It was only after our analysis that he discovered that he was entitled to severance pay equal to three months of his earnings. The employer initially resisted, but then, under pressure from the lawsuit, paid the severance.
Any employee who quits for so-called organisational reasons is entitled to severance pay. This is a situation where the employer or part of the employer is being closed down or relocated, or where the work (position) performed by the employee is no longer redundant. In Mr Richter’s case, it was precisely a case of redundancy.
It is important to note that the right to severance pay arises whether the employment relationship is terminated unilaterally by the employer’s notice or by a termination agreement signed by both parties. There is then no such thing as termination by agreement.
The termination agreement does not have to state the reason for which it was concluded, and a claim for severance pay may nevertheless arise.
As of 2025, a previous employment relationship with the same employer will be included in the length of employment for the purposes of severance pay if it ended and was renewed within a maximum of six months. This may result in a higher severance payment than the employee would have expected.
“They called me into the conference room on Friday afternoon. They reminded me of the company’s deteriorating results and had me sign a termination agreement, which took an hour to finally sign, unfortunately without consulting an attorney,” Mr. Richtr recalls. “Whatwas infuriating was that they kept a few patronage people on, the HR boss’s cousin and then a friend of his from the wet district.”
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Tip for article
Tip: The probationary period is primarily used to ensure that both the employer and the employee are satisfied with the cooperation in the months and years to come. For this reason, the Labour Code allows both parties to terminate the employment relationship prematurely during the probationary period if they find at the outset that concluding an employment contract was not the best decision. But in which case can the employee defend himself against termination during the probationary period?
Mr. Richter’s agreement did not state that the reason for his termination was departmental reorganization and redundancy. Consequently, he was not awarded statutory redundancy pay.
However, Mr Richtr later contacted us. We explained to him that there was no such thing as termination by agreement among the methods of termination. The employment relationship can be terminated either by a unilateral legal act, where the employee or the employer gives notice for reasons provided for by law. The consent of the other party is not required at this point. It is sufficient for the termination to be valid if it is signed by the person giving the notice – provided, of course, that he or she complies with the requirements of the Labour Code and delivers it to the other party. Another option is to conclude a bilateral agreement on termination of employment. But then again, it is not a termination notice. Both parties must agree on its content and both must sign it.
In Mr Richter’s case, it was indeed an agreement which he signed and nothing could be done about it at the time. However, we could have claimed the severance pay in question.
The redundancy must be a genuine and objectively demonstrable organisational change on the part of the employer. It is not enough for the employee to make a subjective claim – the fact must be proven, for example, by the employer’s internal documents or witness statements. In the event of dismissal for organisational reasons, the employee must give at least two months’ notice. It runs from the date of delivery of the notice to the employee. During the notice period, the employee shall work or receive wage compensation in accordance with the law. In addition, severance pay is payable according to the length of the employment relationship (1-3 times average earnings). During the notice period, the employee must work (or take leave).
Many people do not know that this is similar for an agreement if there are organisational reasons behind it. If the employment relationship is terminated by agreement for organisational reasons, the employee is entitled to a severance payment of between one and three times the average earnings, depending on the length of the employment relationship. The agreement itself does not contain a notice period – the employment relationship ends on a date agreed by the parties, unless otherwise agreed. However, this possibility was not mentioned in Mr Richter’s agreement.
It must be said that if organisational reasons are mentioned in the agreement, then the employee is entitled to severance pay regardless of whether it was expressly agreed in the agreement. If organisational reasons are not mentioned, but are a real motive for termination, then it is still possible to prove such a fact in court. However, the whole situation is much more complicated and may not lead to the desired results.
However, we were still able to prove that the entire department was reorganized. As a result, Mr Richtr received a severance payment of three average salaries (he had worked for the company for more than two years).
Thus, we recommend not to give up in similar cases and to contact an (Available) attorney in a timely manner.
Importance of the termination agreement
At first glance, it may seem that a severance agreement is just a formality that helps both parties end the employment relationship without conflict. But in reality, what is stated in the agreement is very important. If it does not mention that the reason for the termination is organisational changes, the employee may lose their severance pay, even though they would be entitled to it under the law.
What is “termination by agreement”?
Many have come across the term termination of employment by agreement, but such a term is misleading. In fact, it is not a termination notice but a bilateral agreement between the employee and the employer. A termination of employment is a unilateral act where one party notifies the other that it is terminating the employment relationship. On the other hand, an agreement to terminate employment requires the consent of both parties.
What to look out for when signing an agreement?
If your employer offers you a termination agreement, always consider the following:
- Does the agreement state the reason for the termination? If yes, and it is for organisational reasons (e.g. redundancy), you are entitled to severance pay.
- Keep in mind that even if the reason is not stated in the agreement but it was actually organisational changes, you may be entitled to severance pay.
- Ask for time to consult a solicitor. This will avoid a situation where you sign a document that is disadvantageous to you.
Agreement vs. notice: key differences
The differences between these two methods of terminating employment are not just formal:
- Unilateral or bilateral act: a termination is unilateral, an agreement requires the consent of both parties.
- Unemployment benefit: In the case of a termination for organisational reasons, you are entitled to full benefit; in the case of an agreement, the benefit may be reduced unless a serious reason for termination is given.
- Sickness during termination: If you fall ill during the notice period, this may prolong your employment. In the case of an agreement, the termination date is fixed.
If the employee himself is considering initiating termination by agreement, he should formulate his request clearly and concisely. It is advisable to refer to the termination by agreement templates available online.
What to do if the employer breaks the rules?
If you suspect that your termination agreement circumvents the law or that you have been misled, do not hesitate to seek legal advice. In cases like Mr. Richter’s, professional help can mean obtaining fair severance pay and other rights.
In conclusion, exercise caution when terminating employment. Understanding the differences between a termination and a severance agreement is key. When in doubt, we recommend seeking professional advice and always looking out for your legal and financial interests.
Summary
Terminating employment by agreement can be beneficial to an employee, but only if they know exactly what they are signing – in particular, whether the agreement states the true reason for termination. If it is redundancy or other organisational change (section 52(a-c)), the employee is entitled to severance pay in the same way as if the employer had given notice. Even if the reason is not stated in the agreement, severance pay can be obtained if the employee proves that the real reason was reorganisation, but this is more difficult. The agreement is a bilateral legal act, it does not automatically contain a notice period and the employment relationship ends on a date agreed by the parties. In contrast, notice is unilateral, the notice period is at least two months and runs from the date of service of the notice. In the case of an agreement, the absence of a serious reason also affects the amount of unemployment benefit, which may be reduced. Employees should always allow time for consultation and, if in doubt, seek professional legal advice, as an inaccurately worded agreement can lead to the loss of money and rights to which they are legally entitled.
Frequently Asked Questions
Is "termination by agreement" the correct term?
No. The concept of termination by agreement does not exist in the Labour Code. It is a lay term for an agreement to terminate employment, which is a bilateral legal act. Termination is always unilateral – it is given by one party and the other party does not have to agree to it.
Does the termination agreement have to state the reason for termination?
They don’t have to, but it’s highly recommended. If the agreement is for termination of employment for organisational reasons (e.g. redundancy), it is advisable to explicitly state this reason. This is the only way to ensure that the employee is entitled to severance pay and full unemployment benefits.
Is the employee entitled to severance pay even if a termination agreement has been reached?
Yes. If the termination agreement is made for organisational reasons, the employee is entitled to the same severance pay as if the employer had terminated the employment. However, if the reason is not stated in the agreement, the entitlement may be more difficult to prove.
Can an employer force an employee to sign a termination agreement?
He can’t. The agreement to terminate employment must be the result of the voluntary consent of both parties. If the employee is pressured to sign, the agreement may be open to challenge and it is advisable to seek legal advice immediately.
What is the difference between termination by agreement and termination by agreement?
The difference is fundamental: the term termination by agreement is incorrect and misleading. The correct name is a termination agreement, which requires the consent of both parties and does not automatically have a notice period. In contrast, termination is unilateral and always comes with a notice period.
