Severance payment

Severance payment

Severance pay upon termination of an employment relationship

If an employment relationship is terminated by the employee or by the employer with or without notice, the question often arises as to the right to a Severance payment of the employee. Those affected should ideally contact a lawyer as soon as possible, who can review the opportunities and risks in their case. It is particularly important to act quickly if an employee has already been dismissed. You are welcome to send us your free and non-binding enquiry either by telephone or by email. by email direct.

The legislator does not provide for a general entitlement to severance pay. Rather, certain conditions must be met in order for the employee to be entitled to a severance payment:

• Agreement of a severance payment in the cancellation agreement
• Agreement of a settlement in a court settlement
• Severance pay in accordance with the Dismissal Protection Act
• Company agreement (social plan)

 

1. agreement of a severance payment in the cancellation agreement

The severance payment is rather a matter of agreement and is not subject to a fixed statutory regulation. The following rule of thumb generally applies: The greater the employer's interest in terminating the employment relationship and the lower its chances of enforcing this by legal means, the greater the severance payment that the employee can negotiate.

2. agreement of a settlement in the court settlement

However, most cases of severance pay are negotiated before the labour court. After a dismissal by the employer, the employee has 3 weeks to file an action for protection against dismissal with the labour court. If a lawsuit is filed, one or even both parties are often no longer willing to continue the employment relationship.
In these cases, it is possible for both parties to reach an agreement before the labour court on the termination of the employment relationship in return for payment of a severance payment. The amount of the severance payment depends on the length of employment, the prospects of success of the action for unfair dismissal and the employer's interest in terminating the employment relationship. The employer's financial situation is also a decisive negotiating criterion for the amount of the severance payment.

 3. severance pay in accordance with the Dismissal Protection Act

There are two constellations in the Dismissal Protection Act that regulate severance pay:

Severance payment due to employee's application for cancellation

If the action for unfair dismissal is successful, the employment relationship continues as if it had not been terminated. In this case, the employee must resume employment. However, this is unreasonable for the contracting parties at this time due to the existing disputes and therefore the employment contract cannot be continued.

In such a case, the respective party can file an application for termination with the labour court. The court will then declare the employment relationship cancelled and order the employer to pay a Severance payment.

Severance pay according to the employer's offer

The employer has the opportunity to prevent a dismissal protection process as soon as the notice of termination is issued.

The employer is free to offer the employee a severance payment of 1/2 month's salary per year of employment in accordance with Section 1a KSchG in the letter of termination, but only if the employee waives the right to file an action for unfair dismissal.

The employee's entitlement to severance pay then arises at the end of the three-week period for the action for protection against dismissal.

Regulations on tax exemption for severance pay

Since 1 January 2006, severance payments have been taxed as normal earned income. However, the favourable one-fifth rule applies to severance payments.

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