Termination agreement: what you need to know as an employee

What is a termination agreement?

With a termination agreement, employer and employee agree to end the employment on a specific date. Unlike with a dismissal, it is not one side alone that declares the end; both conclude a contract. The law calls it a cancellation agreement (Auflösungsvertrag) (Sec. 623 BGB).

Because there is no dismissal, the rules on protection against dismissal do not apply. The date can be freely negotiated. In return, the agreement usually contains what you would not have had with a dismissal: severance, release from work or a fixed reference grade.

Who writes the termination agreement? Usually the employer presents a finished draft, but legally either side can draw up the text. What matters is that both sides sign the same document by hand; if there are several identical copies, each side signs the copy intended for the other (Sec. 126 (2) BGB). Consent by email or electronic signature is not enough, as Sec. 623 BGB excludes electronic form.

Distinction from a settlement agreement (Abwicklungsvertrag): Here the employer dismisses first, and afterwards both sides only settle the consequences, such as severance and a reference, and you waive a claim. The employment ends through the dismissal, not through the agreement.

Termination agreement or dismissal: which is better?

Whether a termination agreement is better for you than a dismissal depends on what you give up and what you get in return.

Feature	Termination agreement	Dismissal by the employer	Settlement agreement after dismissal
Notice period	freely agreed, observing it is advisable because of unemployment benefit	statutory, contractual or collectively agreed (Sec. 622 BGB)	runs from the dismissal
Unfair dismissal claim	not possible, only rescission or invalidity	possible, within 3 weeks (Sec. 4 KSchG)	waiver is agreed
Works council involved	no	yes, consultation before every dismissal (Sec. 102 BetrVG)	yes, for the preceding dismissal
Special protection against dismissal	does not apply	applies, often consent of an authority needed	applies to the preceding dismissal
Risk of benefit suspension	high, without good cause usually 12 weeks	low, exception for conduct-related dismissal	possible
Severance	matter of negotiation	no entitlement, exceptions Sec. 1a KSchG, social plan, settlement	matter of negotiation, usually in return for waiving the claim
Form	in writing, both sign (Sec. 623 BGB)	in writing, signed by the employer (Sec. 623 BGB)	dismissal in writing, agreement in writing recommended

When a termination agreement can be good: if you have a new job and want to move sooner, if your notice period is long and a quick end in return for fair severance suits you, or if a conduct-related dismissal is looming and you would rather secure a good reference grade.

Why you should not sign straight away: With your signature, you give up protection against dismissal and accept the risk of a benefit suspension, without being able to undo it. Even if the offer is supposedly only valid today, the decision is yours. If you refuse, the employer has to dismiss you, and you can challenge that with an unfair dismissal claim.

Termination agreement: disadvantages and advantages at a glance

For the employer, a termination agreement is almost always favourable because it is quick and legally certain. For you, it is only worthwhile if what you get in return is right.

Disadvantages for you	Advantages for you
benefit suspension and shorter period of unemployment benefit	severance, release from work and reference grade can be negotiated
no protection against dismissal, no claim	earlier move without a notice period
no special protection against dismissal in pregnancy, parental leave, severe disability	no dismissal in your records
works council is not involved	immediate clarity instead of proceedings with an open outcome
general settlement clause can cost you outstanding claims	dispute before the labour court is avoided
an early end can cost you a bonus or company pension
severance is taxable

What must a termination agreement contain?

Legally, a termination agreement only requires agreement on the end and the date. You have to negotiate everything else, and what is not in it you often cannot get later.

End date and notice period

If the employment ends earlier than the employer could have dismissed with ordinary notice, unemployment benefit may be suspended for a time if you receive severance (Sec. 158 (1) SGB III), and good cause in the eyes of the employment agency usually no longer exists. Which notice period applies to you is set out in your employment contract or collective agreement, otherwise in the law. The scale by length of service is in our guide on notice periods for employees.

Severance and release from work

Fix the severance as a gross amount with a payment date. A sentence stating that the entitlement arises on signature and is heritable makes sense. With irrevocable release from work, you no longer have to work until the end and continue to receive your salary. If the agreement states that holiday and overtime are thereby settled, they are offset. With revocable release, the employer can call you back.

Remaining holiday, overtime and reference

Outstanding holiday that you can no longer take before the end must be paid out (Sec. 7 (4) BUrlG). Overtime should be stated in the agreement with the number of hours or an amount. You are entitled to a reference (Sec. 109 GewO); the grade is a matter of negotiation. Record that you will receive a favourable qualified reference with a specific overall grade.

Early release clause

With an early release clause (Sprinterklausel), you may leave before the agreed date, for example for a new job. The salary saved is added to the severance in full or in part.

General settlement clause

It provides that all mutual claims are settled with the agreement. Outstanding overtime, commission or expenses are then often lost. Only sign it if all claims are covered. Some claims cannot be excluded at all, such as the statutory minimum wage (Sec. 3 MiLoG).

Non-compete clause, company car and work equipment

A post-contractual non-compete clause costs the employer compensation of at least half of your previous remuneration (Sec. 74 (2) HGB). It can be cancelled or confirmed in the agreement. Also settle the return and use of the company car, laptop and mobile phone until the end.

Termination agreement and unemployment benefit: how to avoid a benefit suspension

The biggest danger with a termination agreement is unemployment benefit. Anyone who signs contributes to their own unemployment. The employment agency therefore checks whether you had good cause.

When the employment agency imposes a benefit suspension

A suspension for giving up work applies if you terminated the employment and thereby became unemployed intentionally or through gross negligence, without good cause (Sec. 159 (1) sentence 2 no. 1 SGB III). A termination agreement counts as termination by you, even if the employer proposed it.

• Duration: usually 12 weeks. It is reduced to 3 weeks if the employment would have ended within 6 weeks anyway, and to 6 weeks if it would have ended within 12 weeks or if 12 weeks would be a particular hardship (Sec. 159 (3) SGB III).
• Suspension: No unemployment benefit is paid during the suspension.
• Reduction: The benefit period is reduced by the days of the suspension, for 12 weeks by at least a quarter (Sec. 148 (1) no. 4 SGB III).
• Health insurance: Even during the suspension, you are covered by health insurance through the employment agency (Sec. 5 (1) no. 2 SGB V).

What the benefit suspension costs: example calculation

Simplified example: your unemployment benefit is €1,800 a month. The agency calculates with 30 days per month (Sec. 154 SGB III), i.e. €60 per day. You are entitled for 12 months, i.e. 360 days (Sec. 339 SGB III). Assumptions: you are unemployed directly after the end and registered in time, the suspension is the full 12 weeks, and the entitlement arises less than one year after the end of the employment (otherwise the reduction does not apply, Sec. 148 (2) sentence 2 SGB III).

Item	without suspension	with 12-week suspension
Days without payment at the start	0	84
Money during this time	€5,040	€0
Benefit period	360 days	270 days (minus a quarter)
Maximum amount in total	€21,600	€16,200

If you find a new job after more than 84 days but at the latest on day 354 (84 + 270 days), you are missing 84 days, i.e. €5,040. If you exhaust the entitlement, you are missing 90 days, i.e. €5,400 (Sec. 159 (1) sentence 1, Sec. 148 (1) no. 4 SGB III). If the suspension cannot be reliably avoided, this amount belongs in the severance negotiations.

Good cause: termination agreement without a benefit suspension

Whether there is good cause is assessed by the agency according to its technical instructions (Fachliche Weisungen) on Sec. 159 SGB III. According to these, it usually recognises good cause for a termination agreement if all points are met:

If the severance is higher, the agency checks whether the threatened dismissal would have been lawful. Personal reasons can also be sufficient, for example health reasons with a medical certificate. They must be provable.

Which wording helps against a benefit suspension?

There is no formula with which you can get around the suspension. The agency examines the facts, not just the wording. The agreement should, however, record what actually happened: that otherwise a dismissal for operational reasons would have been given for a specific date, that the notice period is observed and how high the severance is. A reason that does not exist will not help you and may harm you.

Suspension of benefit with a shortened notice period

If your employment ends before the ordinary notice period expires and you receive severance, unemployment benefit is suspended until the day on which a dismissal with proper notice would have taken effect (Sec. 158 SGB III). Example: your notice period is 4 months to the end of the month, you sign on the last day of a month, and the agreement already ends the employment at the end of the following month. Unemployment benefit may then be suspended for up to 3 months, because the period counts from the day of the agreement (Sec. 158 (1) sentence 2 SGB III). The law limits the suspension to a maximum of one year and additionally according to severance, age and length of service (Sec. 158 (2) SGB III). The simplest way is to observe the notice period.

Registering as a jobseeker: deadline

Register as a jobseeker at the latest 3 months before the end. If there are less than 3 months between signature and end, you have 3 days to do so (Sec. 38 (1) SGB III). Anyone who registers too late risks an additional suspension of one week (Sec. 159 (1) sentence 2 no. 9, (6) SGB III). You must register as unemployed at the latest on the first day without a job.

How much severance do you get with a termination agreement?

There is no statutory right; the amount is a matter of negotiation. The rule of thumb is half a gross monthly salary per year of service, based on Sec. 1a KSchG.

Example calculation: €4,000 gross a month, 8 years of service. €4,000 × 8 × 0.5 = €16,000 gross.

More is possible if the employer bears a high risk: if a dismissal would be challengeable under the Protection Against Dismissal Act, if you have special protection against dismissal, if your notice period is long or if the employer is under time pressure. Which factor is realistic depending on the situation is shown by the severance calculator [REDAKTION: Link auf abfindungsrechner, sobald veröffentlicht].

Is there a maximum severance? There is no statutory cap on agreed severance. Sec. 10 KSchG for severance set by the court provides guidance: up to 12 monthly earnings, from age 50 with 15 years of service up to 15, from age 55 with 20 years up to 18. Bear in mind: very high severance can make the benefit suspension check more difficult.

Tax: Severance is taxable. The one-fifth rule (Sec. 34 EStG) can reduce the tax, but it is now only taken into account through the income tax return, no longer in the employer's wage tax deduction (Sec. 39b (3) EStG). Social security contributions are not payable on genuine severance for the loss of the job.

Is a termination agreement valid?

After signing, you can only get out of it in exceptional cases.

• Written form missing: Without handwritten signatures of both sides, the agreement is invalid (Sec. 623, 125 BGB), and the employment continues.
• No right of withdrawal: There is no statutory right of withdrawal, even if you sign in your own home (Federal Labour Court (BAG), judgment of 07.02.2019, 6 AZR 75/18).
• Requirement of fair negotiation: The employer must not create a situation of psychological pressure that considerably impairs your free and considered decision, for example by deliberately exploiting a weakness due to illness. Otherwise it must pay damages: you are put in the position as if you had not signed, and the employment continues (BAG, 6 AZR 75/18). The fact that the offer is only valid immediately is not enough on its own (BAG, judgment of 24.02.2022, 6 AZR 333/21).
• Rescission: in case of deception or unlawful threat (Sec. 123 BGB); typical is the threat of a summary dismissal that a reasonable employer would not have seriously considered. Deadline: one year after the end of the coercive situation or discovery of the deception (Sec. 124 BGB).
• Withdrawal from the contract: If the employer does not pay the severance, you can withdraw after setting a deadline (Sec. 323 BGB).
• Transfer of business: If the agreement only serves to circumvent protection on a change of owner, it may be invalid (Sec. 613a BGB).

Deadline for signing: There is no statutory period for reflection. If the employer sets a deadline for acceptance, the offer lapses afterwards (Sec. 148 BGB). Ask for time anyway; that is usual.

Special cases

Termination agreement in vocational training

A training relationship can also end by termination agreement, in writing with both sides' signatures (Sec. 623 BGB via Sec. 10 (2) BBiG). If you are a minor, your parents must consent. During the probationary period of 1 to 4 months, both sides can give notice at any time without a notice period (Sec. 20, 22 (1) BBiG). After that, you can only give notice with 4 weeks' notice if you give up the training or want to train for a different occupation; the business can only give notice for good cause (Sec. 22 (2) BBiG). If you want to change business within the same occupation, a termination agreement is usually the quickest route.

Termination agreement because of illness

You can conclude a termination agreement even while on sick leave. If it is concluded because of your incapacity for work, continued pay during illness may continue beyond the end (Sec. 8 EFZG). Health reasons with a medical certificate can be good cause against a benefit suspension. And anyone who signs while ill and under pressure should bear the requirement of fair negotiation in mind.

Termination agreement at the employee's request

You can propose a termination agreement yourself, but you are not entitled to one. You are most likely to convince the employer with the advantage for them: an orderly handover, a fixed date, planning certainty. Do not expect severance in this case, and without a follow-up job the risk of a benefit suspension is high, just as with a resignation.

Pregnancy, parental leave, severe disability

In these situations, you are specially protected against dismissal (Sec. 17 MuSchG, Sec. 18 BEEG, Sec. 168 SGB IX). This protection does not apply to a termination agreement; no consent from the authority is needed. With your signature, you therefore give up a lot. That should be reflected in the severance.

Received a termination agreement: your next steps

1. Do not sign during the meeting and ask about the deadline.
2. Gather documents: employment contract and collective agreement, payslips, holiday and overtime balance.
3. Have it reviewed before you negotiate.
4. Renegotiate, sign and register as a jobseeker in time.

If you have been dismissed instead, you have 3 weeks to file a claim; see our guide on the unfair dismissal claim.