Severance pay in labor law

Despite the fact that, except in very exceptional cases, there is no legal right to receive severance pay after an employee's termination by the employer, many employers are nevertheless willing to pay it to the employee. This is because in the vast majority of cases, the receipt of a severance payment is the result of complex and time-consuming negotiations between the employee and the employer. However, there are also special cases in which the employee is actually entitled to receive a severance payment. These are, for example, "disadvantage compensation settlements", "social plan settlements", settlements from severance agreements or even settlements pursuant to § Section 1a of the KSchG (Dismissal Protection Act). It should be noted, however, that contractually agreed severance and compensation claims mainly occur in the case of contracts with senior executives.

But why pay employers compensation when they are not obliged to pay it? The explanation is quite simple.

In the event of an employee's termination by the employer, the employer shall always have the option of a Legal action against dismissal at the competent labor court, as long as the preclusion period is observed. In the context of this legal dispute, the employer also incurs costs, as it is usually represented by a lawyer, as well as court costs, and the competent court also examines and decides whether the termination of the employee was lawful or not. The employer also runs the risk of losing the case, because if the employer loses the case, the employment relationship between the employer and the employee is deemed never to have ended, and the employer must therefore also pay wages/salaries for this period.

Since such Litigation against dismissal can drag on for months or even years in some cases, this is an economic risk for employers/entrepreneurs that should not be underestimated. For this reason, both sides, employee and employer, are best advised to reach a settlement as quickly as possible, ideally out of court, but at the latest in court. This also saves time for the courts.

So, as already mentioned, the economic risk associated with a Dismissal protection proceedings for the employer by paying the dismissed employee a severance payment as quickly as possible or reaching an agreement on this.

Excerpt from termination for operational reasons in connection with severance pay § Section 1a of the KSchG (Dismissal Protection Act):

"(1) If the employer terminates the employment relationship due to urgent operational requirements in accordance with Section 1 (2) sentence 1 and the employee does not bring an action for a declaration that the employment relationship has not been terminated as a result of the termination by the expiry of the period of notice in accordance with Section 4 sentence 1, the employee shall be entitled to severance pay upon expiry of the period of notice. The claim requires the employer's indication in the notice of termination that the termination is based on urgent operational requirements and that the employee can claim severance pay if the period for bringing an action expires.

(2) The amount of the severance payment shall be 0.5 months' earnings for each year of the existence of the employment relationship. § Section 10 (3) shall apply mutatis mutandis. In determining the duration of the employment relationship, a period of more than six months shall be rounded up to a full year."