A Termination Agreement can be a way to end an employment relationship by mutual consent. Employers often present employees with such an agreement when they wish to achieve a separation without issuing a notice of termination.
For employees, a termination agreement can offer advantages – such as a severance payment, a positive employment reference, or clear terms governing the end of the employment relationship. At the same time, however, significant disadvantages may arise if the agreement is signed too hastily.
As a lawyer in Freiburg, I review your termination agreement, explain its legal consequences, and assist you in negotiations with your employer.
What is a Termination Agreement?
A Termination Agreement is an agreement between an employee and an employer in which both parties mutually agree on the termination of the employment relationship.
Unlike a dismissal, the employment relationship is not terminated unilaterally by one party. Instead, the employee and employer voluntarily agree that the employment relationship will end on a specified date.
Typical provisions in a termination agreement include:
- termination date of the employment relationship
- payment of severance
- release from work duties
- remaining vacation entitlement and overtime
- bonus payments or commissions
- return of company property
- wording and rating of the employment reference
Because signing a termination agreement can have far-reaching consequences, it should be reviewed carefully beforehand.
Do I Have to Sign a Termination Agreement?
No. As a general rule, an employer cannot require you to sign a termination agreement.
Even if your employer puts you under pressure or demands a quick decision, you should take sufficient time to consider the agreement. Once signed, a termination agreement can often be difficult to reverse.
The rule is therefore: have it reviewed first – then sign.
Will I Receive Severance Pay Under a Termination Agreement?
Many termination agreements include a Severance Payment as financial compensation for the loss of employment. However, there is not always an automatic entitlement to severance pay.
The amount of severance is often a matter of negotiation. Relevant factors include:
- length of employment
- salary level
- prospects of success of a potential dismissal
- negotiating position vis-à-vis the employer
Employees who accept a termination agreement without having it reviewed may miss the opportunity to negotiate better terms
What Are the Risks of a Termination Agreement?
In addition to potential advantages, a termination agreement can also involve significant disadvantages.
One particularly important issue is the possible impact on unemployment benefits. Under certain circumstances, the Federal Employment Agency may impose a suspension period if an employee voluntarily contributes to the termination of the employment relationship.
Unfavourable contractual provisions may also have long-term consequences, for example in relation to:
- an excessively low severance payment
- an unfavourable termination date
- absence of release from work duties
- inadequate provisions regarding the employment reference
- outstanding remuneration claims
- unclear settlement and waiver clauses
A legal review can help identify such risks at an early stage.
Termination Agreement or Dismissal – Which Is Better?
Whether a termination agreement is advisable or whether it is better to wait for a dismissal depends on the individual circumstances.
A termination agreement can be advantageous if favourable terms are negotiated. In some cases, however, it may be better for the employee not to sign and instead wait to see what action the employer takes next.
Individual legal advice can help you make the best decision from both a legal and financial perspective.
Do not sign a termination agreement too hastily. There are often better options than simply accepting the employer’s first offer.
I will review the following for you:
✓ Is the termination agreement advantageous for you?
✓ Is the severance payment being offered appropriate?
✓ Is there a risk of disadvantages regarding unemployment benefits?
✓ Can better terms be negotiated?
✓ Are the provisions regarding the employment reference adequate?
