- Severance pay is not automatically payable upon termination of employment. Severance pay is, in principle, a voluntary payment made by the employer.
- Section 1a of the Employment Protection Act (KSchG) provides for a statutory severance payment only in a specific special case of redundancy. In such cases, it amounts to 0.5 months’ salary per year of service.
- The more difficult it is for the employer to validly terminate your employment, the stronger your negotiating position is likely to be. Terminations are often legally contestable.
- Our employment lawyers will assess whether a severance payment is realistically enforceable in your situation.
Specialist solicitor in employment law
With over 15 years’ experience in employment law
Are you automatically entitled to severance pay if you are made redundant?
No. You do not automatically receive a severance payment when your contract is terminated. This is precisely where one of the most common misconceptions lies. A severance payment is, in principle, a voluntary gesture on the part of the employer.
In practical terms, this means that simply because your employer terminates your contract, you do not automatically have a right to payment. The crucial factor is therefore not the termination itself, but the strength of your position following the termination.
When a severance payment is more likely to be offered upon dismissal
A severance payment is more likely to be offered, particularly if the employer wishes to avoid a risk. This is often the case when it is unclear whether the dismissal would stand up in court. Under certain conditions, employees are generally protected against unfair dismissal. It is precisely this that often creates room for negotiation. Put simply:
- If the employer cannot simply dismiss you, the chances of a severance payment often increase
- If a dismissal appears legally vulnerable, the willingness to reach a settlement often increases
- If the employer wants planning certainty quickly, this creates additional pressure on their side
A severance payment is therefore often not a gift, but the price for a quick and secure termination.
The most important exception: when you are actually entitled to compensation following dismissal
Many people ask themselves: Am I even entitled to severance pay following redundancy? The honest answer is: there is a clear legal provision only in one very specific exceptional case. This special case concerns redundancy for operational reasons. The employer may offer in the notice of dismissal that you will receive a severance payment if you do not bring an action for unfair dismissal. If, on the other hand, you decide to challenge the dismissal, you are entitled to a severance payment. As a rough guide, this amounts to around half a month’s salary per year of service.
However, it is important to note: this is not a standard case. This rule only applies if the dismissal is for operational reasons or if the employer explicitly makes the offer in the notice of dismissal. In all other cases, there is no automatic entitlement to a severance payment. Many people confuse this specific exception with a general rule. This often leads to false expectations.
In which cases is a severance payment more likely to be offered?
A severance payment often comes into play when an employer terminates an employee’s contract whilst seeking to avoid a protracted dispute. In practice, this often applies to situations where the dismissal could be challenged or where the employer’s position is uncertain. General protection against unfair dismissal and the possibility of bringing an unfair dismissal claim are precisely the factors that can create pressure in such cases.
For the layperson, this can be summarised as follows:
- The more uncertain the dismissal appears, the more likely it is that money will be discussed
- The clearer the employer’s advantage, the more difficult it usually becomes
- The sooner the employer wants the matter settled, the more attractive a settlement often becomes for them
“A severance payment is rarely granted automatically, but almost always depends on tactics and timing: The more vulnerable the dismissal is (errors regarding grounds, social selection, works council, notice periods, special protection against dismissal), the higher the risk for the employer – and the greater their willingness to pay for a quick, quiet settlement.
Anyone who makes use of the three-week deadline for bringing an action for unfair dismissal – thereby credibly demonstrating that they are prepared to assert their rights – has, in practice, a much better chance of negotiating an above-average severance payment than someone who remains ‘peaceful’ and hopes for a fair offer.”
What determines the amount of the severance payment
The amount does not depend solely on your salary and length of service. Whilst these two factors play a role, they are not the only deciding factors. What matters most is the strength of your negotiating position and the extent to which your employer is keen to reach a swift settlement. The statutory figure of 0.5 months’ salary per year of service set out in Section 1a of the Employment Protection Act (KSchG) is therefore often only a rough guide, if the provision applies at all.
Key questions to ask are:
- How long have you been with the company?
- How much is your salary
- How vulnerable is the dismissal
- How urgently does the employer wish to terminate the employment
- Are there any other outstanding issues such as leave of absence, a reference or bonuses
If you only look at a standard formula, you often assess your own situation too imprecisely.
Should you negotiate a severance payment immediately after being made redundant?
Don’t act rashly. First, you need an expert to carry out a detailed assessment of your negotiating position. This will determine whether a severance payment is realistic and what the likely scale of such a payment might be. If you are protected against unfair dismissal and the dismissal does not appear to be valid at first glance, this often significantly improves your starting position.
You should be particularly cautious if:
- the employer demands a quick solution straight away
- the dismissal does not appear entirely above board at first glance
- a settlement agreement is offered at the same time
- you have not yet checked the implications for your unemployment benefits
Often, it is not the first impression that counts, but the legal classification.
Common mistakes made after being made redundant
In practice, the same mistakes crop up time and again:
- You assume that you are automatically entitled to money
- You treat the 0.5 rule as a fixed rule
- You underestimate how strong or weak your own position is
- You focus only on the severance pay and not on the overall package
- You think too late about the impact on your unemployment benefit
The Federal Employment Agency expressly points out that severance pay, dismissal and leave of absence can affect unemployment benefits. A good severance package is therefore never just a figure, but always part of a broader overall assessment.
"An employee was given notice of dismissal without an offer of severance pay. The initial situation: no entitlement, no promise – seemingly a clear-cut case. Together with the client, we had the dismissal reviewed and filed an action for unfair dismissal within the statutory time limit. Shortly afterwards, it became apparent that the dismissal was not without risk for the employer. The result: a five-figure severance payment and a mutually agreed termination. The difference was not due to the dismissal itself, but to the decision to consistently leverage our own position."
When you should have your situation assessed
You should have your situation reviewed if:
you have received a notice of termination
it is unclear whether a severance payment is realistic
your employer also wants to reach a quick settlement
you want to know whether the 0.5 formula applies here at all
you have further questions regarding unemployment benefit, leave of absence or your reference
Our severance pay solicitors in Munich will examine your specific case and advise you on whether a severance payment is achievable and, if so, the likely amount.
"The one piece of advice that will save you the most money in practice: don’t sign a termination or settlement agreement during the initial meeting – take the documents away with you, seek legal advice, and only then make a decision. Why this is so crucial:
- These agreements are almost always drafted by the employer – with maximum security for them and minimum flexibility for you (severance pay, waiting period, outstanding entitlements, reference, non-competition clause, etc.).
- Signing too hastily often destroys your best negotiating position:
- You lose the option of bringing an unfair dismissal claim (and thus your strongest leverage).
- You risk a waiting period and reductions in your unemployment benefit.
- You may unwittingly forfeit bonuses, overtime, holiday entitlement or other entitlements.
The best spontaneous response during a discussion with your employer is therefore something along the lines of: “Thank you very much for presenting me with this offer. I will have it reviewed at my leisure and then respond in writing.” If you take this one rule to heart, you lay the groundwork for turning a ‘done deal’ redundancy situation into a strong negotiating position with an optimal severance package and a clean break. "
Do you have any questions about your situation?
Being made redundant does not automatically entitle you to a severance payment. In many cases, it is the legal classification of the situation that determines whether any financial compensation is due at all, and how much can be secured. Our specialist employment lawyers will review your case and explain the options available to you.
