How much severance pay upon termination in Germany ATM?

When layoffs occur in Germany, employers often offer their employees severance pay. There is not necessarily a legal right for this; In most cases, however, the employer will pay a severance payment. Either “voluntarily”, often only after a corresponding court decision. The short answer to the question of how much severance pay German companies typically offer in the event of termination: The average severance payment in Germany was around EUR 12,000 a few years ago. But this number doesn’t mean anything. The amount of the individual severance payment depends on so many factors that a general statement is not possible.

How much severance pay do you get?

The amount of severance pay in the event of termination by the employer depends on various circumstances. For example, your age and length of service and any special protection against dismissal (“non-terminable contracts”, such as for works council members, disabled people, pregnant employees, or folks on “parental leave”). In addition, the amount also depends on the quality of the termination, i.e. the existence of reasons for termination or compliance with the formal requirements for termination. In addition to these “legal” differences, there are also numerous practical differences. On average, larger companies pay more than three times as much as small companies (see below).

Legal right to severance pay only in exceptional circumstances

Even though in most cases a severance payment is paid by the employer, there is a general legal right to a severance payment only in special cases. The most important is the severance payment claim in the event of termination for “operational reasons”. According to the Dismissal Protection Act (KSchG), employees can have a right for a one-off payment under certain conditions. The amount of the severance payment is then exactly half a month’s earnings for each year of the employment relationship (§ 1a (2) KSchG). In this case, too, the claim for severance pay only arises if:

• The employee does not file a lawsuit and
• The employer has indicated in his notice of termination that he is entitled to waive the lawsuit.

Based on our experience, the severance pay of ½ of the monthly earnings per year of employment is rather the “lower bound”. Often, a settlement would have been significantly higher if a lawsuit had been filed and a court settlement concluded.

Factors influencing the amount of severance pay

The amount of severance pay in the event of termination by the employer depends on various circumstances. There are a few “rules of thumb” for a rough estimate of the severance payment amount:

• The most widespread is a formula according to which the “standard severance payment” is half a month’s salary per year of employment. Then an employee with 10 years employmennt who last earned €3,000 per month would receive a severance payment of €15,000 (i.e. 0.5 * €3,000 * 10 years). The three central variables are the factor (0.5), the amount of the last monthly salary paid (“gross”) and the length of employment in the company (in years).

• Another “rule of thumb” takes age more into account. The factor of 0.5 can be 0.75 or 1.0. In the example above, the 52-year-old employee would then receive a severance payment of €30,000 (i.e. 1.0 * €3,000 * 10 years).

In practice, it not only depends on the employee’s circumstances but also on numerous other influencing factors, such as:

• Labor Court District

• Company size

• Special protection against dismissal (“non-terminability”, e.g. for works councils, severely disabled people, pregnant employees or those on parental leave).

• The effectiveness and “quality” of the termination. In other words, the existence of reasons for termination or compliance with the formal requirements for termination.

What is currently “on offer”?

Again: A general answer is not possible. According to our partner lawyers, the differences between industries and regions are too big. In addition, the life cycle phase of the company may also be important. For example, we have seen severance offers with factors of up to 1.5 in startups and scaleups. In other words, three times higher than the legal entitlement of 0.5 gross monthly salary per year of employment. We also see factors of 1.5 in other, “older” industries. In some cases, severance payments amounting to several hundred thousand euros are offered and paid. For example, when operational dismissals are otherwise legally not possible.

A prominent example in recent months was BAYER SE, which paid out up to 52.5 months’ salary to German employees as part of a severance payment program. The high level of severance pay comes about because BAYER wants to cut jobs, although redundancies for operational reasons at BAYER in Germany are not legal until the end of 2026. This can quickly add up to half a million in severance pay for senior employees who have been with the company for a long time. According to Handelsblatt, the amount of the severance payment results from a factor of 1.5 and various “social allowances”, for example for married people.

The average severance pay in Germany a few years ago was around EUR 12,000¹:

How to get your severance payout

In practice, you can get compensation either out of court, for example through a termination agreement. Or in court, which usually means: through a settlement before the labor court. In the so-called conciliation hearing, the court often suggests a settlement. This is usually beneficial for both parties – employee and employer.

First of all, the employer must of course be prepared to even want to negotiate termination. Of course, this is difficult to influence because it depends on the industry, the economy and many personal factors. How much severance pay the employee receives also depends on whether they are satisfied with the first offer or sue against the termination. You can find further information on the topic in our blog article on the severance payment amount.

1. IW Köln. (11. Februar, 2009). Durchschnittliche Abfindungshöhe im Kündigungsfall in Euro nach Betriebsgröße [Graph]. In Statista. Zugriff am 31. März 2024, von https://de.statista.com/statistik/daten/studie/3842/umfrage/durchschnittliche-abfindungshoehe-im-fall-der-kuendigung-nach-betriebsgroesse/ ↩︎