should also address:

• crediting of holiday entitlement
• time-off balances
• alternative earnings
• company property
• company cars
• access to systems and premises
• duties of confidentiality and cooperation

Regulate salary, bonuses and other payments

Outstanding salary, variable remuneration, commission, target bonuses, special payments and reimbursement claims should be addressed expressly.

Unclear settlement clauses may otherwise extinguish claims that were not specifically considered during negotiations.

Agree on the employment reference and communication

The agreement may contain provisions concerning the type and wording of the employment reference, the description of duties and the performance assessment.

For executives and managing directors, internal and external communication, professional reputation and the timing of announcements may also be important.

Consider unemployment-benefit consequences

A termination agreement may lead to a temporary disqualification period for German unemployment benefits. In some circumstances, benefits may also be suspended until the applicable notice period would have expired.

The actual consequences depend on the individual circumstances and the wording of the agreement. A general statement that no disadvantages will arise does not replace a specific assessment.

Check settlement clauses and post-contractual obligations

Broad settlement clauses may cover claims that are not expressly listed in the agreement.

Post-contractual non-compete obligations, confidentiality, return of documents, intellectual-property rights and contractual penalties may also continue after termination and should be examined carefully.