Termination agreement

The employer runs a huge risk in the case of a suit pertaining to unlawful dismissal. If the labor court determines that the dismissal is unlawful, the employer loses the case. The employer is then required to pay the employee’s back salary for the period since dismissal. He must pay for the time since the termination became effective. The employee is not required to work off the time. The situation is different when the parties have signed a termination agreement (also known as settlement, annulment or suspesdion agreement).

Solution for the employer: Termination agreement

There are many reasons for the employer to offer an employee a suspension agreement. A suspension agreement is a means for both parties to mutually arrange the termination of an employment contract. This agreement must be made in writing. It is not possible to conclude such agreements by email, for example.

Once the agreement has been signed by both parties, there is no more risk for the employer, because there is no chance of a suit being filed.

Risks involved for the employee

The risks involved in agreeing to a termination agreement are high for the employee, unless he/she has a new job prospect. He/she loses their job and there is no legal recourse. If the parties arrange a suspension agreement too quickly, there are often minimal to no severance arrangements made in the agreements based on my experience.

In general, the clauses relating to letters of reference are insufficient. The employee is oftentimes not even ensured of receiving a good letter of reference. There are quite often clauses in these agreements that force the employee to renounce claims to certain rights.

Sanctions imposed by the Agentur für Arbeit (the German employment agency)

The German employment agency can enact a lock-out period of up to twelve (12) weeks when a termination agreement is in place before it will pay out Arbeitslosengeld I, or ALG I (unemployment benefits, category I). Further, the maximum amount of time that a person is entitled to the benefits according to ALG I is reduced.

If the period of termination is not upheld and a severance is paid, this sum is counted against the benefits according to ALG I. In this case, the employment agency is under the assumption that the period of termination was bought.

However, these problems can be avoided if the agreement is properly worded. Employees should not enter into such agreements without first consulting a lawyer. I am available for consulting services in such instances at short notice. And I will also determine for you whether your insurance for legal assistance will cover the fees, as it varies from case to case.