After a termination, employers and employees often seek an amicable solution. In such cases, a Settlement Agreement Following Termination (Abwicklungsvertrag) is often concluded. This agreement regulates the consequences of a termination that has already been issued – for example, the payment of severance, release from work duties, or the issuance of an employment reference.
Such an agreement can offer advantages for employees. At the same time, however, important claims may be lost if the agreement is signed too hastily.
As a lawyer in Freiburg, I review your settlement agreement, explain its legal consequences, and support you in negotiations with your employer.
What is a Settlement Agreement Following Termination?
A Settlement Agreement Following Termination is an agreement between an employer and an employee that regulates the details relating to the end of an employment relationship.
The key difference compared with a termination agreement (Aufhebungsvertrag) is that, in the case of a settlement agreement following termination, notice of termination has generally already been given. The agreement therefore does not itself terminate the employment relationship, but instead regulates the consequences of the termination.
Typical provisions include:
- payment of severance
- termination date of the employment relationship
- release from work duties until the end of the notice period
- compensation for remaining vacation entitlement and overtime
- bonus payments or commissions
- return of company property
- provisions regarding the employment reference
- waiver of further claims
The last of these points in particular should be reviewed carefully, as broadly worded clauses may result in employees waiving important rights.
Should I Sign a Settlement Agreement Following Termination?
You should not sign a settlement agreement without having it reviewed first. Even if your employer expects a quick decision, it is worth obtaining a thorough legal assessment.
By signing, you will often be accepting binding and final provisions. Subsequent changes are usually difficult to make.
Before signing, the following questions in particular should be clarified:
✓ Is the severance payment being offered appropriate?
✓ Are there any outstanding salary claims?
✓ Have remaining vacation entitlement and overtime been taken into account?
✓ Is the employment reference adequately covered?
✓ Am I waiving any important rights?
Settlement Agreement and Severance Pay
The Severance Payment is often the most important element of a settlement agreement following termination.
The amount of severance is usually a matter of negotiation. One particularly important factor is the likelihood of success of a potential unfair dismissal claim.
If the employer faces a risk that the termination may not be upheld by the employment court, this can strengthen the employee’s negotiating position.
For this reason, the legal validity of the termination should always be reviewed before a settlement agreement is concluded.
Difference Between a Settlement Agreement Following Termination and a Termination Agreement
A settlement agreement following termination (Abwicklungsvertrag) and a termination agreement (Aufhebungsvertrag) are often confused.
The main difference concerns the timing:
- With a Termination Agreement einigen sich Arbeitgeber und Arbeitnehmer gemeinsam darauf, das Arbeitsverhältnis zu beenden.
- With a Settlement Agreement Following Termination notice of termination has already been given, and the agreement subsequently regulates the consequences of that termination.
Both types of agreement can have significant consequences and should therefore not be signed without prior review.
Could My Unemployment Benefits Be Suspended?
A settlement agreement following termination may also affect your entitlement to unemployment benefits.
Under certain circumstances, the Federal Employment Agency may examine whether the employee actively contributed to the termination of the employment relationship. In some cases, this may result in a suspension period for unemployment benefits.
Whether such a risk exists depends on the specific wording and structure of the agreement.
A settlement agreement following termination often determines important financial and professional issues after a dismissal. You should therefore have the proposed terms reviewed to ensure that they are genuinely in your best interests.
I will review the following for you:
✓ Is the settlement agreement legally advisable?
✓ Is the severance payment appropriate?
✓ Is there a risk of disadvantages regarding unemployment benefits?
✓ Are the employment reference, vacation entitlement, and outstanding claims properly addressed?
✓ Can better terms be negotiated?
