Termination agreement instead of dismissal: pros and cons

This article describes the legal position under German law.

I. When the employer „offers“ a termination agreement

Many employees experience it like this: instead of a dismissal, the employer suddenly puts a termination agreement (Aufhebungsvertrag) on the table – often with the words „this is better for you than a dismissal“. It frequently happens under pressure, in a surprise meeting or after critical feedback. Caught off guard, people often sign too quickly without fully grasping the consequences for unemployment benefit, severance and their reference.

A termination agreement looks at first like a „fair“ or „amicable“ solution. In reality it usually replaces a dismissal – except that the employee actively participates and often gives up rights in doing so. All the more reason to check carefully before signing what is being agreed and what the alternatives are.

II. The basic principle: voluntariness, suspension-period risk, room to shape terms

Legally, a termination agreement always requires voluntariness. Neither side can be forced to sign. In practice, though, psychological pressure is common – hints that you would „otherwise face summary dismissal“, „worse terms“ or „a poor reference“. This is exactly where it helps to stay calm and remember: without your signature there is no agreement.

A central issue is the risk of a suspension period (Sperrzeit) on unemployment benefit. The employment agency can impose a suspension – usually twelve weeks – if it considers that you contributed to ending the employment relationship without good cause. That can mean several weeks without unemployment benefit, or a shorter entitlement period.

On the other hand, a termination agreement creates room to shape terms: the end date, severance, garden leave, bonuses, remaining holiday and the content of your reference can all be negotiated and set out in detail.

III. Common mistakes

1. Signing immediately
   Many employees sign in the meeting itself – out of surprise, loyalty or fear of a „worse alternative“. In doing so they give up time to think, advice and room to negotiate.
2. Ignoring the suspension-period risk
   Often the question is never raised, or dismissed with „that will sort itself out“. For financial planning a suspension period can have serious consequences, especially where no new job follows seamlessly. In many cases that means three months without income.
3. Overlooking waiver clauses
   Many agreements contain wording such as „on performance of this agreement, all claims arising from the employment relationship and its termination are settled“. Such clauses can mean you give up bonuses, profit shares, commission, variable pay, overtime pay or remaining holiday – without realising it at the moment of signing.
4. Vague or unfavourable reference provisions
   If the reference is only mentioned vaguely („a favourable qualified reference“), you have little to rely on in a dispute. Concrete wording is better – or at least a clear commitment on the assessment of performance and conduct.

IV. How to proceed: time, review, alternatives, renegotiation

1. Ask for time to consider
   You are not obliged to sign in the meeting. Ask for the agreement to review and take at least one or two days. Reputable employers accept this.
2. Check the clauses and figures carefully
   Read the agreement line by line. Look at the end date, the severance amount, provisions on bonuses, variable pay, remaining holiday, garden leave, company car, non-compete clauses and waiver clauses. Check that everything promised verbally also appears in writing.
3. Consider the alternative: dismissal by the employer
   Think about how your situation would look if the employer had to dismiss you instead. A dismissal can be challenged, severance can often be negotiated in unfair dismissal proceedings, and the suspension-period risk may be lower if you do not actively participate in ending the relationship.
4. Get expert advice
   A short review by an employment lawyer can clarify whether the terms are fair, whether suspension-period risks can be minimised and where there is still room to negotiate.
5. Renegotiate before signing
   A termination agreement is not a take-it-or-leave-it document. The severance amount, the wording of the reference, the period of garden leave, outplacement support and the treatment of bonuses and holiday are all negotiable. Often a few adjustments produce a markedly better outcome.

V. Have the agreement reviewed before you sign

A termination agreement can be a sensible solution – if you already have a new position lined up, or want an orderly, low-conflict exit. At the same time, unclear clauses, hidden waivers and the risk of a suspension period carry real disadvantages.

Before you sign, have the agreement reviewed. A short consultation can clarify whether the terms are balanced, how suspension-period risks can be reduced, and whether a dismissal or renegotiation would in fact serve you better.

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Andreas Schruff is a partner at the law firm KBS Legal in Munich and a cooperation partner of abfindungshero.de