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Successfully negotiate severance payments after termination

Expert article in labor law

Find out under which conditions severance payments are possible and how you can improve your chances in negotiations

Negotiating severance pay after a termination often requires a sophisticated strategy and negotiating skills, with success largely dependent on the prospects of a wrongful termination suit. But is there even a right to severance pay if an employee is terminated? What severance payments are realistically enforceable? This article provides answers to these and other key questions about severance pay.

Are employees entitled to severance pay if they are dismissed?

There is a common misconception that employees are automatically entitled to severance pay after termination. In fact, there is generally no legal entitlement to severance pay after termination; such claims are the exception.

A potential entitlement to severance pay may arise from specific collective bargaining agreements or a social plan. Another exception is stipulated in Section 1a of the German Dismissal Protection Act (Kündigungsschutzgesetz), which allows employers to offer severance pay in the context of a dismissal for operational reasons. However, this offer only applies if the employee waives the right to file a wrongful termination suit. Such a waiver of the right to sue in exchange for severance pay is rare, however.

In most cases, employers pay severance pay as part of a court settlement. This requires a sophisticated strategy and excellent negotiating skills. Nevertheless, the payment of severance pay remains a voluntary benefit provided by the employer upon termination. After receiving notice of termination, the employee must file a wrongful termination suit within three weeks to challenge the termination. Through this suit, the employee seeks a ruling that their employment relationship continues and that the termination is therefore invalid.

If it becomes apparent during the process that the termination is not tenable, the employer would generally be obligated to continue the employment relationship. However, this is often not feasible in practice, as the relationship between employer and employee is usually too strained, and continuing the employment relationship seems almost inconceivable for both parties. Furthermore, the employer would have to pay all outstanding wages since the termination, even though the employee has not worked during this time, which can be financially burdensome.

Therefore, employers often tend to offer severance pay during the process. This serves to relieve them of the obligation to prove a reason for termination in court and simultaneously avoid the risk of having to pay back wages for the months in which the employee was not employed. This requires tact and negotiating skills to negotiate the best possible severance package. Employees are often not averse to a mutually agreed termination of employment, as the prospects for continued trusting cooperation are slim once a termination has been issued and a potential court case has been made.

How much can I receive after termination?

Most labor court disputes end with a settlement, which often includes the payment of severance pay.

The amount of severance pay following termination is determined by several factors, although there are no fixed limits or prescribed amounts. Ultimately, the amount of severance pay depends on the negotiating skills and persistence of the attorney or negotiating partner, as well as the prospects of success in the unfair dismissal case. Influential factors include:

The length of service of the employee
The amount of the salary
The size of the company
The reason for the termination
The personal relationship between employee and employer

Although there is no set amount for severance pay, labor courts often base their decisions on a "standard severance payment" of approximately 0.5 gross monthly salaries per year of service. This serves as an unwritten minimum for severance negotiations. The stronger the negotiating position, the higher the severance payment can be. In practice, a severance payment between 0.5 and one full gross monthly salary per year of service is often considered appropriate. This standard severance payment serves only as a rough guideline, and with skillful negotiations, a significantly higher amount can often be achieved, depending on the individual circumstances of the case.

Example of severance pay calculation: If an employee has a gross monthly salary of 3,000 euros and has been with the company for four years, the standard severance payment would be 6,000 euros gross.

Hire a lawyer to negotiate your severance pay upon termination

It is highly advisable to entrust the negotiation of your severance package to an experienced employment lawyer. A lawyer is intimately familiar with the tactics of the opposing side and has extensive experience with negotiation strategies and realistic severance package amounts. Furthermore, it is crucial that an agreement is drafted in a legally correct manner so that it can be enforced if necessary, even if the employer refuses to pay. Precise wording is essential. Consult our attorneys and secure the best possible severance package without financial loss. We will help you get the most out of your situation.