Termination and Severance Agreements under German Labor Law – What You Need to Know

Losing a job is always a significant event—legally, financially, and personally. In Germany, labor law offers employees strong protection against unfair dismissal, especially if the Protection Against Unfair Dismissal Act (Kündigungsschutzgesetz – KSchG) applies. However, the rules are complex and mistakes can be costly. This article provides an overview of dismissal, severance and settlement agreements, and the costs involved in taking legal action—especially if you are offered an Aufhebungsvertrag (severance agreement).

1. When Does the Kündigungsschutzgesetz (KSchG) Apply?

The KSchG offers significant protection but only under these two conditions:

• The employment has lasted more than six months without interruption, and
• The employer regularly employs more than 10 full-time employees (excluding trainees).

If the KSchG applies, an employer can only dismiss an employee with a socially justified reason, which falls into one of the following categories:

• Operational reasons (e.g., downsizing, restructuring)
• Conduct-related reasons (e.g., repeated tardiness, insubordination)
• Personal reasons (e.g., long-term illness)

If the KSchG does not apply, a dismissal can be easier—but even then, general civil rights and anti-discrimination laws (AGG) still provide some protection.

2. Types of Dismissal

Ordinary Termination

This is a dismissal with notice, typically following the statutory or contractual notice period. The longer the employment, the longer the notice period.

Extraordinary Termination

This is a termination without notice, only allowed in extreme cases such as theft or violence. The employer must issue the dismissal within two weeks after learning about the misconduct. Courts interpret these cases narrowly.

3. Kündigungsschutzklage (Dismissal Protection Lawsuit)

If you believe the dismissal is invalid, you must file a Kündigungsschutzklage within three weeks of receiving the termination notice. If you miss this deadline, the dismissal becomes legally binding—even if it was unlawful.

The court will then examine whether the dismissal was legally justified. In many cases, the process ends in a settlement, often including a severance payment.

4. Severance: No Legal Right, But Often Negotiated

There is no general legal entitlement to severance under German law. Severance is usually:

• Negotiated in a court settlement
• Included in a social compensation plan (for mass layoffs)
• Offered under § 1a KSchG as a fixed amount (0.5 monthly salary per year of employment)

Most severance payments are the result of individual negotiation. This is why involving an employment lawyer often leads to significantly higher outcomes. A lawyer can assess the strength of your case and negotiate effectively with the employer.

5. Aufhebungsvertrag vs. Abwicklungsvertrag

Aufhebungsvertrag (Severance Agreement)

This is a mutual agreement to terminate the employment. It is not a dismissal, and it avoids notice periods and court proceedings. However, it can trigger a penalty from the Job Center: a 12-week waiting period (Sperrzeit) for unemployment benefits if the employee is seen as having contributed to their own unemployment.

Typical contents include:

• Termination date
• Severance payment
• Garden leave (Freistellung)
• Final payment of vacation/overtime
• Job reference
• Confidentiality clauses

Once signed, such agreements are legally binding and difficult to contest. There is no withdrawal period. That’s why legal advice is strongly recommended.

Abwicklungsvertrag (Settlement Agreement)

This contract is signed after a dismissal and regulates its consequences. It does not cause the termination. Therefore, it does not lead to a Sperrzeit.

6. Legal Fees: What Does a Kündigungsschutzklage Cost?

In German labor law, each party pays their own legal fees in the first court instance—even if they win. This is often surprising to employees.

Let’s look at an example:

• Gross monthly salary: €3,000
• Disputed value (Streitwert): 3 × €3,000 = €9,000
• Legal fees (for each party, net of VAT): approx. €1,130
• Court fees: approx. €500 (often waived if case settles)

So if you sue and the case settles, you still have to pay your own lawyer—even if you win a severance of €6,000 or more.

Fee Models

• Statutory Fees: Calculated based on Streitwert
• Hourly Agreements: Allowed and common in complex cases
• Success-Based Fees: Generally not allowed in Germany. Only possible in exceptional cases and only in strict legal borders (§ 4a RVG). This is very rare.

Tip: A legal expenses insurance (Rechtsschutzversicherung) often covers all costs. If you’re unsure, you can call the free legal hotline to clarify.

7. Why Legal Advice Matters

Whether you’re facing a dismissal or being asked to sign a severance agreement: do not act without legal advice. Missteps—like missing a deadline or triggering a Sperrzeit—can be expensive.

Lawyers can:

• Prevent procedural mistakes
• Improve severance terms
• Draft and review agreements
• Represent you in court
• Avoid benefit penalties

📞 Need help? Call the free legal hotline at abfindung4u.de/hotline.

English-speaking support is available.

Final Note

German labor law offers employees substantial protection, but it requires fast and informed action. There is no one-size-fits-all solution. Because severance is rarely automatic and mistakes can be costly, legal representation pays off—especially in negotiations or lawsuits.

If you are affected by dismissal or have questions about a severance agreement, contact the free nationwide legal hotline of Abfindung4u. You’ll speak directly to a qualified employment lawyer—and if you prefer, the conversation can be held in English.

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