Have you received a termination agreement from your employer, or have you been informed that a solution is being sought to terminate your employment contract by mutual agreement?
You should not act hastily in this situation, but rather seek advice from certified specialist lawyers in employment law. This is because there are many factors to consider when it comes to a termination agreement, and only through effective negotiation can you achieve the best possible outcome.
Have you received a termination agreement?
You can get the most important information quickly in our short explanatory video:
The Termination Agreement—Key Advice from a Lawyer
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That was a summary of the most important information about termination agreements. We’ve also provided a detailed overview of all this information for you to read in the following article.
What Is a Termination Agreement?
A termination agreement is a contractual arrangement intended to terminate the employment relationship by mutual consent as of a future date. However, both parties must agree to the termination of the contract.
Therefore, you do not simply have to sign a termination agreement that is presented to you; instead, you can review the terms with a certified specialist lawyer in employment law and discuss possible changes.
Unlike a termination, the agreement is therefore a bilateral contractual declaration and not a unilateral action by the employer or the employee.
Why am I being offered a termination agreement? How should I respond?
If your employer presents you with a termination agreement or suggests one, the underlying reason is usually the same. The employer typically wants to avoid a termination and a wrongful termination lawsuit in labor court because, ultimately, there are no valid grounds for termination.
This is your trump card for securing better terms for yourself through out-of-court negotiations.
Exercise caution if, during a performance review, you are presented with a termination agreement and pressured to sign it within hours. Or if you are denied the opportunity to take the agreement with you to have it reviewed by a certified specialist lawyer in employment law.
Such behavior is a sure sign that the offer is unfavorable or disadvantageous to you and is not legitimate.
Even if your employer threatens to terminate your employment if you do not sign the agreement, you should under no circumstances do so.
While in some cases an already signed agreement can be challenged retroactively, this is often not possible. Therefore, it is advisable to have a lawyer review the terms before signing and to negotiate any possible changes.
What is covered in a termination agreement?
A termination agreement addresses a wide range of relevant issues. These typically include:
Severance pay
A key provision is the agreement on an amount of severance pay for the loss of employment. A legal entitlement to severance pay exists only in exceptional cases. For you, this means that effective negotiation leads to the best outcome.
As a guideline, an amount of severance pay of 0.5 gross monthly salaries per year of employment is often cited. These so-called standard rates do not constitute legal entitlements; rather, they are sometimes suggested by labor courts in unfair dismissal cases when the litigation risks are evenly balanced.
As a rule, however, a significantly higher amount of severance pay can be achieved during the negotiations for a termination agreement. This is demonstrated by our decades of experience as certified specialist lawyers in employment law.
Leave of Absence and Vacation
An important and frequently requested provision is that the employee be granted a leave of absence for the remainder of the employment relationship while continuing to receive their salary. This allows the employee, freed from further work obligations, to focus on potential new job offers and to pursue job applications.
A distinction is made here between irrevocable and revocable leave of absence.
As a general rule, the company can offset vacation entitlements if it grants you irrevocable leave—that is, if it does not recall you to work at any point. In the case of revocable leave, this is not possible, and the vacation must still be compensated.
Employment Letter
Another important consideration is the wording of the formal reference and the grade it assigns for performance and conduct. Here, too, there is considerable room for negotiation, which should definitely be utilized. Ultimately, the goal should be to secure a grade of “very good” or “good.”
As certified specialist lawyers in employment law, we are constantly involved in drafting reference letters and have decades of experience in this area—for example, we know which specific phrases should definitely be included in the reference and which should be avoided at all costs.
Under no circumstances should you forget to also reach an agreement regarding an interim reference, which is issued before the expected end of the employment relationship. This is often overlooked. However, the interim reference is particularly important because, during the notice period—while you are still under your current employment contract—you will likely want to apply for a new job.
“Turbo Clause”
The so-called “turbo clause” is essential for being able to react flexibly in the job market. In the termination agreement negotiations we conduct, we almost always succeed in including this clause.
This means that, despite an initially agreed-upon end date for your employment, you can leave earlier at your own request if you are offered a new position at another company before that date.
With the “turbo clause,” however, you do not forfeit the remaining salary owed by your former employer. You can receive this as an additional amount of severance pay while simultaneously earning a new salary from your new employer.
This is often the most economically optimal and favorable arrangement, enabling a clean departure from your former employer and a flexible fresh start at a new company.
Advantages and Disadvantages of the Termination Agreement
Waiting Periods
A termination agreement has a significant disadvantage if you intend to claim Unemployment Benefit I afterward and do not transition seamlessly into a new employment relationship.
As a general rule, you must expect to face a waiting period with the Federal Employment Agency, during which you will not receive unemployment benefits for a maximum of 12 weeks. This is the Federal Employment Agency’s penalty for terminating your employment by mutual agreement.
It is also not sufficient to include a clause in the contract stating that termination would otherwise have certainly occurred. Such contractual clauses do not guarantee exemption from a waiting period with the Federal Employment Agency.
However, there are strategies and ways to avoid a waiting period. This is particularly true if you have a valid reason for terminating the employment relationship.
Furthermore, you can agree with the company that, in the event of a waiting period, the financial loss resulting from the waiting period will be compensated by the company. To avoid these disadvantages or to negotiate corresponding clauses, we are here to assist you as certified specialist lawyers in employment law.
In this regard as well, the experience of a specialized lawyer makes the decisive difference, which can result in significant financial benefits for you.
Severance Pay
Another disadvantage of a termination agreement may be that, for example, the company fails to pay the severance pay despite a contractual agreement. In such cases, you would then have to sue to recover it.
You do not face this problem if the employer issues a notice of termination and the same issues as in a termination agreement are settled in a court-mediated settlement as part of a claim challenging a dismissal.
This is because a court-approved settlement provides you with a legal instrument that is enforceable just like a judgment. Therefore, termination and a claim challenging a dismissal are not always more disadvantageous than a termination agreement; in fact, they often offer significant advantages.
Advantages
However, a termination agreement also has advantages, especially if you want to quickly transition to a new job. This may also be the case because the company is willing to pay a significantly higher severance package precisely to avoid a termination followed by a claim challenging a dismissal.
Negotiating a Termination Agreement: Why You Should Only Work with an Certified Specialist Lawyer In Employment Law
We review the proposed terms, explain the legal and financial risks, and guide you through the process of managing your career transition.
Experience shows that, as a rule, you’ll only come out on top—and be able to look ahead with confidence—with the help of a lawyer.
