Termination agreement – what to consider?
Termination for operational reasons means: social selection, consulting the works council, months-long notice periods – and in the end the case may still end up before the labor court. With a termination for conduct-related reasons, the HR department has to deal with formal warnings, the burden of proof and risks.
For many companies, the termination agreement is therefore the more pragmatic route: no dispute, clear terms, a clean conclusion.
The most important points at a glance
- Voluntariness:
A termination agreement only works if both sides agree. You cannot force anyone to sign one. - Written form:
Without a genuine signature on paper, the agreement is worthless. Emails or PDFs are not sufficient. - Suspension period:
Inform employees that, in the case of a termination agreement, the employment agency often suspends unemployment benefit for 12 weeks. - Severance pay:
Severance pay is not a must, but in reality it is the most important argument for obtaining consent. - Legal certainty:
A well-drafted agreement prevents later lawsuits before the labor court.
What is a termination agreement?
A termination agreement is basically a perfectly normal contract in which you and your employee decide: “We will end our working relationship at a specific point in time.”
Unlike a dismissal, this is not a unilateral declaration. You don’t have to dismiss anyone, and the other side doesn’t have to resign. Instead, you jointly agree on the end.
The big advantage for you as an employer lies in legal certainty. When employees sign the agreement, they generally waive their right to file an unfair dismissal lawsuit. That is simple and saves you time and potentially high court costs.
In addition, you are not bound by statutory or contractual notice periods. You can freely choose the end date – theoretically even today.
When is a termination agreement necessary?
HR departments mostly use the termination agreement when an ordinary dismissal would be difficult or lengthy.
When the chemistry is no longer right
Often there is no hard reason for a conduct-related dismissal. The person is punctual and doesn’t make serious mistakes, but no longer fits into the team on a personal level or blocks processes.
In that case, the termination agreement is an elegant way to part ways without a mudslinging match.
During restructuring
When you merge departments or close locations, positions are eliminated.
Before you have to carry out social selections and issue dismissals for operational reasons, which often prove shaky in court, the termination agreement offers a clean solution. You offer those affected severance pay, and they leave the company voluntarily.
To avoid lengthy proceedings
A dismissal often brings a long tail of bureaucracy with it.
You have to consult the works council, check deadlines and, in the case of special protection against dismissal (for example for severe disability or pregnancy), involve the authorities. A termination agreement can shortcut these hurdles, provided the employee plays along.
Contents of a termination agreement
To ensure that the agreement is not contested later, you should clearly regulate the most important points. A standard template is often not enough, as every case has its own particularities.
End date and reason
Specify exactly on which day the employment relationship ends. You don’t have to state a reason in the agreement, but for the employment agency it is often helpful if it says that the separation is taking place to avoid a dismissal for operational reasons. Under certain circumstances, this can prevent the suspension period for unemployment benefit.
Severance pay
Since employees give up their rights (and often immediate receipt of unemployment benefit) by signing, they expect compensation.
| Factor | Usual arrangement |
| Amount of severance pay | Often 0.5 gross monthly salaries per year of employment. |
| Due date | Usually with the final payroll. |
| Taxes | Severance pay is subject to income tax but exempt from social security contributions. |
Garden leave and vacation entitlements
Do you want the person to work until the last day? In most cases that doesn’t make sense.
Specify in the agreement from when you will irrevocably release the employee from work. Also clarify whether any remaining vacation days are compensated by the release from work or whether you will pay them out.
Company car, laptop and cell phone
Don’t forget the hardware. By when do the company car or smartphone have to be returned? Can the person perhaps take over the phone for private use?
Record such details to prevent later discussions.
Reference letter and references
Avoid disputes about the wording in the employment reference letter (Arbeitszeugnis). In the termination agreement, you can already specify the grade (e.g. “always to our complete satisfaction”) or even attach the complete text as an annex. This takes the pressure out of the process.
Termination agreement: the legal framework
From a legal point of view, you are moving on terrain that follows strict rules. A small mistake can render the entire agreement void.
The written form requirement under Section 623 BGB
Section 623 of the German Civil Code (Bürgerliches Gesetzbuch, BGB) contains the most important rule: a termination agreement must be signed on paper. An email, a scanned signature or a digital tool without a qualified electronic signature is not sufficient. You and your employee must both sign the original document with a pen.
The employer’s duty to inform
You don’t have to give employees legal advice, but you should point out the consequences. The looming suspension period for unemployment benefit in particular is a sore point. If you make false promises here (“Nothing will happen”), you risk claims for damages.
Give employees time to think it over. An agreement signed in the office under time pressure (“Sign now or I’ll dismiss you without notice”) rarely holds up in court. The requirement of fair negotiation is crucial here.
The notice period for a termination agreement
Unlike a dismissal, a termination agreement has no statutory notice period that you must observe. Theoretically, you can end the employment relationship “by mutual agreement with immediate effect”.
But be careful: if you fall massively short of the notice period, the Federal Employment Agency (Agentur für Arbeit) takes a particularly close look. This almost always leads to the employee’s benefits being suspended.
How to conduct the conversation successfully
A termination agreement is a sensitive topic. Don’t just blurt it out. Prepare the conversation well and choose a quiet place.
- Get straight to the point:
Explain objectively why you want to end the working relationship. Avoid accusations. - Present the offer:
Point out the advantages of the agreement (severance pay, a good reference letter, a quick separation without dispute). - Allow time to think it over:
Let the person take the draft home. Two to three days is appropriate. - Don’t apply pressure:
Don’t threaten dismissal if you don’t have sound reasons for it. This comes across as unprofessional and makes the agreement contestable.
Frequently asked questions about termination agreements
Can a signed termination agreement be revoked?
There is no statutory right of withdrawal here as there is with online shopping. Once signed, the agreement is binding. The only exceptions are cases of fraudulent misrepresentation or threats, which are difficult to prove.
What happens to the company pension plan?
Entitlements from a company pension plan remain in place. Check in each individual case whether the vested rights are already non-forfeitable. The termination agreement should at least briefly mention how the company pension plan (bAV) will be handled.
Do I have to inform the works council?
In the case of a termination agreement, the works council has no direct right of co-determination as it does with a dismissal. Nevertheless, it is advisable to inform the works council about planned personnel measures in order to maintain a good working atmosphere.
How is severance pay calculated?
There is no legal entitlement to a specific amount. In practice, the formula “0.5 monthly salaries times years of service” has become established. If the grounds for dismissal are difficult, the amount may also be higher to increase the incentive to sign.
How Teamhero supports you in separation processes
A termination agreement means a lot of background work for the HR department. You have to create documents, keep an eye on deadlines and coordinate the return of hardware. This is where Teamhero’s software helps you.
In Teamhero, you store legally compliant templates for termination agreements as document templates. With just a few clicks, you pull the relevant employee data directly from the digital personnel file into the agreement. This saves you from manually typing in salaries, start dates or addresses.
Teamhero also supports you in the offboarding process. You create task lists for IT (blocking accounts), accounting (calculating severance pay) and facility management (returning keys).
This guarantees that no detail is forgotten and that the exit runs as professionally as the onboarding. You always keep track of where each person stands in the separation process, without drowning in Excel lists.
Termination agreement: how to get it right
A termination agreement can help end employment relationships cleanly and without court dates. However, it requires tact and careful legal preparation.
Pay meticulous attention to the written form and communicate openly about the consequences for unemployment benefit.
If you make the process fair and offer appropriate severance pay, this route is often the less stressful solution for both sides. Use modern HR tools to minimize the paperwork so you can focus fully on the conversation and the human side of the separation.
Would you like to find out how you can digitize your offboarding processes with Teamhero and make them legally compliant? Feel free to schedule an appointment for a live demo with our experts.
