Clients often ask me how much severance pay they could get. The answer is: “It depends.”
First of all, it is important to know that, with very few exceptions, there is under German law no general entitlement of the employee to a severance payment or any binding formulas as to how the severance payment is to be calculated. In principle, a judge cannot simply determine a severance payment at his own discretion. Rather, the parties usually negotiate a severance payment when the employer wants to get rid of an employee and cannot find a reason that could hold up in court. This presupposes that the Dismissal Protection Act (“Kündigungsschutzgesetz”) applies. I have also negotiated sensationally high severance payments outside the scope of the Dismissal Protection Act, but this is much more difficult than if the Dismissal Protection Act applies. Compensation negotiations are not quite a bazaar, but they are quite comparable to one, although there are important factors that play a crucial role in the negotiations. These are: age of the employee, i.e. how difficult it will be for him/her on the labor market to find another equivalent job, length of service, established severe disability, number of dependents (i.e. children, wife, etc.), etc. All of these factors come into play into the amount of the severance payment, i.e. the older someone is, the more maintenance they have to pay, the longer they have worked in the employer’s company and especially if they are severely disabled, this drives up the severance payment. However, “soft” factors can also play a significant role in the amount of the severance payment, e.g. that the employer wants to avoid a public court hearing. This can have many reasons, e.g. loss of image. In principle, the employee cannot, with exceptions, sue for severance payment. If he has received a dismissal, he can only file a claim for protection against dismissal if the employer does not want to reach an agreement out of court. Here it is imperative to observe the 21 day deadline (see Sections 4, 7 KSchG) for filing a dismissal protection action! If the parties do not reach an agreement to terminate the employment relationship by mutual consent (although this is usually the case, at least with the judge’s moderation), the court decides whether the termination was effective or not. Judges usually give an indication of how they assess the prospects of the lawsuit during the conciliation hearing. If the Dismissal Protection Act applies, these are usually good.Think of the severance negotiation like this: You have a job. You offer this to your employer to buy back. If you ask too much, the employer could wave you off and ask you to return to work. Very few employees really want that, as the tablecloth is often cut when they are fired. Employers generally don’t want this either, because then word gets around within the company that an employee has successfully „claimed back“. But there is of course the risk that the employer will leave the negotiating table and resort to this option if the requested severance payment is too high. On the other hand, the employer has the so-called risk of default in acceptance if he does not reach an amicable termination of the employment relationship, e.g. because he offers too little. If the employee ultimately wins the unfair dismissal lawsuit, he must pay the salary that the employee would have earned in the meantime, less what he has earned or could have earned otherwise. Here, however, the courts are tightening the reins for employees. He must prove that he has seriously tried to find another job. Details of this are disputed.There are often several rounds of “severance pay” negotiations until the parties reach an agreement. How long this poker lasts also depends on whether the employee has found another job in the meantime or not. As the lawyers say: “It depends”.