Severance after dismissal without notice in Germany

For most employees, a termination without notice comes as a shock. The employment relationship ends from one day to the next, with no notice period at all. Salary payments stop, and in most cases you also face a suspension period (Sperrzeit) for your unemployment benefits. In this situation, you ask yourself whether a severance pay is still possible. Read on to find out the answer.

No statutory right to severance pay

There is no statutory (or automatic) right to severance pay after a summary dismissal (außerordentliche Kündigung).

But an employee and employer can negotiate and agree on severance pay on a voluntary basis, either in a termination agreement (Aufhebungsvertrag) or in a court settlement.

Why do employers pay severance even after a termination without notice?

Although there is no statutory right to severance pay, employers often pay it voluntarily. The reason is simple: in court, the employer has to prove that there was a serious reason (wichtiger Grund), usually serious misconduct. Further, the continuation of the employment must be unreasonable up to the end of the ordinary notice period. On top of that, numerous formal and substantive requirements have to be met.

Typical risks for the employer are:

• The alleged breach of duty is not serious enough.
• There was no prior formal warning.
• The employer cannot prove the facts.
• The balancing of interests is in the employee’s favour.
• The employer missed the two-week deadline for the dismissal.
• The employer did not involve the works council.

If the employer cannot prove that the requirements for a termination without notice were met, the summary dismissal is invalid. That means:

• The employment relationship continues.
• The employer has to continue employing the employee.
• The employer has to pay the salary in retrospect from the date of the summary dismissal (Annahmeverzugslohn). The longer the dispute lasts, the greater the financial risk.

This is exactly what many employers want to avoid. Instead of fighting a long and expensive case to the end, they often agree on a settlement before or during an unfair dismissal proceedings. The result is that the employment relationship ends, the employee gives up the right to continued employment, and receives in return a severance pay.

When are the chances of severance particularly good?

The amount of severance pay depends on the employer’s litigation risk. The greater the risk, the better the chances of a high severance payment. Here are some examples:

1. The employer cannot reliably prove the employee’s misconduct

The employer has to provide specific proof of the alleged misconduct. Example: theft, expense fraud or faking incapacity for work. If the employer cannot do so in court, the litigation risk increases and the severance pay goes up.

2. A required formal warning is missing

Not every breach of duty immediately justifies a termination without notice. In many cases the employer first has to issue a formal warning (Abmahnung). Otherwise the immediate termination is invalid. Both the litigation risk and the severance pay increase.

3. There are procedural errors

The employer must comply with the two-week deadline and must involve the works council. If there are mistakes, the termination without notice is invalid. The litigation risk is high.

4. The balancing of interests is in the employee’s favour

Long service, a previously unblemished record, maintenance obligations, age or a one-off lapse can all make immediate termination disproportionate. The termination without notice is then invalid.

5. The employer wants to end the dispute quickly

Even where the legal position is not entirely clear, employers are often willing to pay a severance pay, just to avoid public disputes or lengthy proceedings.

Amount of severance pay after a termination without notice

There is no fixed statutory amount. The rule of thumb is 0.5 gross monthly salaries per year of service. But this is only a rough practical guide and not an automatic entitlement.

What matters is the litigation risk, the financial situation of the employer and the employee’s personal data. Further, the ability to negotiate is as important. The most important factors are:

• Length of service
• Gross monthly salary
• Prospects of success of an unfair dismissal claim
• Time and cost risk of the proceedings
• Negotiating strategy on both sides
• The employer’s interest in a quick agreement

Severance pay and the unfair dismissal claim

Anyone hoping for severance after a termination without notice needs to know that without pressure on the employer there is usually no offer at all. An unfair dismissal claim (Kündigungsschutzklage) is the most effective way to create that pressure.

The employer faces the risk that he has to prove all the requirements for the termination without notice. The risk is exactly what motivates settlement talks and a severance pay.

Employees must file an unfair dismissal claim in the Labour Court within three-weeks after having received the dismissal, if they want to challenge it. After that, the termination is deemed valid, even if it was obviously invalid.

Anyone who does not react at all, or waits too long, loses the chance of a severance payment.

The procedure of an unfair dismissal claim

In the daily practice, proceedings usually run like this:

1. The employer issues a termination without notice.
2. The employee files an unfair dismissal claim within the 3 weeks deadline.
3. At the conciliation hearing (Gütetermin) before the Labour Court, the parties discuss the prospects of success and all the risks involved.
4. Both sides negotiate an amicable end to the employment relationship.
5. The parties can reach a voluntary settlement, including severance pay, a possible termination date in terms of the agreed notice period, a reference letter and similar points.
6. If the parties do not reach an agreement, the Labour Court decides the case through judgment at a further hearing (Kammertermin).

Severance pay and the suspension period for unemployment benefit

Apart from the severance pay, unemployment benefits are often the second major concern. If an employee loses the job based on a misconduct, he must face a suspension period (Sperrzeit) on his unemployment benefits.¹ After a termination without notice, the Federal Employment Agency examines the facts closely to establish whether the allegation was justified and whether the employee caused the unemployment.

In case of a suspension period, the employee only receives the unemployment benefits up to 12 weeks later. But far more important, is that the entitlement to unemployment benefit is reduced by at least the length of the suspension period. With a suspension period of twelve weeks, the entitlement period is shortened by at least a quarter. 

Payment of a severance pay generally has no effect on whether a suspension period is imposed, as long as the agreed ordinary notice period was observed in the termination agreement or the court settlement.² Exception: if the ordinary notice period is not observed in the termination agreement, or hidden salary payments are built into the severance, entitlement to unemployment benefit is suspended for that period.

This is why the exact wording and structure of the termination agreement is important. Unfavorable wording can cause considerable problems with the Federal Employment Agency. Legal advice is strongly recommended here.

Important: after a termination without notice, employees have to register as seeking work or unemployed immediately.

FAQ: severance pay after a termination without notice

1. Section 159 Social Security Code III, SGB III ↩︎
2. Section 158 Social Security Code III, SGB III ↩︎