Negotiation of severance payments
Many employment relationships end not with a judgment but with a settlement including a severance payment. Its amount depends largely on the legal starting position and how the negotiations are conducted. We assess your position and negotiate with the employer on your behalf.
The key points at a glance
No general entitlement
There is no general statutory entitlement to a severance payment. Entitlements may arise from a social plan, a collective agreement, the employment contract or a severance offer under § 1a KSchG in the case of dismissal for operational reasons. In most cases, however, the severance payment is the result of negotiation.
Customary negotiating benchmark
Half a gross monthly salary per year of service is frequently used as a starting point. This rule of thumb is neither binding nor an upper limit. What matters above all are the prospects of success of an action for protection against unfair dismissal, your length of service, your age and your prospects on the labour market.
Tax and social security
Severance payments are in principle subject to income tax. Reduced taxation may apply in certain circumstances. Genuine severance payments for the loss of employment are currently exempt from social security contributions. Whether and how a severance payment affects unemployment benefit depends in particular on whether the notice period has been observed. We do not provide tax advice, but will liaise with your tax adviser on request.
Default of acceptance as a negotiating factor
If the dismissal is invalid, the employer must pay the salary for the duration of the proceedings and continue to employ you afterwards. What you earn elsewhere or maliciously fail to earn is deducted (§ 11 KSchG). You must therefore make serious efforts to find a new job. The less likely follow-on employment is despite these efforts, the higher the employer's risk and the stronger your negotiating position.
How we proceed
We examine the validity of the dismissal or the employer’s reasons for wishing to part ways. This shows how much negotiating leverage you actually have.
Together with you, we set a realistic target and your minimum conditions. In addition to the severance payment, we include other points such as garden leave, the employment reference, the termination date and variable pay.
We conduct the discussions with the employer or its lawyer, either out of court or in the course of unfair dismissal proceedings. We record the outcome in a clear written agreement.
Frequently asked questions
Am I entitled to a severance payment?
As a rule, no. There is an entitlement only in special cases, for example under a social plan agreed between the employer and the works council in the event of operational changes, under a collective agreement, or where the employer offers severance under § 1a KSchG. In the case of executive employees, the employer can have the employment relationship dissolved in dismissal proceedings without giving reasons, against payment of severance (§ 14(2) KSchG). The fact that separations nevertheless usually end with a severance payment has an economic reason: if a dismissal is open to challenge, the employer bears a litigation risk. If it loses, it must pay the salary for the entire duration of the proceedings (default of acceptance pay) and continue to employ you beyond that. Deducted from this pay is what you earn elsewhere in that time or maliciously fail to earn. This risk is all the greater the more doubtful the dismissal and the less likely it is that you will soon find a new position despite serious efforts. In essence, the severance payment is the price the employer pays to eliminate this risk.
How much will my severance payment be?
This can only be reliably assessed after reviewing the individual case. The frequently cited rule of thumb is merely a guide. Depending on the risk to the employer, the result may be lower or higher. After our review, we will give you a realistic assessment.
Will I receive a severance payment if I resign myself?
As a rule, no, since the employer then bears no litigation risk. In that case a severance payment can arise at most from a specific contractual provision or from negotiations on an amicable termination. Seek advice before resigning, not least because of the possible consequences for unemployment benefit.
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