Reviewing a termination agreement

Dismissal protection and withdrawal in a termination agreement

A termination agreement is an arrangement between employer and employee to end the employment relationship. § 623 BGB requires written form for this and excludes electronic form, so a promise made by email does not end the employment relationship. As long as no signature exists, every point remains negotiable.

An unfair dismissal claim under § 4 KSchG is directed against a dismissal. It is not available against a termination agreement, because a termination agreement is a two-sided legal transaction. By signing, you give up the court’s protection of your continued employment.

There is no right of withdrawal. The Federal Labour Court (BAG) has ruled that consent to conclude an employment termination agreement cannot be withdrawn under § 355 BGB (BAG, judgment of 7 February 2019, case 6 AZR 75/18). Anyone who wants to get out of the agreement must rely on rescission under § 123 BGB or on a breach of the duty to negotiate fairly.

Avoiding a suspension period for unemployment benefit

Anyone who ends their own employment relationship without good cause is acting contrary to the insurance scheme, and the entitlement to unemployment benefit is then suspended for the duration of a suspension period. The suspension period for giving up employment lasts twelve weeks (§ 159 paras. 1, 3 SGB III). Shorter suspension periods of six or three weeks apply only in the specific cases named there.

In addition, the overall entitlement period shrinks. For a twelve-week suspension period it is reduced by the number of suspension days, but by at least a quarter of the entitlement period that would have existed after the event triggering the suspension (§ 148 para. 1 No. 4 SGB III).

Good cause removes the suspension period. Under the Federal Employment Agency’s operational guidance on § 159 SGB III, it exists without further examination where an operational dismissal by the employer is imminent, the notice period is observed, and the severance does not exceed 0.5 months’ salary per year of employment.

This threshold follows § 1a para. 2 KSchG. A higher severance does not by itself trigger a suspension period; above the threshold, the employment agency examines whether the threatened dismissal would have been lawful.

The end date carries a second risk. If the employment relationship ends before the ordinary notice period expires and severance is paid for this, unemployment benefit is suspended until the day on which the employment relationship would have ended had the notice period been observed (§ 158 para. 1 SGB III).

Which clauses belong in a termination agreement

After you leave, the contract text alone determines which claims still exist. The points below govern money, the reference, and the timing of termination.

Clauses that secure your claims

The severance belongs in the contract as a gross amount with a due date. The end date should match the ordinary notice period, otherwise unemployment benefit is suspended under § 158 para. 1 SGB III. As the reason, the contract should name the imminent operational dismissal.

Remaining holiday, overtime, and outstanding bonus claims each need their own provision, as does release from work with continued pay. For the reference, a minimum grade can be fixed, or better still the full wording as an annex to the contract.

Clauses that carry financial risk

A blanket settlement clause declares all mutual claims settled and so also captures holiday pay, overtime compensation, and bonus payments. Exclude these items expressly.

Wording such as “at the employee’s request” or “by mutual agreement” counts against good cause within the meaning of § 159 SGB III. A post-contractual non-compete clause only binds you if the promised compensation reaches, for every year of the restriction, at least half of the contractual benefits last received (§ 74 para. 2 HGB).

Also check the confidentiality duty over the severance amount, contractual penalties for an early resignation, and repayment clauses for training costs.

After signing: rescission and invalidity

A signed termination agreement can only be undone under narrow conditions. Two routes come into consideration: rescission under § 123 BGB and a breach of the duty to negotiate fairly.

Rescission under § 123 BGB

Anyone induced to make a declaration of intent by fraudulent misrepresentation, or unlawfully by threat, can rescind the declaration under § 123 para. 1 BGB. A threat is unlawful if it involves a dismissal that a reasonable employer could not seriously have contemplated (BAG, judgment of 24 February 2022, case 6 AZR 333/21).

The second ground for rescission is fraudulent misrepresentation, for example through false statements about an imminent closure of the business.

The time limit for rescission is one year (§ 124 para. 1 BGB). For fraudulent misrepresentation it begins on discovery of the deception; for a threat, only once the coercive situation has ended (§ 124 para. 2 BGB).

Effective rescission renders the contract void from the outset (§ 142 para. 1 BGB). The employment relationship then continues.

The duty to negotiate fairly under BAG case 6 AZR 75/18

A termination agreement is invalid if it was concluded in breach of the duty to negotiate fairly (BAG, judgment of 7 February 2019, case 6 AZR 75/18). The duty follows as an ancillary obligation from entering into contract negotiations.

It is breached where one side creates a state of psychological pressure that significantly impairs the other party’s free and considered decision. In the case decided, the employer had concluded the agreement in the flat of the employee, who was ill; the BAG referred the case back for examination of whether the employer had exploited her illness-related weakness.

A lack of time to consider is not, by itself, enough. An employer does not negotiate unfairly merely by presenting the termination agreement for immediate acceptance only (BAG, judgment of 24 February 2022, case 6 AZR 333/21).

Where a breach exists, the employer owes damages under § 249 para. 1 BGB and must restore the situation that would exist without the breach of duty. The employment relationship then continues.

Further information on employment law

These topics may also be of interest:

• Severance pay after dismissal
• Unfair dismissal claim
• Challenging an employment reference